Income multiples and affordability calculators.

Gone are the days when a lender used to simply calculate the mortgage loan available by multiplying your income by 4 or 5 times.  Today it's so much more intense!  For example, a lender will require to know your monthly budget spend figures, right down to every direct debit on your bank statements, including council tax, insurances, mobile phones, lottery payments and gym membership!  From these monthly outgoings, the lender will look at affordability and decide from there what mortgage amount might be available to you.  However, on the other side, not only can it be restrictive depending on your monthly outgoings, but it can also be very generous depending on what little outgoings you have!   The lender has a duty to make sure you can afford your mortgage today, as well as once rates rise and specifically being affordable over a 5 year period. 

As loans become more and more competitive, this has seen some lenders lending well in excess of an equivalent 5 x income and some even up to 7 times!   For the right loan to value, right affordability and right customer, lenders are willing to offer a little bit more.  And with rates so low, now's a good time to be exploring these options.

What I do believe is that 2017 will be a very competitive year.  There's been a lot of talk about rates increasing, but so far this year, they've actually only decreased.  With a further twenty or more applications in with the regulator for lending licences, this can only mean greater competition and good news for the end consumer.  Don't panic just yet!

However, a lot of people put changing their mortgage to the bottom of the pile or the 'to do tomorrow' list.  Of course, this keeps getting delayed behind the 'save £20 a month on broadband' or 'update the pet insurance' chores.  Yet the mortgage is the biggest debt you'll ever have and probably one of the easiest to save on.  So don't put it to the bottom of the pile.  Rates may be low now, but there's no guarantee they will stay that way. 

Rates are low and delays are across the market...

Following the recent regulatory changes across the mortgage market, specifically in the Buy to Let sector, and with rates currently so low on the Residential side, it was inevitable that delays were going to occur.  A few days can be the norm, but the reality is that some lenders are now advising of delays in excess of a month to process cases.  Yes, a month!  This really becomes an issue if the lender asks you to provide further information as when this is submitted, you will normally go back to the end of the queue!  So bear this in mind if you are in a contract race to buy your dream property and the Estate Agent is badgering you to get the survey instructed.

There have been some fantastic product launches over the last week or so, including some outstanding five year fixed rates.  One example from Santander offers a fixed rate for five years for those with a 40% deposit with a rate of just 1.89%  (APRC 2.49%), which includes a free valuation and free legal costs on remortgages.  Terms and conditions apply etc.  The market is hotting up!

We've even seen a sub 1% fixed rate for two years launched this week, again for those with a 40% deposit.  However, with all things, check behind the marketing headline.  The rate may catch your eye, but if the fees are expensive and it does not include free valuation or legals, it can prove less compelling than a slightly higher rate that includes all of those benefits. 

Some rates have been reduced for those who have had historic issues.  One example, with our friends at Kensington, allows for some historic issues over two years ago and will look at rates starting from 4.34% for those with just a 10% deposit.  

A number of lenders don't use credit scoring systems and prefer a manual approach, so don't think you cannot get a mortgage until you have tried!  Always shop around to find the best deal and always check the small print!  Naturally, I would recommend speaking to a professional who can search the whole market and advise which are the most appropriate deals available to you!

A survey is for the lender, not you!

Some weeks there is just too much news to take in and it can be difficult to assimilate and decide which to report on.  Then there are quiet weeks where nothing much seems to happen.  This week has been the latter and the mortgage market has been quieter than normal.  So, what to discuss?  Surveys!

Valuations on properties to be mortgaged come in various guises.  Every mortgage lender will require a valuation on the property to ensure the property is suitable security for their purposes.  Although, in some cases, they will not actually visit.  This is because they can often access detailed information electronically, normally called an  Automated Valuation Model (AVM).  Of course, this can prompt a borrower, who has paid a fee, to question the reasonableness of this method.  In fairness to the lenders, it is a tried and tested system and rarely proves incorrect.  They have expenses regardless of the visit and this system does have the effect of keeping prices down. 

Remember that this, fairly basic valuation is for the lender, paid for by the borrower, and it should not be relied upon as a guarantee that the property is sound and fit for purpose.  It only responds to the questions lenders ask relating to the property being suitable security for mortgage purposes.  They have no obligation to tell you what is in the report, or give you a copy!  Therefore you should always consider the benefit of an independent survey on the property you are purchasing to ensure that any and all defects are noted before signing contracts. There are two main types of survey available, aside from the mortgage valuation.

Homebuyer Report - a standard format set out by the Royal Institution of Chartered Surveyors (RICS). This will not focus on every aspect of the property as a building survey will (below), but will advise on urgent matters needing attention. It may advise if items (a leaky roof for example) might have an adverse affect on the value of the property, or if further investigations are required.

A Building Survey – an in-depth survey for all properties: listed buildings: buildings that have had extensive alterations, or of an unusual construction. The surveyor will examine all accessible parts of the property and advise on technical information: the condition relative to age: further special investigations required, and provide extensive information on major or minor defects.

Both will comment on whether the agreed asking price is reasonable, whether it reflects the condition of the property and should give you peace of mind whilst making the biggest purchase of your life! 

Computer says 'no'

So!  You have no credit problems: you have a good income: no debts and you are looking to buy a property or maybe remortgage.  But then, your bank, with whom you’ve been a loyal customer to for many years, reports back that you have a low credit score and the computer says “no”. They will not offer you a mortgage. This is a dramatically increasing scenario. The world of credit scoring (tick box mentality) is in our day to day finances and there’s no arguing with the lender once their technology has made the decisions.

Fear not!  There are a number of options still available to you which include lenders who will assess an application manually and seek to offer assistance to such customers. It does not just include those turned away by the high street for low credit scores. It could be a case scenario that needs a bit of lateral ‘out of the box’ thinking by an underwriter keen to say ‘yes’. This could include cross collateral security for clients who are asset rich: a sympathetic view for those who have trouble in proving ‘real’ income: customers who need guarantors: those in later life, or maybe just need someone to sit down, review the whole picture and advise on the best route to take.

As with everything you purchase, it’s always worth shopping around as although you might think you have a great deal with your current provider, there may be better products out there that you are missing out on.  And make sure you do move!  Why would you stay on the lenders variable rate, after the promotional rate had ended, if there was a more cost effective rate available with another lender saving you money?  Always think of number one.

Banks may only advise on their own product ranges. Estate Agents ‘in-house’ mortgage advisers may only be able to offer mortgages from a select panel of lenders. Therefore, in order to get best advice, make sure you do your homework, speak to a whole of market mortgage broker who can advise on the most appropriate mortgage in the market to meet your requirements.

And yes, there may be a small fee for this research and advice.  Prices vary from company to company and you can decide exactly who to deal with.  As with everything, before committing, make sure you read the terms, conditions and small print!

AToM awarded 'Best Residential Mortgage Packager' 2016!

I am delighted to commence this week’s column with the fantastic news that AToM has received a national mortgage lender award!  We have been awarded ‘Best Residential Mortgage Packager’ by the lender Precise Mortgages, for the fifth year in a row!  It’s rare for lenders to issue awards, so this is really special and great recognition. We have a super team at AToM and this award is real credit to the hard work the staff have put in during the recent tough market conditions.

As a Mortgage Packager, not only do we work with the general public, but nationally too with many Accountants, Mortgage Brokers, Independent Financial Advisers and Estate Agents. With over 8,000 registered introducers on our databases, lenders use AToM to offer their mortgage products seeking quick distribution and marketing to all of the above. This often means that we see exclusive deals, new lenders and product innovations, ahead of the general marketplace.  AToM also collates information for the lenders, obtains employer or accountant references, instructs valuations, obtains mortgage offers and in some cases has the lenders own underwriters in our offices, enabling a quicker turnaround.

With this in mind, actually placing a mortgage with a lender is not normally difficult. The hardest part, in the recent climates, is getting the mortgage through to completion! To assist this, try not to give lenders an excuse to decline your application or refuse to lend to you. Try to pay bills on time, don’t miss payments, and especially not mortgage payments!  Any missed (or sometimes late) payments will be registered on your credit file and this is normally used as the basis of a decision to lend to you, or not!  Ensure you disclose everything upfront as lenders hate surprises!  Remember that lenders can re-credit search/credit score you right throughout the whole mortgage process.

So in short, we are a little bit like Doctor Who’s Tardis. The AToM shop front opens onto a business which has much, much more going on behind the scenes!

Even the pundits say to 'act fast' to secure a good rate!

There seems to be a lot of talk from various industry pundits regarding the end of the 'good rates' in the mortgage market.  Even Martin Lewis' money saving programme this week suggested that consumers should be quick and secure a competitive rate.

Remember, that fixed rate monies are derived by the money markets, whereas tracker rates follow the Bank of England base rate and lenders decide on their own standard variable rates.

With this in mind, personally, I can't see rates having a significant increase for some time yet.  You might see the odd shift here and there, but with over 11,000 mortgage products now in the market place, this is expected.  To back this up, many lenders fell short of targets last year and with a market that is expected to be similar in overall volume in 2017, compared to 2016,  I can only see competition becoming stronger to fight for the business.

Just in the last few days, we've seen Buckinghamshire Building Society launch a first time buyer mortgage at 95% loan to value (LTV), so just a 5% deposit required.  In addition, the rate is an attractive 3.24% and the product has no product fee and £250 cash back.  This lender also reviews cases manually, rather than a credit score.

Accord Mortgages is giving offset mortgage customers £1,000 when their home loan completes, for a limited time.

Virgin Money has launched new residential and buy-to-let fixed rate loans. The range includes a two year residential fixed rate up to 90% LTV at 2.84% for first time buyers. The loan has no product fee and £1,000 cash back.  Virgin has also introduced a five-year residential fixed rate up to 65% LTV now at 1.89%.  The loan has a £995 fee, £300 cash back for purchases, a free valuation and legal fees for remortgages.

And finally, Bank of Ireland for Intermediaries has increased its maximum loan size to £1.5m for Buy to Lets and increased its upper age limit for Residential customers to 75.

So in short, despite the negative press, no one knows what's going to happen this year and with economists pulling their hair out, you just have to think of number one.  You have no loyalty to stay with your current lender when others will offer better rates.  And only you can decide if you want the certainty of a long term fixed rate, or if you are happy to see what happens with a shorter term tracker rate.  As always, terms and conditions apply and, as Martin Lewis said, speak to a whole of market mortgage broker!

So, what's in store for 2017?

A Happy New Year to you all! 

In the last 12 months, we've seen many new lenders launch in to the mortgage market in addition to the current batch fighting for business by offering low and attractive rates with freebies including valuations, free legals and even cash backs.

I see 2017 offering a lot more to First Time Buyers including more products aimed at those with smaller deposits.  Shared Ownership opportunities and Right to Buy mortgages will also increase as local authorities push schemes to help get people on the property ladder.

The easy business for the high street lenders is for Home movers and those looking to Remortgage. Simple and straight forward, with some of the best rates available and subject to clients credit scores, these should be all computer decision based.

                                 

Without doubt, the most in-demand side will be the more specialist Buy to Lets, Houses of Multiple Occupation, Holiday Lets, Student Lets, basically whatever will bring in the best return for investment.  Despite the Prudential Regulation Authority introducing new rules, and considerable tax changes being implemented over the next three years, this will still be a huge part of the market as returns on savings remain low and people look for other ways to invest and make money. 

But of course as volumes increase, those with credit issues, or adverse may be turned away by the high street.  More and more lenders are launching ways to help this sector.  Nearly anything is acceptable from missed mortgage payments, to bankruptcy, to debt management plans, to payday loans.  Strict terms and conditions apply, but seek specialist advice as these can now go right up to 90% of the property value.

And let's not forget the over 65s.  Lending in to later life is a huge part of the market and more and more lenders are offering products to this age bracket.  Some with unlimited age restrictions.  As long as the loan to value is good and affordability fits, why can't anyone have a mortgage?!