Lenders will look at your bank statements.

When applying for a mortgage, there’s no shying away from the fact that lenders look at bank statements!  Whether it be paper based or via the new ‘open banking’ technology, your private transactions will come under scrutiny.

I’ve mentioned it many times over the years in my columns and highlighted that whatever is in your last three months bank statements, lenders have to take it into account when deciding whether to lend to you, or not.

Sadly, in the last two weeks alone, we have had to turn away 18 cases, yes 18 cases, due to the customers bank statements (even though we can do All Types of Mortgages!).

So, why would this happen?  It could be that the client forgot to disclose they had a payday loan (short term funding until payday arrives).  These types of loans work for some people, but most of the lenders treat them as an adverse entry.  Despite what the ‘bar room adviser’ says, they don’t help towards your credit score!

Or it could be that the client forgot they exceeded their overdraft limit last month.  Just a little bit, only for one day, but it’s registered.  And that can mean disaster for the mortgage enquiry as it’s perceived you can’t manage your monthly finances.

What about transferring money from accounts resulting in a direct debit bouncing and being paid late?   Unfortunately, this is also looked upon negatively.

And there are numerous others, which include forgetting to disclose the student loan, or a 0% interest car loan, or even the monthly payment out to your pension.   Whether via bank statements, or via a credit search, the lender sees all debts and any monthly payments must be taken into account when it comes to affordability.

So, plan ahead.  Work out your budgets, what your monthly payments are and anything else that you need to disclose, before you go and see your local and independent mortgage adviser.  It’s time well spent and will stop any unnecessary delays, or possible declines, later on.

Self Build, refurbishment or development? There are plenty of options..

As the local area continues to become a virtual ‘new homes exhibition’, there are a number of lenders also assisting customers with more private projects such as development, self-build, or if you just want to upgrade your existing property by way of refurbishment. 

On a self-build, the customer normally buys the land and the lender will issue the funds to build, on a stage basis. Normally once the foundations have been laid, property built to eaves level, made watertight and so on.  At each stage a valuer will review and advise the lender of progress and to enable the release of payments.  You will tend to find the lender will lend on the Gross Development Value (the end value).

On a full refurbishment, again, the lender will want to know the plans and may lend in stage payments against the end value of the property, depending on the extent of the works involved. They will almost always require a schedule of works – extension plans, kitchen, bathroom, etc. 

The lender will require sight of all planning permissions and estimates of costs involved before lending any funds.  Seek out a local architect to assist you with plans and costs and always make sure you set out accurate budgets from the outset.

Lenders will cater for all types of scenarios (dependant on the exact type of works required!).  Each lender will work on the valuers comments once they have visited the property and adjust their offerings accordingly.  Just because the high street or your current lender says no, does not mean that it can't be done! 

Have you heard of the Tipton Building Society?  What about the Saffron, Harpenden, Principality, Dudley, Furness, Shepshed, or the Stafford Railway Building Societies?  Not necessarily household names, but we are seeing these names and a lot more like them launching innovative products.  Not always looking for huge volumes but looking to fill gaps in the market and this should be applauded.  

A good broker will, in most cases, have a relationship with these types of lenders, understand their requirements and ensure all the correct information is submitted from day one.  There really is no better time to utilise the expertise and staffing levels they can provide for you in what’s becoming an over informed and more recently, highly competitive market place.

Have you been offered a 'Product Transfer'?

I am looking at two main categories for this week’s column. 

First off, it’s product transfers.  These are the options the lender will give you to stay with them.  So, you’ve been with your current lender through the term of your deal - normally a two year tracker ends after twenty four months, or your five year fixed rate might end on a specific end date.  Either way, the lender will normally write out to you three months in advance to offer you the next ‘big deal’.  Or is it?  I’ve had one high street lender offer a client of ours a deal 0.3% higher. To put the boot in, they are also actively offering rates 0.5% lower to new clients.  So, a client on 1.6% and wants to remain with their lender, who are offering them 1.9% to stay.  The same lender is offering new customers 1.4%!  So much for loyalty.  We had another recently where the lender wrote out and offered the clients a great deal to stay.  The client spoke to one of our mortgage advisers, who could offer a rate 0.1% lower, to stay with the SAME LENDER!  It really pays to look around and double check that you are being offered the best deal.  Plus, although the lender may not mention mortgage brokers in their renewal letter to you, nearly all lenders now offer product transfers through brokers. 

Which brings me on to my second point, choice.  It is still tough to get a mortgage in the current climate and now, more than ever, you should do your homework and speak to a ‘whole of market’ mortgage adviser and compare all mortgages available. If the person you are speaking to is not offering whole of market advice, i.e. they just review a panel of selected lenders, you may not be getting the best product for your needs and/or requirements.  For some of the larger brokers, lenders may even put one of their own underwriters in-house, so that your application can be processed within their offices.  This helps with speed, instructing valuations and dealing with queries quickly.

And remember, you can place your mortgage with whoever you like. You are under no obligation to anyone, despite what some may say! Everyone covets your business and there appears that there may be some unusual and possibly non-compliant tactics being used to gain your signature. Bedside manner counts! If you don’t like their stance, or they’re ‘forcing’ you to use them, walk away….

Can you pay today and also over the next five years?

In our heavily regulated mortgage marketplace, the lenders main area in deciding whether to lend, or not, is on your ability to pay the mortgage both today and also in the future.  It's difficult to detail when I have a limited word count, but in the main, lenders will stress test all mortgages against a possible rate rise and underwrite the applicants based on their ability to pay at the higher rates.  The regulators want lenders to ensure the customer can afford their mortgage for at least the next five years.  So, for example, a shorter term deal may be stress tested at a pay rate of 3% plus 3 percentage points higher than the prevailing rate at origination, so in this case 6% (even though bank base rate is 0.5%).  However, a five year (or longer) deal may be stress tested against the pay rate, which might only be 3% in current climates.  This can make quite a difference when it comes to calculating the affordable loan amount over the first five years of the loan, subject to the lenders terms and conditions.  Longer term fixed rates can also be good for the end consumer as they should get the loan they want, but also the monthly payments remain fixed for the next five or more years.

Whilst in the 'planning' frame of mind, and with so much talk about rates increasing, have you reviewed your current financial arrangements to ensure sure you are on the best deal available?  

Whether you require the security of fixing your payments for an amount of time, or whether you are a bit of a risk taker and might look at a short to a medium term tracker, right now, there are a number of attractive five year deals, and also some ten year deals currently available.  Potentially great value if you know your plans for the longer term and prefer to fix your monthly payments.

Other things to consider - Do you have a Will?  Statistics show that only one in three people currently have a will in place, with the remainder leaving the state to take over and determine how their assets and belongings are distributed, if they die.  Do you have Life Assurance, Mortgage Payment Protection, Accident Sickness and Unemployment cover, Critical Illness Cover, and more?  Any of these products might be beneficial to your personal circumstances or needs, especially if you have children, and with competition increasing, these types of products are not as expensive as you may think. As always, seek professional and open market advice.

Can a 'Cryptocurrency' help you buy a house?

You’ve probably seen some of the hype around the rise of what’s called ‘Cryptocurrency’.  Specifically, relating to Bitcoin and other similar electronic currencies.  Currently they are not regulated and their price can fluctuate immensely day by day.  However, there have been a number of success stories and thus providing funds which could possibly be used as a deposit for a property.  Normally, lenders will want to see a build up of savings, or proof of where the funds have come from, inheritance etc.  With no formal category for this type of return, and no formal guidance from the regulators, some lenders may class it as gambling and not allow it as a form of deposit.  Despite some lenders confirming they will assist, some of the major high street names have already confirmed they will not accept deposits derived from cryptocurrency. With technology thriving as it is and some cryptocurrencies now worth hundreds of billions dollars worldwide, this could be deemed quite an ignorant view.  I suspect, as they become more widely known and used, only time will move this forward.

With this in mind, Technology plays a major part in our financial world.  Some lenders already do a lot of their functionality via a mobile app, including voice and face recognition.  Impressive hi-tech stuff indeed.

Most people will start their home buying process via the Rightmoves and Zooplas of the world, but some commentators are also predicting that the whole home buying process will soon become a digital revolution.  With more effective use of technology cutting down the mortgage process, some entities launching ‘robo advice’, and many lenders now processing everything online, I can see how that can happen.

However, at the same time, I can also see many customers just wanting to speak to someone face to face.  Especially those who have not grown up with technology!  Plus, as mortgage volumes are increasing, we will see more and more customers fall out of the 'technology only' bracket.  So, explore all options and if the technology becomes too confusing, pick up the phone!

Are you ready for Open Banking?

Open banking seems to be the buzz phrase of the moment as the world of technology impacts the way our spending habits are analysed.  In short, you will soon be able to give permission to your Bank or Building Society, to release all details of your bank account transactions to any regulated business.  This can speed up the process of decision making when applying for loans, mortgages, etc, in comparison to just supplying your last three months paper bank statements, which is the current normal way of disclosing.  So no longer will your bank be the only one to know how much you spend on your weekly shop, utility bills and broadband!  Or of course, when you move into, and how often you use, your overdraft!  Permission can be withdrawn at any time.  Nine institutions were given a deadline of 13^th January to be ready for launch, and five have been granted an additional six weeks to be ready.  Watch this space!

There have been a number of new products launches for the new year as lenders seek to gain a good start to 2018.   Many lenders have lowered rates and some have reviewed their criteria in order to bring in more business, possibly allowing customers that wouldn’t have been approved towards to the end of 2017.    Always review all possible options before giving up. 

Finally, the importance of mortgage advice has never been greater. It is an interesting fact that, according to a number of industry sources, over 70% of all mortgages are written through professional advisers. There are probably many reasons for this including long delays we are advised are happening with some lenders both in interview capacity and processing times.

The majority of professional mortgage advisers review the whole market for you and can identify the best lending options and then deal directly with the lenders central processing units, speeding up the process from application to offer.  That said, even in this area we know of at least one lender that is over ten days behind on post or electronic updates currently!  A good adviser will listen to your specific needs and timescales and ensure that they line you up with a lender who will match both.  They should also contact you again when your product is up for renewal and guide you through that process, building a long-term relationship with you. 

Only 20% of homeowners take a homebuyer survey when purchasing a property.

Research from Legal & General has shown that only 20% of homeowners take out a home buying survey when purchasing a property.  This is despite home buyers on average spending £5,750 on unforeseen repairs when they move into their new home!

So, to recap on the options:

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. This is a fairly basic valuation and 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! 

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), where a mathematical system calculates the property’s value based on a number of comparable properties and other in-depth calculations.  

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 standard lender 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 effect 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!

Finally, I’m always looking for content ideas.  So, if you have any burning questions or items you would like to see, please don’t be shy to ask!  You can email me at dale@atomltd.co.uk or call me on the number above.  Have a great week!