Your mortgage scenario is not out of the ordinary to us!

You might think that your scenario is out of the ordinary and maybe a lender won’t look to assist you.  And you might be right, if you are purely looking at the mortgage lenders on the high street.  But we all know that not everyone fits this ‘ideal client’ picture.

Complex scenarios are on the increase and some of the smaller, more agile lenders are looking to help you.

Some lenders have recently made some criteria changes that include:

-        4 applicants and 4 incomes!  The lender will now accept using 4 incomes on an application.  This is 4.49 x the two highest salaries and then adding one each of the remaining two.

-        Joint Borrower / Sole Proprietor.  So you need Mum and Dads help in getting your first mortgage?  Not a problem.  Lenders will allow you to apply jointly with blood relatives, from both sides if needed, yet you remain the sole owner of the property.

-        Lending into later life – applicants are now catered for up to age 95!  Equity release is not always the right solution and lenders are now offering normal mortgages to those who fit their criteria with regards to affordability and right loan to values.

-        In probation?  Not a problem.  Some lenders will consider.

-        Foster care income?  Ok, this is considered if you have 12 months history

-        Secondary income / Zero hours contracts / Newly Qualified Teacher in first contract period – all considered.

These are just some of the benefits of using an independent mortgage brokerage and especially if they are ‘whole of market’ and have the ability to deal with any lender and are not restricted to a small panel of lenders.

These lenders may not be household names, but you’ll probably find they are extremely helpful and will look at most scenarios, manually, with no credit scoring and have an appetite to lend! Most importantly, their interest rates are mostly very competitive too and make the right ‘impact’!

Shared Ownership popular outside of London

Help to Buy has benefited from an increased profile in recent times (probably due to the impending closure date!) and this has helped more FTBs recognise its attributes – which is a good thing - although it’s prudent to point out that it should not be considered an all in-compassing solution.  And, on the flip side, despite this rise in lending prominence there are still pockets within the market where it can prove valuable for a certain type of borrower which often goes overlooked.

I believe this type of product is seen by most borrowers, as being one which sits squarely in the domain of mainstream or high-street lenders. Meaning the role of specialist lenders can often go ignored, which is a shame. There are specialist lenders who can provide Help to Buy solutions for borrowers with an adverse credit history, IVA’s or even bankruptcy issues, and this is an important part of the scheme which we tend to hear very little noise around (T&Cs obviously apply!). 

The other area we are seeing increased enquiries from, especially more locally with the amount of building works taking place, is Shared Ownership.

Shared Ownership Schemes are normally provided through housing associations.  You buy a share of your home, between 25% and 75% of the property value, and pay rent on the remaining share to the housing association.  You usually have the opportunity to purchase a bigger share of the property later on (normally called ‘staircasing’).  Local housing associations must confirm your eligibility in order to join these types of schemes.

According to research by the Leeds Building Society, this is rising in popularity outside of London.  The report suggests that the South West has seen the greatest rise in the use of shared ownership between 2009 and 2018.  This was followed by the East Midlands and the West Midlands.  London saw the largest decline, falling from 34% to 13% over the same period.

The specialists might not be applicable for everyone, and still form a small proportion of the overall lending figures, but they should be playing a bigger role in supporting more complex or low credit scoring borrowers get a foot on the property ladder for the first time or even back onto it after falling off.

Be prepared in advance of applying for a mortgage.

When applying for finance, if you don’t appear on the electoral roll or don’t have any credit, some lenders may consider that you don’t exist, financially!  This has been a hurdle in the finance world for some time, more so now with the evolution of technology.  It seems that lenders only need to find the smallest of excuses to not agree a mortgage request.  Historically, lenders were often more amenable if an applicant could not be located on a credit search. Today, if you have no regular credit commitments or do not appear on the electoral roll at your current address, be prepared for a possible knock-back or at least the request for further proof of residency, etc.

The market has been pretty quiet this week, with only a few lenders making headlines and reducing rates. I suspect the market is still coming to terms with an unexpectedly buoyant August and preparing their offerings for a good run to the end of the year.  Rates generally are decreasing, and this makes it a good opportunity to review what’s available to you.

We are experiencing a large number of ‘complex prime’ enquiries lately. One example is for a property which is currently converted in to two properties, but where there is only one registered title.  Another example was of a full conversion of a barn into a dwelling.  One further - for tax purposes – where the customers were seeking to purchase a number of investment properties in a Limited Company name with their company structure designed purely to hold properties.  These are live examples which certainly have a lender home. They just need a bit of extra thought and the location of lenders who don’t fit the normal credit scoring mentality.

Finally, getting a mortgage through lenders in the current climates can still be challenging. One day it’s easy to get a case through, the next, it’s a nightmare!  So whatever you do, try to not give lenders any excuses to decline your application or refuse to lend to you. Try to pay bills on time, don’t miss payments where possible 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 whether to lend to you, or not!

Looking at Buy to Let? Visit the Property Investor Show

If you are contemplating moving into the Buy to Let sector (buying a property to rent out), then I would recommend making a visit to the Property Investor show/exhibition that takes place on 4^th and 5^th October at the London ExCeL Centre.  There will be over 100 exhibitors and over 50 seminars that will assist in answering all your questions about the Buy to Let sector and the highs and lows of being a landlord.  It’s free to attend and there will also be a good (Horsham based!) mortgage adviser on site to assist with all mortgage related enquiries.  

The Buy to Let sector has been through some interesting times recently and it always seems to be this area that is targeted when it comes to tax and regulatory changes.  I always stipulate that any property investor should have a good set of experienced property professionals around them when it comes to advice and recommendations, especially with regards to in-depth tax advice from an accountant who understands property, limited companies and all the new rules surrounding landlords and, where applicable, portfolio landlords.

In addition, minimum energy efficiency standards (MEES) were introduced in April 2018.  The standards affected all new lets and tenancy renewals in the private rented sector to have a minimum energy performance rating of E.  From April 2020, this will also cover existing tenancies.   Landlords will be unable to rent properties until any works are done and the minimum rating is achieved.  

On the upside, the availability of Buy to Let mortgages is at its highest for some time with loans available up to 85% of the property value and five-year fixed rate deals, with only three year redemption penalties recently being launched.  One lender has recently launched two-year rates from 1.99% and five-year deals from 2.99%.  Terms and conditions obviously apply and every case is looked at and underwritten on its own merits

With interest rates so low and demand for rented properties increasing, and no clearly defined solution to help first time buyers, I can only see this sector growing over the foreseeable future.   

Looking to build, renovate or extend?

You can’t miss the vast amount of building work going on locally.  In the main, it is by large property developers/builders, but we are receiving enquiries for those privately looking to build their own dream home or renovate and extend their existing properties.   This can also include knocking down the property and building a new one in the same location.  These are normally called Self Build Mortgages or Development Projects.

If you are considering these, have a chat with a local architect first to see if your plans are realistic possibilities. They will have a good idea as to what the local Council Planning Officers will accept and of course, what they will reject!  Lenders then may look to lend funds on a stage payment basis. Stage one might be the foundations, stage two might be ground level and so on.  Each stage would require sign off by the building inspector, and often the lenders own valuer, then funds would be released.  The lender may not lend the full build amount, so be prepared to put in a reasonable deposit, especially at outset to demonstrate your own commitment. 

For extensions and renovations, it may well depend on the size of the work and what funds are required.  If you are altering the property substantially, rebuilding etc, you will tend to find that only specialist lenders will take these on and in some instances, these may be on a short-term basis.

Development Finance and Bridging Finance (also known as short term lending) is money to be used in the short term to facilitate a financial transaction which has either an urgent or short lifespan and which is primarily geared to a property transaction.  The most regular type of transactions include: a property being purchased at auction: the purchase of a new property whilst the current one is still being sold: acquisition of a property which needs substantial renovation before it is suitable for a traditional mortgage or payment of an unexpected expense whilst more regular finance is being arranged, and so on.

Beware though, these lenders will need certainty on the exit route (how will they get their money back?) and with this type of lending and associated fees, it can be more expensive than a normal mortgage. Therefore it makes sense to exhaust all other possible options available to you before going down this route.

Bank of Mum & Dad now 10th largest lender in the UK!

First Time Buyers trying to get on the property ladder will turn to the Bank of Mum and Dad to borrow more than £6.3bn this year, according to a report from Legal & General.  This equates to  being the equivalent of the country's tenth biggest mortgage lender!

The average parental contribution for homebuyers this year is £24,100, according to L&G.  This is up by more than £6,000 compared to last year.

The report also suggested that thousands of UK buyers were reliant on their parents to either get onto the housing ladder in the first place, or upgrade to a larger home.  Almost a fifth of those who said they had, or would help a family member buy a home, said it was because they felt it was their personal responsibility to help out.

The financial services firm also warned that parents' generosity could hurt their standard of living in retirement.

First Time Buyers currently have a good number of options available to them, including mortgages up to 95% of the property value and where possible, parental guarantor mortgages.   This includes ‘Joint Borrower, Sole Proprietor’ arrangements.

We've also seen a marked increase recently in enquiries for Right to Buy properties and those looking to purchase on a Shared Ownership basis:

Right to Buys are usually via the local council selling their properties to the existing tenant at a discounted price.  This discount can be substantial, and applicants must have been a public sector tenant for at least three years.  Some lenders will allow borrowing of up to 100% of the purchase price.  If you resell your home within five years you will usually have to repay some or all of the discount you received, however remortgaging is usually allowed in this time period. 

Shared Ownership Schemes are normally provided through housing associations.  You buy a share of your home, between 25% and 75% of the property value, and pay rent on the remaining share to the housing association.  You usually have the opportunity to purchase a bigger share of the property later on (normally called ‘staircasing’).  Local housing associations must confirm your eligibility in order to join these types of schemes.

Both schemes are proving popular and a wide number of lenders are looking to lend in both scenarios and to a number of different customer types, even those who may have had financial credit blips in the past.  So, always seek advice.

Lenders reject 33% of customers using comparison sites

It’s always a little surprising when customers contact us for a mortgage who have been totally unaware that they have had a number of credit searches carried out following recent searches for competitive renewal quotes on their home or car insurance via Comparison Websites.   I’m sure it will be stated somewhere in the small print, but the customers have researched a number of ‘comparison’ sites and ended up with a similar number of credit searches on their profile.  This, in a small amount of time can have a marked effect on your credit score, and as such, affect your ability to obtain finance, so always read the small print.

And according to Experian this week, lenders are rejecting 33% of customers using comparison sites as they do not meet their full lending criteria. Some 11,000 people were included in the analysis which examined eligibility inquiries made on price comparison websites and digital broker channels.  Its analysis also found that just 3.5% of people searching for a mortgage were eligible for every deal on the market.

With this in mind, a vast number of people still don’t think they can get a mortgage.  With so much negativity in the media, it is not surprising that many people think they have no options. But this couldn’t be further from the truth. There are more lenders and products available now than there has been for some time. Therefore, more options and choice for customers that may not have been eligible for a mortgage in previous times. This often does not include high street lenders though. These lenders could include a small building society located in a small village anywhere in the UK. Having access to a whole of market mortgage broker is the only way you’ll gain access to such a possibility.

The bottom line is that a mortgage is the biggest debt you’re likely to ever take on, so you need to do your homework and always seek professional advice.