Some Lenders reduce income multiples

Quite a few rates have been increased over the last ten days and some further criteria restrictions implemented.   In quite a significant move, Nationwide has limited their overall income multiples to a max of 4.75% times income for all residential loans.  This follows recent guidelines from the Bank of England allowing only 15% of all new lending to be over 4.5 x income from October.   Other movers include Lloyds Banking Group and Royal Bank of Scotland who both implemented a maximum 4.5 x income for all loans over £500k.  Rumours are rife that others will follow and I'm sure these will be revealed in the coming weeks.

First Time Buyers rose 27% in the first half of 2014 according to LSL property services.  More than 146,000 bought a property compared to 115,700 in the same period last year, with deposits on average, around £24k.

However, remortgage approvals have not followed the same trend, surprisingly.  The British Bankers Association have reported that June 2014 figures were some 12% down on June 2013, amounting to 18,645 transactions worth £2.8bn.  This does surprise me as rates are low, there are some good long term fixed rates around and the majority of lenders are offering minimal or no costs to move to them.   

Finally, and I don't 'plug' often(!) at AToM, we are independent and we will happily go through the pros and cons of changing any of your financial details before proceeding to conduct any credit searches or decision in principles. You need to be clear that it’s the right deal for you. If your current deal is still the best option for you, we will suggest you stay where you are.  Whilst the holiday period is up on us, do take time to dig out that paperwork and come and have a chat.  It could be a very beneficial exercise!

Delays with high street lenders? - same products quicker with Mortgage Brokers.

AToM has launched a new exclusive mortgage product aimed at the over 65s.  The Retirement Remortgage product is designed to assist those who wish to continue with a mortgage when their current mortgage term expires and their lender requires repayment of funds.  Or those with large equity in their property who wish to raise finance for specific projects. There is no maximum age and this offering  will allow customers to borrow up to 50% of the property value either on a repayment or interest only basis.   Interest rates are calculated based on the borrower’s individual circumstances but start from 4.50% fixed for two years (4.9% APR).  A minimum property value of £300,000 applies and terms and conditions apply.    

Whilst talking remortgages, the market is awash with lenders actively looking to attract new customers.  Whether you want to fix your monthly payments for a period of time, or you fancy a low rate tracker mortgage - or maybe both - a tracker rate with the option to fix later on, there are plenty of great products currently available.  Many lenders are offering superb remortgage opportunities with minimal costs to change, including free standard valuations (lender survey on your property) and legal costs (solicitors or conveyancer to register the charge in the new lenders name).  Rates are competitively low and mortgage product choice is at its highest for some time. 

Finally, we have had many mortgage customers approach us who have become frustrated in recent times.  Mainly with two things:  firstly, that some of the local banks or building societies cannot see mortgage customers for a matter of weeks (we heard one was booking four weeks ahead!) and secondly, each appointment often takes well in excess of a couple of hours.  Sadly, for whatever reason, that lender could not offer the customer what they wanted and so they went to another lender and sat through another hour or so only to find they could also not then offer what was required, and so on.  This is a large consumer commitment to time but without a satisfactory solution.  This is where independent and whole of market brokerages come into their own.  They will be able to offer you access to a number of lenders, including the high street names, if appropriate, and you only need to have one conversation with the same person.  In addition, they should have access to lenders who will manually assess your needs rather than a ‘computer says no’ type scenario, if required.  If I can also ‘plug’ a little, we also have access to a number of limited access lenders and exclusive products (as mentioned earlier!) not readily available to the wider mortgage market! 

The average Mortgage interest rate was 3.22% at the end of May.

I've been very positive and buoyant in most of my recent columns.  The mortgage market is awash with business and has more product offerings than for some years.  Local Estate Agents confirm properties are selling quickly and there's a general shortage of stock and local builders have advised that bricks are in such high demand across the country that there are some weeks delay in supply.  However, we do sometimes need to take a step back and look at the reality of our market and economy.

The Money Charity (the UK’s financial capability charity), report that:

- The average amount owed per UK adult (including mortgages) was £28,610 in May. This was

around 115% of average earnings

- The estimated average outstanding mortgage for the 11.2m households that carry mortgage

debt stood at £115,006 in May

- The Financial Conduct Authority estimates that at the end of Q1 2014 there were 255,561 mortgage loan accounts in reportable arrears (i.e. arrears of over 1.5% of current loan balance), a drop of 3.5% from the previous quarter, and the lowest figure since Q1 2007.

- One in every 400 mortgages was 10% or more in arrears.

- 71 properties are repossessed every day (based on Q1 2014 trends).

- 1,910 Consumer County Court Judgments (CCJs) are issued every day (based on Q1 2014

trends). The average value of a Consumer CCJ in Q1 2014 was £2,360.

Ok, so a little disheartening, but reality.  It's not all bad though as the UK economy grew by 0.8% in the first quarter of 2014, according to latest estimates from the Office of National Statistics and The Bank of England Base Rate has been held at 0.5% for 63 months.  Whilst the average Mortgage interest rate was 3.22% at the end of May.

Finally, according to the Council of Mortgage Lenders (CML), the typical first-time buyer deposit in April was 17% (around £29,260). The average first-time buyer borrowed 3.42 times their income and the average first-time buyer loan was an estimated £142,857.

Short term lending has immense advantages..

During the last few years, increasing attention has been focused on short term lending, or bridging as it is more widely known.

Commentators are concerned, rightly so, that short term lending is used as a substitute for more traditional mortgage lending in order to obtain funds quickly. This is fine where speed and accessibility are of the essence, but care should be exercised where a normal mortgage could be used instead.

So, what is short term lending and what should it be used for?

It is exactly what it says it is! Money to be used in the short term to facilitate a financial transaction which has either an urgent or short lifespan mainly 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 - usually when downsizing: Acquisition of a property which needs substantial renovation before it is suitable for a traditional mortgage:  Payment of an unexpected expense whilst more regular finance is being arranged.

There are a myriad of other reasons for which short term lending can be applied and each application is looked at on its own merits before a lender will agree to assist. The best way to look at this is as a means to an end. These lenders will need certainty on the exit route (how will they get their money back) and they will always insist on an agreement being in place from a traditional mortgage lender to provide a mortgage, at a given time and once any requirements have been fulfilled. So, short term lending is designed to fulfil an ability to act quickly. We have seen funds drawn in 48 hours from application!

Undoubtedly, these lenders have a growing influence in a fast moving marketplace. Interest rates charged will reflect what lenders consider to be the risk to them but will generally start around 0.65% per month although, for the more obtuse applications they will be around 1.5% per month. Short term lending has immense advantages enabling you to move quickly but as always, make sure that you fully understand all aspects of the offering and, especially, your responsibilities to the lender.

Buy to Lets now with just a 15% deposit

The Buy to Let market is buoyant as First Time Buyers continue to find it hard to obtain mortgage finance and turn to renting.   More lenders have entered the sector and many are seeking criteria niches in addition to competitive pricing, to attract new customers.

Buy to Let mortgages are now available with as little as a 15% deposit and are available to First Time Landlords, as well as experienced property professionals.

In addition, some lenders no longer require a minimum income.  Historically, this would have needed to be between £20-30k per annum in order to meet the lenders requirements.  However,  there are now instances when this stipulation has been removed and as long as the customer has an income (mainly to cover the lenders affordability should their be a rental void period), lenders will assist.

Another recent development is the way a lender calculates the loan available.  With all properties a surveyor will visit the subject property and value it's worth.  With Buy to Lets, the valuer will also include a rental estimate.  It is this estimate that will be the key factor in lending any amount to a prospective borrower.  A normal calculation suggests that the rental must be 125% of the mortgage payment.  Any less and the lender will reduce the mortgage loan according to the reduced rental income.  For example, if you wanted to borrow £100k, a reasonable test would be to multiply this by 5% (a fairly average calculation) and divide by 12 to get the monthly cost. This  would then be multiplied by 125% to determine the required monthly rental!  Therefore, in this example, the rental would need to be £521pm to achieve the £100k loan.   We are seeing competition increasing in this sector and as such some lenders have reduced this calculation to 110% of the mortgage.  Please note that varying lenders will have alternative calculations and, in most cases, the actual rate paid to the lender will be less than the rental stress test calculation mentioned above.

With property prices still low, First Time Buyers struggling to get on the property ladder and returns on savings still relatively unattractive, many are investing in property as a long term investment.   Remember that lender terms and conditions will always apply and you should always seek professional advice!

Life does not end at age 70!

You may be surprised to hear this, but life does not end at age 70!  This is despite a majority of mortgage lenders requiring full repayment of their loans at this age.  Normally, a high street lender will allow a mortgage term to last until the applicants usual retirement age.  This used to be 65, officially it's now 67, but the reality is it can be much later.  As such, most lenders increased their maximum age at the end of mortgage maturity to age 70.  However, we all know that people are working a lot longer now and repayment of such a large amount of money may not be possible in these restrictive conditions.  So the option is to raise further finance to repay the original loan or sell the property.  Thankfully, the first option is less onerous as it used to be.  Many non household name lenders will look at lending to customers a lot later in life, assuming the customers can prove  their continued ability to pay.   This can take the maturity age up to age 80, 85 or even 90 and above.  If the customer has a good amount of income, a good amount of equity in the property and can satisfy the lenders affordability requirements, then a lender should be happy to lend.  This almost demands that you seek specialist advice. 

There are a number of mortgages available to those over retirement age.  We’re seeing a lot of first time buyers turn to the bank of Grandma and Granddad as the money well of Mum and Dad appears to be running a little dry!  There are various ways in which the older generation are helping the first timers.  Some are gifting deposits, to help them on to the property ladder.  With most products, the larger the deposit, the lower the interest rate. Others have agreed to the placement of a collateral charge on the parents or grandparents property.  This gives a lender more security and maybe a better credit risk rational to the deal, than originally might have been the case.  In some cases the parents have joined in to provide additional income support and bolster the overall  application.  Whichever way required, always explore the options and have a conversation with a professional as there may just be an alternative way to do the deal.

Budget planning - essential to obtaining mortgage finance.

The Chancellor has recently given the Bank of England new powers to restrict Loan to Incomes and also Loan to Values.  In short, we’ve seen income multiples restricted for loans over £500k recently by a couple of lenders , to a maximum of four x income.  But the BoE now has powers to force lenders to do this.  If the BoE thinks lenders are lending too much or at too much of a risk, they have the powers to restrict the lenders offerings both on loan sizes offered to the customer or loan sizes against the value of the properties.  Personally, with the recent Mortgage Market Review (MMR) implementations across the market, these new powers could be deemed an unnecessary distraction to the lenders, especially as MMR already covers these areas and should naturally stop unaffordable loans being issued.

With MMR in mind, we are still seeing long delays across the market in customers obtaining appointments at local branches, as well as general processing delays.   Some lenders are not taking appointments for three or four weeks, are ten working days behind on processing, and we have experienced recent telephone calls taking over an hour to receive a response!  These are just on the broker side so heaven knows how customers are faring!

With all new mortgages, a budget planner will be required.  So make sure you know and can advise exactly how much you are spending on your lifestyle.  Especially make sure you know your monthly costs on food, household expenses, travel, pension and saving contributions and other likely costs such as hobbies, going to the gym, lottery direct debits and more.  Every lender will review your ability to afford your new mortgage over coming years so all direct debits and most entries on your bank statements or credit report will need to be advised.  This is so the lender can make a viable stress test on future rate rises and ensure that you will still be able to afford your mortgage at that time.  Yes, maybe there is a little guess work, but do make sure you disclose all monthly expenditure as the lender will normally want to review your bank statements and will see it all anyway!