Those in Debt Management Plans and 'Mortgage Prisoner's have help!

Debt Management Plans have had a place in the market during the tough times and have assisted many customers in reducing their monthly outgoings.  In brief terms,  the DMP company arranges a reduced monthly payment amount to the customers creditors.  However, some credit companies will see this as a breach of their original terms and may register defaults or an 'arrangement to pay' status position against the customers credit file.  This has been quite a barrier and has often prevented mortgage lenders assisting the customer with finance. 

As lenders compete for business, we are starting to see reviews of criteria options and some will now look to help those in a DMP up to 75% of the property value.  The DMP must be paid off as part of the deal.  If the DMP was paid off more than 36 months ago, then the lender will look at mortgage options up to 85% loan to value.  There are a myriad of terms and conditions, as you would expect, but this is a great step forward and now opens doors to customers that may not have been helped before.

With this in mind, we have also seen at least one lender looking to help those who could be classed as 'mortgage prisoners'.  This could be where a customer is coming to the end of the product term and due to revert to the lenders variable rate.  But since their last mortgage arrangement, new regulations have been implemented and the customer may no longer qualify for the same type of deal. Affordability calculations may have changed or another reason may affect their new mortgage options.  Therefore the customer may be stuck with the current lender and unable to move.  Some lenders have looked at these types of customers and launched 'transitional' mortgage options.  These lenders look at moving customers away from their current lender, on a pound for pound remortgage, with the minimal of paperwork and no requirement to undertake additional affordability assessments where no further funds are being raised (and assuming no income changes since the previous arrangement).  This assumes that the customer has conducted their current arrangement in an exemplary manner of course! This allowance to the lenders from the regulator is only available until 2016, when the EU Mortgage Credit Directive is implemented, so be quick!

Helping First Time Buyers..

First time buyers have been given a huge helping hand this week with the launch of a new 100% mortgage scheme. This works using the process of a legal charge being registered against immediate parental property, effectively using the equity as a guarantee. However, the key point here is that the applicant’s income must be sufficient to cover the whole of the mortgage on their own. Up to 80% of the value of the mortgage is charged to the applicants property and the remaining amount is charged against the parents property. The charge on the parental property, plus any existing mortgage, should not exceed 75% of the total borrowing on that property. What this means is that, for those with good income, supportive and accommodating parents yet little or no deposit, a property purchase is eminently possible enabling clients to get a foot on the property ladder. Good to see such product innovation!

The Government recently announced an increased availability to council tenants enabling more of them to purchase their own properties and this has resulted in a large number of enquiries for Right to Buy mortgages. Right to Buys often result from a local council selling the subject property to an existing tenant and at a discounted price. This discount can be up to £75k (£100k in London) and tenants must have been with the council for five years or more to obtain the maximum discount level. Some lenders will allow borrowing of up to 100% of the discounted sale price, and possibly slightly more if the extra funds are to be used purely for home improvements. If you re-sell your home within five years you will usually have to repay some, or all, of the discount you received. However, re-mortgaging is usually allowed during this time period. This is covered under the term 'Pre-emption Clause'

The other big hitter for first time buyers is through Shared Ownership Schemes, normally provided through designated 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 (known as ‘staircasing’). Local housing associations must confirm your eligibility in order to join these types of schemes.

These schemes are proving popular in the local area and a wide number of lenders are looking to lend in both scenarios and to a number of differing customer types, so always seek advice.  Especially as some of these lenders may not be household names.  But that shouldn't deter you as their volumes are hugely on the increase and they are great lenders to deal with.

Non verbal communication in mortgages

I guess that one thing we all agree on, like it or not, is the ever increasing reliance upon non verbal communication.  It is surprising just how much we rely on email, Twitter, Facebook and  a growing myriad of similar links to deal with almost everything we do these days. Even to the point of trusting people we never meet, including banks, solicitors, shops, trading platforms and, dare I say it, future life partners too!

More often than not, this leap of faith will prove to be successful and I am an aficionado. Yet papers remain full of stories about customers who have received something they did not order, or maybe where they are left to wonder how they got it so wrong ending up with items of the wrong shape or size, possibly including the life partners too!

So how is this relevant to the mortgage sector?  Simply that the mortgage still remains the largest financial transaction that a person will normally make during their lifetime.  Some will enter the mortgage market several times during their working life, often in increasing amounts, and it is this that I find intriguing when electronic information transfer is used to manage such life changing business.

My message is not that there is any particular reason not to transact electronically.  More that when the matter is complex in nature and crucial to financial comfort and sanity, then surely it makes sense to talk to someone who knows the innermost workings and product criteria and who can provide you with the degree of comfort you need before you start parting with money. In the case of a mortgage, this may include a mix of application, valuation and legal fees and this is just to get you started!

Thinking further, you will have agent’s fees if selling and removal expenses, and if buying, stamp duty, disbursement charges, utility connection charges and more..

These can most, if not all, be conducted online but all are good reasons to talk to someone along the way to help pull the strings together.  And yes, there may sometimes be a fee to pay for this but you may find it all worthwhile!

Keep your current mortgage and look at a secured second charge?

So you are looking to raise some funds for a home improvement exercise or maybe to purchase another property, yet your current mortgage is a on a superb, competitive rate and you really don't want to change it.  Your current lender has offered a further advance, but you want to explore other options.

That leads us to the secured second charge market, also known as secured loans.

A secured loan is a 2nd, or subsequent charge, designed for homeowners and which allows the equity in their property to be used as security.  Loans usually start from £3.5k and now range right up to £2.5m!  There are also no 'up-front' fees to find although costs for valuations and legals (for example) are added to the advance.

Depending on the amount already lent as a mortgage, compared to the value of the property, most lenders will allow a secured loan to be added as additional borrowing, sometimes up to 95% of the property value.

The secured loan is normally repaid over a shorter term than a standard mortgage, usually 3-7 years, but the term can be longer and up to 25 years, although this will increase the amount of interest repaid. Rates vary depending on the customer’s circumstances and current level of borrowings, but can start as low as 4.95%.  

This market is predicted to grow dramatically in 2016 when a new EU Directive is implemented.  In short, when a customer wants to remortgage to raise additional funds, the intermediary / mortgage broker will need to demonstrate the best outcome for the customer. This means not only looking at a full remortgage on a first charge basis, but a comparison with an appropriate secured second charge loan allowing the customer to keep the existing mortgage or a further advance with the existing funder.  Although the Directive is still a way off, the FCA principles already apply to firms and individuals so best outcomes and best practice for borrowers are at the forefront of any advice and recommendation. This demonstrates more than ever the need to seek professional advice to achieve and meet your needs and requirements!

Stress tests can make quite a difference on your affordability

The election is now fading into the distance and we can concentrate on the future!  I am pleased there is to remain a level of continuity for our sector as it has been a very positive few months in our market and we need that to continue.  Funding is on the increase, competition is rife and rates are at their lowest for some time, with no immediate sign of any increase.  The remortgage market is buoyant and many are taking advantage of the lenders need to attract new business with many lenders offering free valuations and free legal costs. 

However, the main issue is still that demand for new houses outweighs the numbers being built and this will be the Governments biggest and immediate headache, along with possible lack of materials and manpower.  Time will tell.

The other issues tend to be around lender affordability.  Difficult to detail when I have minimal words, but in the main, lenders will stress test all mortgages against a possible rate rise and underwrite the customers 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%.  Whereas a five year (or longer) deal may be stress tested against the pay rate, which might only be 3 or 4% 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 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.

There are a number of attractive five year deals, some six and also ten year deals currently available.  Potentially great value if you know your plans for the longer term and prefer to fix your monthly payments.

'Remortgage ASAP or lose your chance?'

With everyone talking about the arrival of Princess Charlotte or the General Election, I feel compelled to mention both this week.

There's no denying that the public enjoy a Royal baby!  Not that William or Kate will need to, but for most, an expanding family normally leads to an increase in requirement for space.  Many may have upsized beforehand and bought a bigger property.  Or they will be looking to increase space, either via extending the existing property or maybe a loft conversion.  Either way, there are a variety of ways this might happen and, if it is you, then your first port of call should be to your current lender to see if they will increase your current borrowing.  Or shop around and see if other lenders might offer you a better alternative.  Depending on the size of the funding required, a secured second charge may be more suitable.  This might be a shorter term deal and means that you can keep your current mortgage untouched, especially if you already have a superb interest rate.  As always, do your homework and speak to an independent adviser!

By the time you read this, the Election will be over and results well on the way.  Many people have asked me if things will change depending on the results.  Quite simply, whatever happens and whoever is in power, they will be under extreme pressure from the housing market.  The target number of new houses are not being built, a generation of mortgage holders have never had an interest rate rise and some are saying that over 1m people are paying their current mortgage by credit card!  That is all on top of a buoyant housing market; rates still at their lowest for some time; the need to be able to maintain a healthy flow of first time buyers and with the European Mortgage Credit Directive (tougher affordability checks) less than a year away! These all combine to suggest a difficult task for whoever holds the balance of power!

However, for those able to review their mortgage requirements today, there is huge competition for customers in the fixed rate arena.  With both three and five year fixed rates now sub 2% and even Martin Lewis (Money Saving Expert) saying last week 'Remortgage ASAP or lose your chance?', the onus is on you to make sure you know your current rate, when is it up for renewal and making sure you change.  A huge number of people simply don't and might be paying more than they need to!

300 articles later...

As I pen my 300th column for the paper, I do wonder where the years have gone and what a totally different market we are now in compared to my first column in 2008!   In fact, that actual column highlighted the 'stormy waters ahead' and that 'this would be a journey we wouldn't forget in a hurry'.  What I, like most, didn't realise is that seven years on, we would still be in such a financial retraction!

However, the positives are that we are in the midst of a very competitive high street price war which has just seen a high street lender launch a sub 2% five year fixed rate deal.  This will spur on further reaction over the coming days. 

We've also seen lenders looking at assisting those with just a 5% deposit and having minimal or very small fees, to help First Time Buyers and Next Movers.   

We're also seeing lenders look at criteria to attract business, rather than just a low rate.  This could be a key part of the mortgage market moving forward.  A huge number of people will be ignored by computer technology and credit scoring decision making systems. But this does not mean they should not obtain mortgage finance, it just means they don't meet all of the rules entered to make that particular decision!

I often wonder if we are on the way back to as it was in 2007/8.   Rates couldn't go much lower then either and criteria played a huge part.  Fast forward to today and again rates can't get much lower and lenders are looking at gaps in the market where a criteria change or tweak might give them the competitive edge.

However this time, we also have a housing shortage problem.  The demand for houses is outstripping supply and this could lead to an increase in house prices.  First Time Buyers are already finding it tough enough without the additional stress of a lack of properties.  Let's hope someone is looking at addressing this issue and has a balanced approach to the market. 

Which leaves one last thought - I wonder what the market will look like in another 300 articles time?