What’s in this Edition?
- Re-Mortgage rate check
- Santander - Is now the time to fix?
- Affordability stress testing
- Underwriting feature – Self-employed
- Forthcoming Events and Workshops
Re-mortgage rate and client contact
Has anyone noticed the fantastic rates in the market place recently? Lenders are so very keen to lend and need to get the figures on their books before the year end. Where better than to focus on the Intermediary market to make up their shortfall in lending. Swap rates continue to stay low and Lenders are able to offer stunning deals, so why is there a distinct lack of customer’s knocking down the Intermediaries door to make a purchase?
We definitely know that the changes to Mortgage Regulation brought about by the MMR, and the caps imposed on loan to income ratios has meant stricter affordability models, underwriting requirements having been tightened and that interest only criteria has virtually been restricted to a handful of Lenders. Clients who read the finance pages continue to hear about the agonies of others trying to obtain a mortgage. These articles don’t reflect the true picture and there are still a lot of Clients who acquire mortgage finance without a hitch. As an Industry, I believe we need to be proactive about contacting our existing client banks to tell them about the deals on offer. With an election on the horizon and possible increases in the Bank of England rate, Clients holding on to their Standard Variable Rate due to lack of knowledge, fear of long drawn out processes or just pure apathy are at risk of losing out on some of the best deals seen for some time. Just look at some of the highlights below.
Nationwide – 10yr fixed rate 3.49% fee £999 - Standard valuation paid for and the choice of cashback or free legal assistance offered. (There is a fee free option at 3.59%)
Santander – 5yrs fixed rate 2.89% fee £995 – Re-Mortgage solution incentive to include legal assistance or cashback and free valuation.
Platform – 2yr fixed rate 1.84% fee £999 – Re-Mortgage incentives to include free valuation.
Time to call those clients?
Santander: Is now the time to fix?
While much press ink has been spilt on the rise in house prices that we have seen over the past 18 months, there has been less attention on another side of the housing and mortgage market – remortgaging.
The extent of remortgage activity, like house purchase, fell very sharply in the recession. Its revival has been slower than that of house purchase activity. But over the past two years the number of remortgages has increased. The latest figures, for August, show that just over 32,000 remortgage loans were approved in the month, with a value of £5 billion. In the eight months to August the value of remortgage loans approved was up 12% on the same period a year earlier.
With the rise in house prices having increased homeowners’ equity, this may be leading existing borrowers to consider remortgaging to take advantage of competitive deals in the market, especially at a time when the general market expectation is that policy interest rates are set to rise next year.
A reminder of some of the benefits to you customer if they remortged to a fixed rate now are:
Santander have an attractive remortgage proposition that could benefit your customers:-
- The stability of a fixed monthly payment
- Increases in their salary over the course of the fixed rate may lead to greater disposable income
- Being able to overpay 10% per calendar year without incurring an early repayment charge, should their circumstances change
- Peace of mind from knowing their monthly mortgage cost in a period of great uncertainty in the economy
Affordability Stress testing
- A range of Fixed mortgages up to 85% LTV
- Standard mortgages available up to £1.5m
- Large loans considered up to £2.5m (max 70% LTV)
- Flat fee and no booking fee options
- Remortgage Solution available on the majority of products:
- A Free standard valuation1
- Standard legal work2
Plus did you know?
If your customer would like to use their own solicitor they can opt for £250 cashback as an alternative to the standard legal work.
For further information please visit www.santanderforintermediaries.co.uk or call your dedicated sales contact.
Please find below my updated tables on affordability for the 8 Lenders that I have been comparing since the launch of MMR in April 2014.
Scenario 1 – Joint First time buyer at 90%LTV – no dependents. Student loan and credit card debts. Incomes £26,500 and £18,000 respectively
Santander - £204,449 ( down £5K from August)
Nationwide - £203,000 (up £16.6K from last August)
Halifax - £200,250 (no change from August)
Virgin - £199,805 (no change from August)
NatWest - £189,100 (down £3K from August)
Leeds - £172,855 (down £8K from August)
Accord - £157,932 (down £20K from August)
Coventry - £150,811 (down £3K from August)
Scenario 2 Joint Next time buyer 70%LTV – 2 dependent children, car loan and nursery fees. Incomes £55,000 + £6000 car allowance and £36000 respectively
Halifax - £436,500 (up £15K from August)
Virgin - £436,000(no change from August)
Santander - £425,451 (up £21K from August)
NatWest - £423,800 (no change from August)
Nationwide - £407,900 (up £53K from August)
Accord - £388,649 (up £20K from August)
Coventry - £364,480 (up £25K from August)
Leeds - £316,083 (up £30K from August)
- We can see that Nationwide have certainly improved their borrowing capacity through their affordability changes which they announced last month, particularly in the first time buyer market.
- Santander have dropped off the top spot for the 2nd scenario and Halifax have leap-frogged to top of the table.
- Leeds, Coventry and Accord have all improved borrowing capacity for higher net worth individuals but remain bottom of the table on maximum lending totals.
- It is interesting to see that most lenders have decreased their borrowing for First Time Buyers and higher loan to values.
Self Employed Underwriting and changes for the better
I am not sure if you have noticed, but over the last few months, Lenders are very keen to lend. The market has suddenly been inundated with some staggeringly low rates, but that is not the only thing that has been changing.
Acquiring mortgage finance for the self-employed since the downturn in the market has been the most demanding in terms of time, paperwork and research for Brokers, mainly because of lending staff not always understanding their own criteria, and clients not really understanding their own income. If I were a betting man, which of course I am not, I would bet that if management information was available it would probably show that self-employed cases take the longest to get to offer or have to be replaced with another lender more often than other standard cases.
However, recently and very subtly, Lenders have relax some of their criteria. You probably won’t have noticed it but we are starting to see some innovation and flexibility for these clients. Let’s look at some of the changes and examples, that have crept in without a fanfare.
1. Clients who change their tax status – This is where a Client moves from a sole trader to a limited company set-up, to maximise their tax situation. Previously Lenders demanded to see at least 2yr trading under the new status. The following lenders will now consider this as a continuation of business and use previous accounts under the sole trader entity as long as the limited company has at least 1 full year of accounts:-
Accord, Aldermore, Coventry, Halifax, Kensington, NatWest, Nationwide, Precise, Virgin
2. Use of profit figures for Ltd Co Directors – Ltd Co Directors can adjust the amount of tax they pay by using dividends as part of their remuneration package to either pay themselves or pay non-shareholding Directors. Two lenders have decided to look at accepting profit figures rather than dividend figures. Virgin & Clydesdale have gone as far as using the Companies Operating profit figures (before tax) plus the Director’s salary and Coventry will look to take the net profit figures plus the Director’s salary. Both of these calculations for affordability purposes may give your client a much greater borrowing amount than the traditional use of salary and dividend payments. Other lenders who can consider using an applicant’s share of net profit or retained profit are below:-
Aldermore, Halifax, Kensington, Woolwich.
3. Non-shareholding Directors paid dividends - As above some companies can use certain tax rules and pay their Staff dividends as their income. Lender underwriting generally states that if a Client has less than a 20% shareholding in a company they can be treated as employed. This means the lender will take a payslip to show the salary. However if they are paid dividends this in the past creates difficulty for the larger more automated lenders as they can’t underwrite them as part employed and part self-employed. Now this has changed and the following Lenders will take a payslip for salary and look for either an accountants reference, SA302 documents or accounts to confirm dividend income:- Accord, Aldermore, Clydesdale, Halifax, Kensington, NatWest, Nationwide, National Counties, Precise, Scottish Widows, Woolwich.
4. Only need 1yrs accounts – 1yr ago there were no lenders considering a client who has only 1yr full set of accounts. Kensington were brave enough to stick their head above the parapet and accept these clients through their specialist self-employed range. Since then we have seen a few more lenders move to accept this situation. These are as follows:- Halifax, National Counties, Principality, Precise, Scottish Widows,
Finally I think that I will have to say the rising star in the lending to the self-employed and winner of best lender for this category on flexibility has to go to:-
I am attaching their sales aid to show you what they do and do not accept in terms of income for ALL their differing self-employed clients, and I hope this helps you with placing self-employed clients without having to do too much work. Please always remember to discuss each individual case with a your Lender BDM or helpdesk (0800 116 4385) to ensure that it fits the bill. I have also attached my “Lending to Self-employed Criteria sheet” for assistance.
Forthcoming Events with Paradigm
We still have a few remaining places at the following events, and we really would encourage you to come along and join us if you can. CPD certificates will be provided for all events.
12th November – Belfast - Mortgage and Protection Round Table event
19th November – London – Protection Best Practice Workshop Radisson Blu Edwardian, WC1B 3QD – Afternoon session only
20th November – Bristol – Protection Best Practice Workshop Hilton Bristol, BS32 4JF
26th November – Cobham – Protection Best Practice Workshop Hilton Cobham. KT11 1EW
27th November – Southampton – Protection Best Practice Workshop Botleigh Grange Hotel and Spa SO30 2FL
2nd December – Norwich – Protection Best Practice Workshop, Dunston Hal, NR14 8PQ
9th December – Swindon – Paradigm Lending Master class with Skipton and TMW venue to be advised
Get in touch
If you would like more information on any of the items detailed in this bulletin then please get in touch on the numbers below or visit our website www.paradigmmortgages.com
Mike Allison (Partnership Manager North) – 0775690340
Christine Newell (Partnership Manager South) – 07824708956
Birmingham Office Sue Caughtry / Riona Mulherin – 0121 781 7338/7337