Welcome to my quarterly mortgage newsletter. In this issue I have covered off my quarterly affordability assessment showing 13 lenders and how they compare with 2 scenarios. Both of these scenarios I have been using since the launch of MMR last April. I am also including my updated acceptable income table and my weekly hints and tips on underwriting are incorporated into this newsletter. Also included are a couple of recent articles from our Lending partners. Virgin Money detail their new re-mortgage zone on their website dedicated to helping you generate more sales from this area. Leeds have detailed their new interest only criteria around part and part transactions. Hodge Lifetime discuss their view on lending into retirement and NatWest talk about their recent finding on Buy to Let and New Build and detail their recent changes in underwriting for these areas. I hope you find the information useful. Don’t forget this is a form of CPD so after reading you can log this in your T&C documentation.
Paradigm update on our Mortgage Lending Panel
Just a quick update for you all on new lenders to panel. Paradigm recently added Airdrie Savings Bank mainly for our Scottish Members on our Panel. They can take a more pragmatic approach to borrowers and individually assess these clients. We also added the Marsden Building Society and they have given Paradigm members a couple of BTL exclusive products. These are as follows:-
- 75% LTV - 2yr discounted product pay rate 2.85% until 31/01/2018 with booking fee of £399 and arrangement fee of 0.5%. They also offer free standard valuation for purchase and re-mortgage and free legal assistance also for re-mortgages. You can overpay by 5%
- 75% LTV - 2yr discounted product pay rate 2.99% until 31/01/2018 with booking fee of £399 and No arrangement fee. Everything else is the same.
These fair pretty well against similar types of products on the market and with rental calculation at 125% x 5% they should not be too testing on rental yields.
Other Lenders that we are in discussions with and are likely to add to panel very soon are:-
- The Mansfield BS – one of 3 lenders still offering regulated BTL lending
- Castle Trust – equity release second charge lender
- State Bank of India – innovative BTL products
Lenders who are available through our Specialist Lending Partner, Brightstar, are:-
- Pepper Home Loans – BTL and adverse lender
- Foundation Home loans – BTL lender with flexible criteria
- Earl Shilton BS – Expatriate business
- Kent Reliance – Flexible on criteria lender for BTL, Expat and Affordable housing schemes
The Re-Mortgage Market
The re-mortgage market is still yet to really get off the ground and I do ask myself why this might be the case. We do have a lot of clients still sitting and waiting for the rates to increase but current market rates have never been lower so why not take advantage now? I can understand that most firms that I speak to are incredibly busy with new business, and that Lenders (according to a Mortgage Strategy recent poll) are still as “tight as ever” on criteria causing more time to be taken on such business. Looking after existing clients is our bread and butter and shouldn’t be neglected, Virgin Money have put together a dedicated area on their site for these clients. Please see below.
Virgin Money re-mortgage toolkit
Virgin Money know many homeowners choose to re-mortgage as they reach the end of their current deal. However they also know that many opt for the flexibility of their lender’s SVR. Around 3.2 million residential mortgage accounts in the UK are on a SVR scheme – that’s a market size of around £280 billion (1).
With the Base Rate at a standstill, your clients might just stick with the flexibility of their SVR, paying an average interest rate of 4.92% (2). But with new mortgage rates at an all-time low, this does mean that many of these consumers are missing out on the opportunity to save money, or pay off their mortgage early by re-mortgaging.
They’ve created a Re-mortgage Zone on their intermediary website – packed full of useful facts and figures to help you reach out to prospective re-mortgage clients.
It also includes a handy toolkit to help you get your customers thinking about remortgaging with the following materials for you to use:
> Sales aid
> ‘Reasons to re-mortgage’ brochure
> Posters to display in your offices
> Re-mortgage infographic
> Sample letters and emails
You will also find guidelines within the Re-mortgage Zone which have been prepared to help you use the toolkit materials effectively. Why not visit the Re-mortgage Zone for further details or contact your dedicated BDM to talk about their wider range of re-mortgage products and features.
1. Virgin Money analysis based on stock residential mortgage data from the CACI mortgage market database February 2015.
2. Average Standard Variable Rate based on whole of market. This does not include any loyalty SVRs (correct as at 30 April 2015)
Affordability Stress testing
Below are my comparisons on 13 Lenders for affordability purposes.
Scenario 1 - Joint First time buyer at 90% LTV – no dependents. Student loan and credit card debts. Incomes £28,000 and £25000 + car allowance £500 pcm respectively (wishing to borrow £225,000)
Woolwich - £295,000 – (not more than 5 x income)
Platform - £295,000
Nationwide - £280,300
Santander - £265,494
Halifax - £265,000
Scottish Widows - £265,000
Leeds - £258,215
Skipton - £254,000
NatWest - £250,000
Coventry - £248.877
Accord - £245,401
Virgin Money - £237,500
Kensington - £234,545
Scenario 2 - Joint Next time buyer 70%LTV – 2 dependent children, car loan and nursery fees. Incomes £55,000 + £6000 car allowance and £45000 respectively (wishing to borrow £300,000)
Santander - £475,537
Halifax - £454,500
Scottish Widows - £454,500
NatWest - £451,700
Kensington - £438,300
Woolwich - £410,000
Nationwide - £393,900
Platform - £393,888
Leeds - £373,432
Accord - £371,793
Skipton - £366,000
Coventry - £354,652
Virgin - £318,750
Notes - A few movers and shakers from last quarter. Santander and Lloyds Banking Group still remain in the top quartile of lenders in terms of good affordability for both scenarios. Platform and Woolwich are good if the client has no dependent children or adults. Platform have still not introduced a LTI cap such as other Lenders, and Skipton have lost some ground by introducing their LTI cap in May this year. I have added Kensington to the mix as they are really banging the drum on their criteria, affordability-wise they compete on the 2nd scenario but don’t allow 90%LTV so are out of the running on the 1st. Unfortunately Virgin Money still remain cautious in their approach but we understand that their risk teams are keeping a watching brief and they may make some amendments later on this year... fingers crossed.
We are starting to see some Lenders relaxing their criteria around interest only. Woolwich have recently moved to allow part and part transactions and NatWest are talking about re-entering the interest only market with similar criteria to Santander. Leeds have also launched their part interest only and part repayment solution. Please read the details below on how this works and how you can possibly use it to attract more business through your doors.
Leeds BS have recently improved their interest only criteria and now lend up to 75% LTV on a part and part basis, they have a new range of part & part products with rates starting from 2.39%. A useful guide to these kinds of mortgages and to show which type of clients these mortgages may be suitable for can be found here.
Which borrowers may these products be suitable for?
In 2013 the FCA identified a clear need for interest only borrowers to start taking control of their mortgage repayment planning*. It was estimated that 600,000 borrowers will see their mortgage mature before 2020 and 10% don’t have a repayment strategy in place.
Re-mortgaging to a part & part mortgage allows these borrowers to start reducing the capital they owe, without the payment shock of moving to a full capital repayment mortgage. These products may also be suitable for borrowers facing an endowment shortfall or for high net worth borrowers looking to maximise their existing investments.
We currently have a Paradigm-only exclusive product from Leeds BS of this nature, you can find details here.
*FCA Interest only findings: http://www.fca.org.uk/news/interest-only-mortgages Published 2/5/15
Lending into Retirement
This area has probably been the worst hit by the down turn and troubles amounting from the crash in 2008/09. It continues to be a bone of contention for Brokers and Lenders alike, where each struggles to apply the necessary MCOB rules whilst also trying to achieve the best possible outcome for the client. Lenders are looking for solutions to this problem and Santander have intimated that they could be developing a lifetime product solution to address their back books. However, there are a number of Lenders who allow clients to take a loan past their normal state retirement age and these are generally the smaller building societies like, National Counties, Harpenden, Ipswich, Cambridge etc. A couple of Equity Release providers have been innovative and developed a hybrid product that basically fills this gap. Hodge Lifetime were the first to do this and they talk about this in the attached article and details of their Retirement mortgage. Please click on the links provided to learn more.
Read the following interesting article by Hodge Lifetime on this topic by clicking here:
Hints and Tips Underwriting
'Customers borrowing requirements in retirement are changing- Meeting the challenge'
Precise Mortgages allow joint clients to purchase a property and the term can be based on the younger client’s age. Providing affordability is solely dependent and calculated on the younger clients income with no recourse to the older client’s income the term can extend to the older client’s 85th birthday to assist with affordability. Please discuss each case with your relevant Sales Manager. Woolwich can also accommodate this type of scenario.
NatWest will allow a client to purchase a buy to let property if they are not currently a homeowner. This is affectively a first time buyer landlord. They will address any concerns about the client potentially moving into the property by carrying out an affordability test using income multiples and ensuring it does fit their stress test. Other Lenders who also do not require the client to necessarily be a residential homeowner or owner occupier are BM Solutions, Coventry Intermediaries, Precise Mortgages, Kent Reliance, Harpenden, Kensington and TMW. Clients with these lenders can be buying with an experienced landlord or be an experienced landlord without a main residence or have inherited a property. Please discuss individual cases with each Lender.
Virgin Money can accept gifted equity on a BTL transaction. They are one of very few that actually accept this on BTL applications. Other Lenders who can also accept gifted equity as a deposit are NatWest, Coventry Intermediaries, Clydesdale Bank and Woolwich.
Halifax will accept a Landlord gifting a deposit to their tenants. All lenders generally expect the donor to have a family connection to the applicant but in these circumstances Halifax makes an exception to their rule. The Landlord has to gift a minimum of 10%. Hinckley and Rugby are the only other Lender that I know of that does this and they require a minimum of 20% to be gifted.
For professional sports people Precise Mortgages will treat them as a contract worker and do not impose an upper age limit. Generally most Lenders will only allow professional sports people to take a mortgage term to 35yrs maximum age. Precise Mortgages have no upper age limit as long as the client has 6mths left to run on their contract and have been employed continuously on the same basis for at least 12 months.
Changes to Underwriting and processes
Nationwide – You can now print off their affordability calculator which makes it easier to keep a track of what was agreed before the case was submitted. These can now be kept on client files for audit trail purposes.
Kensington – Have recently removed the requirement for a minimum income for experienced Landlords. Their criteria is as follows;
- For first time landlords they require a minimum provable income of £25K
- For Landlords who are not experienced (had a BTL at some point) no confirmable income required
- Experienced landlords, no confirmable income required and no need to own their current residence
NatWest – Now accept Selective licensed BTL properties.
Buy to Let markets
The BTL markets have been making the headlines again, mainly because of the rapid growth in this particular area. The Bank of England has warned that this sector of the market could pose a threat to the UK economy due to having looser lending standards than owner-occupier loans and because a higher percentage of BTL mortgages are arranged on an interest only basis. The industry has hit back saying that although the market has had some significant growth in the past couple of years it is still below pre-crisis levels and the Bank is basing their findings on recent evidence rather than taking a wider view of the situation. George Osborne has also jumped into the BTL debacle by cutting the tax relief private landlords receive on income from rental properties. By 2020 private landlords will only be able to claim 20% tax relief on rental income received whereas previously what relief you get was determined on your tax banding 40% for higher rate tax payers and 45% for additional rate. NatWest recently conducted a survey on the BTL and New Build markets which shows that despite this negative feedback the market still has room to grow over the next 6 months. NatWest has also made changes to their BTL criteria and now accept selective licenced BTL properties. These types of properties were previously unacceptable as they may be in areas of towns which has social and behavioural problems or where there was not much demand for rentable properties. Local Authorities control which areas they designate as selective licencesing but you can find out more from the Registered Landlords Association or by reading this report from NatWest.
You may have recently seen Bob Hunt’s article in Mortgage Strategy about writing a will and that 70% of people in this country still do not possess a valid will.
Writing this article from my own recent experience shows how much easier it was to put my Father-in-Law to rest because he was in the 30% of people that did have a valid and up to date will. Unfortunately John Allen passed away on 17th April this year, he had a debilitating disease that affected his lungs and we always knew that he was living on restricted time from diagnosis 5yrs ago. He used that time carefully and reviewed his will and also set out how his funeral should be conducted, right down to writing his own eulogy and ensuring we all went to the pub and had a drink on him. The day came when he did pass on and it was very sad but because everything was done and in place it gave us all time to celebrate and remember him without any worry that Maureen would be left financially insecure or desperately trying to sort things out with no time to grieve. This has definitely helped us all cope with his loss in a much more positive way.
If you haven’t got any provisions or referral process for ensuring your clients have considered making a will then we recently relaunched our Paradigm Legal services in conjunction with Redstone Wills to help you offer wills to your clients who require one. Redstone Wills is a trusted will writing company with a wealth of experience. This is a straightforward way of helping your clients and provide a potential source of income to you by way of a referral fee, plus you can currently get a will for free as a Paradigm member, so you can try the service yourself. For more information and details please click here.