What’s in this Edition?
- Welcome to 2015 update
- Affordability check
- Lender spotlight – Virgin Money on Buy To Let
- Underwriting feature – Contract workers
- Unique Points to Note – Accord Mortgages
- Forthcoming Events and Workshops
Welcome Back to an exciting year ahead
Welcome back to what poses to be an exciting year in the Mortgage industry. I hope you all had a well-earned break and are now fit and raring to meet the new challenges and opportunities that 2015 will undoubtedly bring. So, what awaits us this year…….?
Well MMR is well and truly behind us and the Industry is now looking forward to how the EU Directive will impact further on our businesses. I was lucky enough to attend the briefing at the FCA in Canary Wharf a month ago and that gave a good indication of where the issues may lie. I will be sending out a separate briefing note to you all on this. For now the focus for regulation has to be on applying to vary permissions on Consumer Credit Activities (CCA) and getting this right. Please visit the Paradigm support pages on our website or give me a call if you have any concerns around CCA.
Fleet Mortgages are the first New Lender to launch this year. Fleet's management team have all come from the former lender Capital Home Loans (CHL) and have plenty of experience in the intermediary markets. Fleet Mortgages will specialise in Buy To Let mortgages. They will offer Ltd Co BTL and HMO’s and are specifically targeting the professional landlord markets. Metro Bank also launched their Professional Landlord schemes including Ltd Co BTL deals and upped their portfolio size to 25 properties. This is great news and provides welcome competition for Paragon, Kent Reliance and Shawbrook Bank and to some extent TMW. Currently Fleet Mortgages have a limited distribution channel and they can be access mainly by specialist BTL distributions. Paradigm members currently have access to Fleet via Solent Mortgage Services, but we are likely to be added to their panel in the 2nd quarter of this year for direct applications and will keep you up to speed with any developments. TSB are set to launch into the intermediary space; they are looking at working with Appointed Representatives only to begin with which is disappointing from a Directly Authorised perspective, both John Coffield and Bob Hunt are in dialogue with the Senior Management Team at TSB and we will let you know how our negotiations progress.There are some other new Lenders set to launch this year which is also great news and gives further competition for the likes of Santander and Lloyds Banking Group.
You may have previously seen Bob Hunt’s blogs and Industry commentary around Lenders increasing procuration fees and the reasons why they should consider this post-MMR. The great news is that we have seen a number of Lenders make the necessary moves to do this. It started with the ever-friendly Intermediary lender Coventry just following MMR, but carrying on this theme in the last quarter of 2014 a number of Lenders also increased their fees including Accord, Clydesdale, Leeds and most notably Virgin Money who upped both residential and BTL fees to 0.50% gross. This can only have a positive impact on your businesses and clients alike moving into 2015. A fair day’s pay for a fair day’s work springs to mind. Even better news is that Paradigm continue to share any override income and therefore you will be even better off using the Paradigm payment route - if you're not already doing so, find details of how to add us as your payment route with each of our lenders here.
Interest rate rise
The UK saw inflation drop to 1% in November last year. That was followed by a surprise jump in wage increases and unemployment remaining steady. Average earnings increased by 1.4% in October 2014 and inflation in the same period remained at 1.3% so pay rose slightly higher than the cost of living. This is good news for consumer spending in 2015 and growth in the UK economy but despite this wage increase it is unlikely that the BOE will bring forward an interest rate increase. Markets and chief economists are forecasting the next interest rate rise to be late in 2015 around October/November time. This outlook is driven by downbeat expectations for inflation, global growth and continued struggles in the Eurozone. For us and the housing markets this means that re-mortgages could still remain subdued until the end of 2015. We are no strangers in this industry on the phrase “you make your own luck” and I think it would be prudent for firms to be looking at their existing client books and discussing how a 0.25% interest rate rise would affect a client’s household income and acting accordingly with product transfers and/or re-mortgage opportunities now.
Affordability Stress Testing
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. The figures show some movement amongst the larger lenders on affordability since the last time I compared which was November 2014. Particularly noticeable is NatWest increasing their lending capacity for the next time buyer. I have also started to include Scottish Widows who have been silently creeping up on the inside rail and competing on price, service and at thinking outside of the box when dealing with larger loans - one to watch out for.
Scenario 1 – Joint First time buyer at 90% LTV – no dependents. Student loan and credit card debts. Incomes £26,500 and £18,500 respectively
Santander - £209,401 (up £5K from Nov 2014)
Nationwide - £203,200 (no real change from Nov 2014)
Halifax - £202,500 (Up £2.5K from Nov 2014)
Scottish Widows - £202,500 (NEW)
Virgin Money - £202,050 (Up £2.2K from Nov 2014)
NatWest - £191,200 (Up £2.2K from Nov 2014)
Leeds - £178,753 (Up £6K from Nov 2014)
Accord - £166,396 (Up £9K from Nov 2014)
Coventry - £168,996 (Up £18K from Nov 2014)
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
NatWest - £438,000 (Up £15K from Nov 2014)
Halifax - £436,500 (No change from Nov 2014
Scottish Widows – £436,500 (NEW)
Virgin Money - £436,000 (no change from Nov 2014)
Santander - £425,451 (no change from Nov 2014)
Nationwide - £405,900 (down £2K from Nov 2014)
Accord - £351, 890 (down £37K from Nov 2014)
Coventry - £339,503 (down £25K from Nov 2014)
Leeds - £289,984 (down £26K from Nov 2014)
Virgin Money: Buy to Let
Have you recently taken a look at Virgin Money for a Buy to Let Client? Virgin offer some unique flexibility on their buy to let range which can be attractive to new and existing landlords.
- Day 1 re-mortgage - Unlike other lenders Virgin will allow a re-mortgage to capital raise in less than 6 months of the Landlord purchasing the property (lending will be based on the original purchase price and not the market value). In other words day 1 finance on properties bought at auction. This is helpful to clients looking to free up capital to finance other purchases.
- Payment Holiday – Subject to prior agreement Virgin will allow one month payment holiday after 9 months of normal payments and a maximum of 3 months after 27 months – helpful to offset rental void periods
- Overpayments – 10% overpay of the outstanding balance per annum
- Fees added – Product fees can be added to the loan
- Maximum LTV 75%
- Maximum borrowing of £3 million (maximum of 10 properties)
- Maximum loan size of £1 million (no minimum loan size)
- Rental income must be 125% of the mortgage interest, calculated at 5.99% or the rate of the selected product if higher
- Do not accept BTL applications for FTBs. For joint applications, at least one applicant must have been an owner occupier for at least 6 months on the date of decision - may request evidence
- Minimum combined income of £25k (excluding income received from BTL properties)
- If re-mortgaging a main residence on to a BTL, client must simultaneously complete on a new residential property
- Please contact your dedicated BDM, who is always willing to help.
I have attached my latest BTL spread sheet on underwriting to assist you with finding the right lender on their published criteria. I have also attached my recent interest only and Lending into retirement sheets for information only. Please always check with the Lender prior to submitting any deal in case I have overlooked anything important.
Christine Newell – Partnership Manager
I have recently been asked by a number of Brokers to prepare something on which Lenders are good with contract workers and how they would review income in these circumstances. There are two different scenarios for contract workers and these are employed on a fixed, rolling, temporary, Zero hours or agency contract or self-employed having one or a number of contracts with different companies. Below are a couple of Lenders who will look favourably on your clients income from both of these points of view:-
Firstly Halifax will consider both employed and self-employed options. If a Client has continuous 12mths employment with at least 6mths remaining on the contract OR the customer has 2yrs continuous service in the same type or employment they are good to go.
IT Contractors – on any income and other contractors earning at least £500 per day whether employed or self-employed Halifax will take the gross value of the contract as evidence of income and the above continuity rules apply.
CIS contractors – Considered and average of the last 6mths income should be used and evidenced
Zero Hours – Total of the last 12mths calendar income will be used only
Metro Bank considers contract workers with at least 1yrs experience of working on this basis and again will take the value of the contract x 46 weeks to ascertain borrowing capacity. They will also allow the client to have multiple contracts and will not mind if the client is using an umbrella company to pay their tax.
Skipton also consider contract workers
where there is a limited company umbrella and the applicant is self-employed. Current contracts must be for 6mths or more. Clients must have 24 months of working as a contractor and previous copies of contracts will be required. If within 3mths of contract ending then proof of renewal will be required. Income will be calculated by taking the value of the contract x 48 weeks.
Virgin Money will class contract workers as employed for income purposes if they are currently on a 12mth contract with at least 6mths remaining. If not 6mths remaining then evidence that it will be renewed will be required. Client must also have a continuous employment of 12mths on this basis. Virgin will also consider clients on a 6mth contract as long as it has at least 3mths remaining and they have at least 24 months of continuous employment on this basis. The value of the contract is taken unless its value is higher than the previous contract, if so, it will be averaged over 2yrs.
Other lenders who are also flexible with contract workers are; NatWest, Leeds, Aldermore, Nationwide, Clydesdale, Saffron and Kensington.
Accord: Unique Points to Note
- Web chat – new Live Web chat tool on their website. Web chat allows brokers to talk directly to a Business Development Adviser without having to call them. You’ll find the live chat facility in the right hand margin of their websites. Simply click on the ‘Chat now’ link and start typing your question. Live chat is available between 9am and 5pm Monday to Friday.
- Online FAQs – They've recently launched a new Frequently Asked Questions (FAQ) facility on their residential website. Go to the Accord homepage and in the right hand margin simply start typing your question and their dynamic search functionality will provide you with a list of possible answers to your question.
- MATS Document Upload Facility – document upload facility to make the mortgage application process faster and more efficient and make doing business with Accord even easier.
Workshops and Event Schedule
We still have 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. For any events where registration is not yet possible, please send us an email to reserve a place in advance.
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 (Head of Protection) – 0775690340
Christine Newell (Partnership Manager) – 07824708956
Birmingham Office: Sue Caughtry / Riona Mulherin – 0121 781 7338/7337