What's in this edition?
-Lender Feature – Precise New Build Criteria Enhancements
-Underwriting feature – Affordability
-MCD – Coventry Intermediaries discuss the BTL market post MCD
-Regulation Update - MCD What brokers need to know about 2nd charges
- Mortgage Credit Directive update from Accord
-Lender news – Santander Recent Updates
-Forthcoming Events and Workshop
New build decline? Try Precise Mortgages’ enhanced new build criteria.
|Introduction- Christine Newell Mortgage Technical Director
In this quarterly newsletter we take a look at the changing landscape of the mortgage markets and the impact of the impending Mortgage Credit Directive on our businesses. The MCD is a big topic of conversation and unlike the MMR which impacted more on Lenders, my personal view is that the new rules coming into play will see Broker firms having to make significant changes to their disclosure and the way they work and interact with clients. Changes such as the use of the word “independent” which has given many firms a competitive edge over appointed representatives of Networks and retail branch staff will not be able to be used unless a firm is advising on the whole relevant secured lending market, which includes first charge and second charge mortgages. Other areas such as buy to let, foreign currency, lifetime and new build will also have a change process. Later on in the newsletter I will look at 2nd charges and what options are available to a firm post 21st March 2016. I hope you enjoy reading this update and it can be used as part of your CPD.
Precise Mortgages understand your customer’s options of buying a brand new home may feel limited if they have been declined a new build mortgage by a high street bank, which is why they have enhanced their new build criteria to help you place more cases.
The enhancements mean that those customers that are self-employed, have adverse credit or simply do not pass a high street lender's credit score now have a better chance of securing their dream property. There are also benefits for landlords who are buying a new build property as many of the changes apply to buy to let as well as residential lending.
Highlights of their enhanced criteria include:
- A dedicated New Build Priority Processing Service – 0330 024 0349 All new build cases are processed via this new service, where their experienced support team will ensure that the application is handled quickly and efficiently, making sure time is of the essence.
- Offers valid for up to 9 months
Appreciating that a change in completion date can sometimes be outside of your customer’s control, Precise Mortgages can consider extending their new build mortgage offers from 6 months to 9 where needed.
- 5% builders incentives accepted
With up to 85% LTV available, plus up to a 5% builders incentive on their residential mortgages range.
- Flats up to 20 storeys and flats over commercial properties are now accepted
- S106 obligations are now also considered
To complement their enhanced new build criteria, Precise Mortgages also offer a range of products that are exclusively available to residential new build properties, which you can take a look at here.
Don’t forget, products across their core buy to let and residential mortgage ranges are also available for new build products. Visit Precise Mortgages’ dedicated new build web page here to find out more.
AFFORDABILITY STRESS TESTING
Please find below my updated tables on affordability. I have been comparing these Lenders quarterly since MMR day in April 2014 using exactly the same scenarios each time. As you can see there are some real movers and shakers in the charts this quarter. Leeds top the first time buyer scenario based on their highest score. NatWest have lowered their LTI caps from 4.99 x income to 4.45 on 75%LTV or lower which has certainly had an impact on the 2nd scenario but they have also fallen in the 90% table too, however this drop in position is purely to do with other lender calculators offering more borrowing capacity.
Scenario 1 – Joint First time buyer at 90% LTV – no dependants. Student loan and credit card debts. Incomes £28,000 and £25000 + car allowance £500 pcm respectively (wishing to borrow £225,000)
Leeds - £282,617
Nationwide - £279,100
Halifax - £265,500
Virgin - £264,910
Platform - £264,910
Santander - £263,732
Woolwich - £259,805
Skipton - £254,000
NatWest - £250,700
Accord - £236,903
Kensington - £234,545
Coventry - £228,173
Scenario 2 Joint Next time buyer 70%LTV – 2 dependant children, car loan and nursery fees. Incomes £55,000 + £6000 car allowance and £45000 respectively (wishing to borrow £300,000)
Halifax - £454,500
Virgin - £454,500
Kensington - £437,220
Santander - £429,202
NatWest - £399,800
Leeds - £392,413
Woolwich - £368,720
Platform - £364,408
Nationwide - £361,300
Skipton - £359,250
Accord - £354,497
Coventry - £341,133
BUY TO LET MARKETS
The buy to let market space has seen the most growth since the downturn. In 2009 only BM Solutions and The Mortgage Works remained lending on investment properties and supported the rental sector. However since then we have seen an increasing upward trend and it looks likely that the UK BTL market will be knocking on the door of £32bn by the end of 2015. Some commentators are concerned about the rapid growth in this area fuelled by increasing let to buy transactions and the impact it is having for our first time buyers getting on the property ladder and the supply of good quality housing with fair rents. The Mortgage Credit Directive will have some further impact on the buy to let sector of the UK markets. Firms will need to get their heads around the new permissions for Consumer Buy to Let and the definition of when a client is a consumer buy to let and when they are an investor. Coventry Intermediaries site have some very useful information on how to understand these new rules and I have also included a link to their BTL factsheet on what to consider if you want to become a landlord. I am also attaching my latest updated sheet on Buy to Let criteria.
The Changing times for BTL
The Coventry for Intermediaries MCD Article
Please click here
The Coventry Fact Sheet for Becoming a Landlord please click here.
2nd Charge Loans and the Mortgage Credit Directive - What do Brokers need to know and how do you get support?
At its peak in 2007 the second charge market was worth £7bn but by Dec 2014 this had fallen to £600m. The pricing, structure, commission and non-regulated nature of this market has had a more adverse effect on the writing of this business since the downturn in the markets and has fast become a very specialist area. From 21st March 2016 second charge lending will be bought into regulation as part of the new EU Directive rules. This means that both first and second charges will be one relevant market for regulation purposes. Firms will need to consider carefully how they will deal with clients and the advice they give particularly where a client approaches a firm to borrow further money by way of re-mortgaging.
As part of a firm’s disclosure they will need to inform a client wanting to borrow further, that apart from a capital raising first charge re-mortgage there may be alternative financial options that could be more suitable such as a 2nd charge loan or a further advance from their existing lender or an unsecured loan. This will be an additional disclosure but is not new, as within the MMR rules a firm needed to disclose to a client that the option of a further advance could be a viable one. Following this disclosure, the firm can then offer the appropriate advice on all the alternative financial options or choose to either refer to a 3rd party specialist broker or to declare that the firm does not offer advice in these areas. The FCA are not forcing firms to give advice on second charges it will be a firms choice to do this.
As the 2nd charge market evolves and becomes more regulated the product pricing, structure, affordability and commission will become more aligned to first charge loans and less of a specialist function. The idea will be that the market will be known as the “secured lending market” and not differentiated by labelling as it is now, although this evolvement will take some time.
Sourcing systems such as Mortgage Brain and Trigold have already developed their systems to be able to offer post 21st March 2016 2nd charge sourcing where a broker will be able to directly compare 2nd charges with first charge re-mortgages. This will support a brokers advice process particularly if they choose to give advice on all areas of the market. As a firm you can book training directly with Mortgage Brain or Trigold on how to use their new systems once they are released.
Please click here for Mortgage Brain
Please click here for Trigold
Recently at the Financial Service Expo, Keith Hale –Technical Mortgage Specialist at the FCA said “There seems to be a business opportunity available for those who can provide a more holistic answer. Consumers who are introduced away…makes for a disjointed transaction. Smart people will be able to spot a chance here”
Paradigm Mortgage Services part of the Paradigm Group are going to be providing some much needed support in this area. Our first workshop in conjunction with Shawbrook Bank and BrightStar will be held on the 12th November 2015 close to Liverpool Street in London. Brokers can expect to be updated on the Mortgage Credit Directive and also learn how to spot second charge loans and what options they will have in order to be able to carry out a secured loan application. (Please click here to reserve a place on this workshop). We will be sharing our expertise on this market and we will endeavour to ensure that you come away with a suitable plan on how you are going to tackle 2nd charges within your advice process
Please visit the Paradigm Mortgage Services website for further information on suitable training events and the Mortgage Credit Directive. You can also contact Christine Newell on 07824708956 to discuss this further or email Christine.email@example.com
We have started to see Lenders announce how their processes will change for MCD, including Accord Mortgages as below. They want to support you as much as possible through this change, and are committed to ensuring the transition to MCD is as smooth as possible.
Accord Mortagges recently introduced a number of changes, including changes to foreign currency lending from the 1 October 2015 to help with the transitional pipeline challenges and support our partners through the changes:
• From 1 October 2015 Accord Mortagges no longer accept any foreign/converted currency or foreign assets as part of the affordability calculation. New disclosure questions are included in the application and offer stages. Customers who receive all income in a non-Sterling denomination or who indicate repayment of their credit will be dependent on the sale of a foreign asset or other investment held in a foreign currency will not be able to apply for a mortgage. However, if the customer is not wholly reliant on foreign income, assets or investments to repay their credit then the application can proceed to affordability but the foreign income, assets and investments would be excluded from the affordability calculations and repayment strategies.
• From 1 October 2015 up to January 2016* we will be introducing an ‘Offer Acceptance Form’ which will be sent to customers with the offer pack, customers will be asked to sign and return these forms as evidence they have accepted a non EMCD compliant offer
• From mid-January 2016* we will be providing EMCD-compliant mortgage offers and allowing our customers a 7 day ‘right of reflection’ for them to consider their offer before completing. Receipt of the COT within the 7 day ‘right of reflection’ period will be deemed as acceptance of the offer and as waiver of the period of reflection
• From mid-January 2016* we will be introducing a new KFI+ document offering some additional ‘top up’ information above that currently provided in a KFI.
• We will also be issuing a ‘Key Points Explained’ letter (aka Adequate Explanations) whenever we issue an offer throughout the mortgage journey i.e. at application or offer/reoffer stages. It will give an explanation about the EMCD regulated mortgage contract and any associated services, and is designed to be specific to that customer.
• Accord will not be accepting cases which will be classed as a ‘Consumer Buy to Let’. BTL customers will continue to receive their current style of mortgage illustration, and will not include any of the additional disclosures that will be included in the KFI+.
If you have any questions about these changes then full details of how to get in touch can be found on the ‘contact us’ section of our website at www.accordmortgages.com, or contact your local BDM, their details can be found by using our BDM finder on our website, in the ‘contact us’ section.
*subject to change
Recent updates from Santander for Intermediaries
Ground rent and service charge update
Santander recently improved the way they capture monthly ground rent and service charge in their affordability calculator and Introducer Internet.
Click here to read more
Evidence requirements update - monthly bonus/commission/overtime
Santander has updated their evidence requirements where monthly bonus/commission/overtime is used as primary income.
For monthly bonus/commission/overtime to be used as primary income, it must continue to be received regularly and consistently.
Click here for full details on what you need to submit as evidence.
Updates to our mortgage application process
From Monday 21 September Santander made some important updates to their mortgage application process.
Residential Purchase and Buy to Let applications
· Valuation now instructed upon initial case set up
· Income details screen within Introducer Internet. The income details screen within the full mortgage application (FMA) has been updated for all residential and Buy to Let applications to display the full income table.
Residential applications only
In preparation for the EU Mortgage Credit Directive on 21 March 2016, Santander have made the following updates to Introducer Internet.
· Employed income paid in a foreign currency
· Repayment vehicle in a foreign currency
Click here to read the full details of these changes
New 95% LTV products
Santander recently launched new 95% LTV mortgages, outside of the Help to Buy: mortgage guarantee scheme.
These products all have the added benefit of a free standard valuation for mortgage purposes (up to a property value of £2.5 million).
Click here to visit their rate guide and see current products available.
Introducing our new Fee Saver Remortgage Range.
Recent figures from the British Bankers’ Association showed an increase in remortgage activity in August – up by 38% since last year.
With this new range, your customers get:
No booking, product arrangement or valuation fees to pay (limited to valuation fees up to £560 only).
A range of competitive remortgage products including fixed and discount rates, Buy to Let and Interest Only. LTVs from 50% to 85%.
Fees assisted in-house legal services (for standard remortgages)
Your customer can make overpayments up to 10% each year without incurring ERCs.
As well as our Fee Saver range, we offer a whole array of products suitable for your remortgage customers, including a dedicated Help to Buy range.
There’s even an Interest Only Part & Part Option.
Our Fee Saver range even includes an Interest Only Part & Part option, suitable for Interest Only borrowers who want to start reducing the amount of capital they owe.
Research carried out by Citizens Advice highlighted how just under one million borrowers have no idea how they will repay their interest only mortgage at the end of the term.
Remortgaging to a Part & Part mortgage allows them to start reducing the capital they owe, without the payment shock of moving to a full repayment mortgage.
Your customers are able to borrow up to 75% LTV, with a maximum of 50% on interest only and the remainder on capital repayment.
To find out more about Part & Part as well as our wider remortgage range, visit our website.
Paradigm Workshops and Seminars
Lending into retirement workshop- Exeter - 5th November
Lending and MCD Masterclass - Belfast - 11th November
MCD and Second charge loans event - London - 12th November
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 (Mortgage Technical Director) – 07824708956
Birmingham Office: Sue Caughtry / Riona Mulherin – 0121 781 7338/7337