Mortgage Market News
What’s in this Edition?
- Affordability stress testing
- Help to buy
- Featured provider Hodge Lifetime Hybrid product
- Underwriting – Lending into retirement
- Updated Interest only spread sheet
- Forthcoming Events and Workshops
Affordability Stress testing
The biggest talking point since MMR launched in April has been about the “housing bubble” and how to control it. There are also concerns around salaries and income and how this is increasing much slower than the house prices.
Bank of England Financial Policy Committee caps on income multiples
In order to start to tackle these problems and prevent a housing boom, the BoE FPC has stated that Lenders are not able to hold more than 15% of their mortgage book at an income multiple greater than 4.5 times. They have also looked to impose some income multiple caps above 4.5 times. Loans above 85%LTV including Help to Buy Mortgage Guarantee Scheme must be less than 4.5 x income and up to 85%LTV income multiples must be less than 5 x income.
Effects on Lenders
What effects has this had on Lender affordability? It didn’t take long for the Government owned Banks to show their hands and the RBS and Lloyds Group immediately moved to 4 x income on London properties over £500K. Nationwide moved to 4.75 x income for all residential lending including all income types across the Country on all loan values and their stress testing rate increased to 6.99%.
In a second wave of changes Halifax capped the amount of borrowing to £150K maximum on Help to buy equity share, shared equity and shared ownership loans. This is down from £500K. Aldermore followed the proposals from the FPC and brought in the 4.5 cap above 85%LTV and a maximum or less than 5 times income for loans up to 85%. Santander have also capped multiples on their Help to Buy schemes and also changed their affordability stress testing - although they are keeping this rate under wraps for the present time.
This has had an interesting impact on my affordability emails that I have been sending out to show you same scenarios via 6 different lender affordability calculators. The results for August are below:-
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 - £209,401
Halifax - £200,250
Virgin - £199,805
NatWest - £191,200
Nationwide - £186,400
Leeds - £180,221
Accord - £178,453
Coventry - £153,403
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
Virgin - £436,000
NatWest - £423,800
Halifax - £421,800
Santander - £404,370
Accord - £367,469
Nationwide - £354,300
Coventry - £339,654
Leeds - £267,564
NB – all of the above assumes a high score. I have not compared Woolwich as this lender uses a different calculation within their affordability and do not give a maximum borrowing figure, so I cannot compare like for like. These results do not reflect that they are not a good lender to choose for affordability purposes. Virgin Money who have not made any tweaks to their affordability since the announcements came from the FPC have certainly made some leaps up the table particularly for higher income/net worth clients. Nationwide who have made adjustments across their whole profiles have slipped down the maximum borrowing table. However Santander, Halifax and NatWest who have adjusted their maximum borrowing following the FPC announcements still remain competitive within the table.
Help To Buy
If you have not quite got your heads around Help to Buy and what both schemes are about, below are details of:- each scheme, where you can find further information, and which Lenders are involved.
Help to Buy Equity Loan Scheme
This scheme is to enable Clients to buy a New Build Property with a 5% deposit. The Client would apply to the Government for a loan of up to 20% to fund their purchase. The further 75% would be made available by one of the acceptable Lenders participating in this scheme. The loan from the Government is interest free for the first 5yrs. In year 6 the loan becomes repayable and interest will be charged. This interest is increased each year by the annual increase in the Retail Price Index Inflation plus 1%.
A Client would need to find a New Build property that is being advertised within this scheme. They can contact their local help to buy agent by clicking here to see what properties are available or alternatively they can ask the Builder of a site to see if they participate in the scheme.
Before paying any reservation fee, the client should get a Decision in Principle from yourselves. Once this has been accepted then they can visit the Builder and complete a property information form. The Developer will send this form to the local Help to Buy agent and at this point your Client may need to pay a reservation fee to the Builder.
The Help To Buy Agent will assess the equity loan application and if successful they will issue an “Authority To Proceed” (ATP) which you as a Broker will need to process the application with the chosen Lender.
Help to buy Mortgage Guarantee Scheme
This scheme offers Lenders the option to purchase a guarantee on mortgages where a borrower has a deposit of between 5-20%. Borrowers remain fully responsible for their mortgage payments and any shortfall in the normal way.
The Mortgage Guarantee Scheme is available on newly built properties and existing property and can also be used for re-mortgaging.
There is strict criteria that your Client must be able to meet to be eligible to apply for this:-
- Deposit of at least 5% but less than 10% of the property value
- Clients must not be credit impaired
- They will need to be able to sign a Mortgage Guarantee declaration that confirms they have no interest in any other property including property abroad.
- The property is for their main residence and they will not rent it out
- They are not participating in any other Government Scheme such as Shared Ownership/Equity or Right to Buy
- The purchase price of the property does not exceed £600,000
- Must be 18yrs or older.
- Maximum loan to values can be effected if purchasing a new build flat or house under Help to buy guarantee scheme. These could be restricted to up to 85% for flats and 90% for houses therefore Clients may need more than a 5% deposit for purchasing a new build under the guarantee scheme.
Lenders participating in these schemes
Aldermore, Halifax, Nationwide, NatWest, Santander, Virgin Money & Woolwich
Aldermore and Virgin Money only offer the Help to Buy Guarantee scheme and Aldermore can go up to 95%LTV on a re-mortgage.
Cheapest headline rates for the Guarantee scheme are Woolwich and Santander at 4.99% for 2yr fixed.
Hodge Lifetime Hybrid product
Changes to Pension legislation where annuities no longer have to be brought using a Clients pension pot means that more retiring clients will be looking to see where the best possible returns are for their money and will it continue to give a satisfactory income. More of these Clients are looking to invest in property. However, lending to older clients is becoming more difficult due to recent changes made through the MMR rules and also Lenders concerns over previous back books where Clients may not be able to repay their loans.
There certainly needs to be more innovation in the market to allow for older Clients with good incomes into retirement and proven ability to repay the debt to purchase property for investment or residential purpose. Hodge Lifetime has considered this area and generally have a good grasp of the Equity Release market place. They offer a hybrid product which allows a client to borrow based on affordability, rather than the traditional equity release products that focus on the clients age, health and value of the asset. The product is called the Retirement Mortgage and is an interest only lifetime product
- 4.75% fixed for 5yrs followed by SVR 4.6% overall cost 5.1%APR
- Available from age 55-80yrs
- Fixed ERCs 5% in year 1 reducing to 1% in year 5 and No ERC following the 5yr period
- 10% overpay per annum
- Up to 50%LTV depending on age and affordability.
NB – please note you will need to have equity release permissions and qualifications to advise on this product. Please also note that any client wishing to have equity release advice is classed as vulnerable under the new MMR and must be give advice in every instance.
Contacting Hodge Lifetime:
Customer Services Tel:0800 731 4076
New Lenders to panel and new initiatives
Paradigm have added a couple of new Lenders to panel this year. There have been two new additions for our members in Northern Ireland consisting of Ulster Bank and The Progressive Building Society. Both of these Lenders are Northern Ireland based and provide lending in this area only. Progressive Building Society have a very flexible approach to their underwriting and understand the Northern Ireland market fully. Ulster Bank are part of the Royal Bank of Scotland group. They lend in Northern Ireland only and recently have made some changes to their service proposition to make it easier for Brokers to do business with them.
Coming soon will be Ipswich and the Newbury Building Societies which will add to the overall proposition for our members.
Please visit the website www.paradigmmortgages.com for further information.
Exclusive MOGO Check software
We are currently working with a company called Mogo Check who have developed a piece of software that allows Brokers to gain access in a totally secure way to a Client’s bank accounts. It allows you to gain the latest monthly statement and also see up to date transactions. The software summarises the statement to highlight salary credits and other income such as child benefit or tax credits and income from online gambling or pay day loans. It presents the information in a PDF document and the format is exactly how a Client would receive a postal statement. This will enable Brokers to be able to immediately see how a client conducts their bank account and also whether the Broker can actually help them to get a mortgage. If the lending community accept this information as proof of bank statements this will immediately have a saving on time for a Broker and ultimately cost for Clients and Brokers alike. The system will also incorporate a credit check powered by Call credit and future enhancements will include summarising expenditure in line with the new MMR rules.
Currently Paradigm are the only Directly Authorised route for this piece of software and so it is an exclusive for us for the time being. Lenders such as Barclays, Lloyds and Aldermore are all looking at piloting the system and there are more lined up to look at the system with a view to piloting and potentially implementing.
We will be presenting further detail on this at our London Round Table event on the 9th September.
Underwriting help guides
I am attaching my spread sheets for interest only and lending into retirement. I hope these help with your on-going queries around these.
I will be sending out some more updated and re-formatted sheets this month to assist with self-employed and Buy to Let clients.
NB – As you know things change fast in our Industry. These sheets are for guidance only so please always check with the Lender that the information is current and up to date.
Forthcoming Events with Paradigm
9th September – Round Table event London – More info & Register now!
17th September – Paradigm Golf day - The Belfry
24th September – Round Table event Southampton – More info & Register now!
More details on the below TBC soon:-
8th October – Round Table event Gatwick – Gatwick Hotel
14th October – Specialist Underwriting workshop – London
4th November – Specialist Underwriting workshop – London
12th November – Round Table event Belfast – Ramada Belfast
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