Finding the funding
The housing market is steady, if not flying, but funding is challenging for many buyers, delaying sales, says Sheila Manchester.
YOUNG PEOPLE – BOTH EMPLOYED AND STUDENTS
Daniel Owen-Parr, National Development Director at the specialist lender Together, says, “Students and young people can face difficulties in terms of affordability; depending on income, deposit and the property they aim to purchase, but if they are over 18 and can demonstrate affordability they should be able to secure a mortgage.
Estate agents should ensure that potential buyers are aware of the many forms of finance on the market – high street banks aren’t the only option. Daniel Owen-Parr, Together.
“Lending to students is a niche area, no one-size-fits-all. Someone studying for a Masters or a PhD may have income from sponsorships, others will be paying student loans, which need to be taken into account in their assessment. Bursaries may be an issue as sustainability is important when assessing the application, but if a student has income from a part-time job, that can be taken into account.
“A student purchasing a property with a joint applicant who is in full-time employment is in a different situation. Specialist lenders can help – we’d apply our usual common sense approach. Estate agents should ensure that potential buyers are aware of the many forms of finance in the market and that high street banks are not the only option.”
Darren Pescod, The Mortgage Broker Ltd: “Mortgage lending to students is extremely tough. Young employed people may struggle purely down to the lack of electronic information held on them by credit referencing agencies – the lack of a stable address history or the lack of credit can cause problems, or, maybe, not managing their credit cards in the best possible way.”
Alistair Hargreaves, Mortgage and Protection Consultant at John Charcol: “Younger borrowers should make sure their credit score is strong – be on the electoral roll, use a credit card and clear it each month, regularly check their credit file with Call Credit, Experian or Equifax. For young people who are working it’s about building up a deposit, so using schemes such as Help to Buy or Shared Ownership could be the way to buy their first home.”
THE SELF-EMPLOYED
Alastair McKee, Managing Director, One77 Mortgages: “Lenders are still in the dark ages regarding self-employed clients. They work off accounts that are almost a year out of date so how can they have a true picture of the client’s business? It amazes me that lenders won’t work off projections or clients’ management accounts to speed up the process – if a client is making more money now than in the last 12 months accounts it’s not taken into account. Some lend to self-employed clients based on their share of the net profit, others on the Director’s salary and dividends. As brokers, knowing how to read accounts and which lenders take which figures is paramount to getting the client the right deal.”
… and a warning:
Alastair McKee, Managing Director, One77 Mortgages, says,
“Some estate agents’ models for financial services are fairly archaic, although currently it’s still a successful business model. I expect market share for these models to reduce over the coming years as savvy consumers go to a telephone based broker or online mortgage finder for instant numbers from across the market not just a limited panel.”
Darren Pescod, The Mortgage Broker Ltd: “The difficulty is if the applicant is young they may not have enough years of accounts to confirm their income – the majority of lenders look for at least two years’ accounts, but someone in an employed role could get a mortgage on Day One of taking employment.”
Lending to students is extremely tough and the young employed struggle purely down to the lack of electronic information held on them. Darren Pescod, The Mortgage Broker.
Alistair Hargreaves, John Charcol: “Applicants need to show taxable income, so they shouldn’t be tempted to put everything through as expenses. If they are a director of a Limited Company, some lenders will use net profit instead of dividends. If they are a contractor there are specialist lenders to approach who will accept contract value. It is worth telling your accountant that you want to borrow money in the next financial year so your accounts show a realistic level of profit.”
Daniel Owen-Parr, Together: “Self-employed applicants can find it difficult to access finance from high street banks, as they have a more complicated income stream. Estate agents can help their clients by explaining this and remind them that if a mainstream finance provider can’t help there are alternatives, so they shouldn’t be disheartened.
“We changed our criteria to make it easier for self-employed customers to prove income, by increasing the date of accepted tax calculations, or SA302s, from 12 months to 18 months. This is important, given that the last large data set from the Office of National Statistics found that the number of self-employed rose from 3.8 million in 2008 to 4.6 million in 2015.”
THE OVER-55S
Will Hale, Director at Key Partnerships: “Our research shows that the problems over 55s face in being accepted for mortgages are having a chilling effect on the market. 40 per cent of estate agents say it’s hitting house sales; 58 per cent say the current range of mortgages does not meet the needs of over-55s.
“Older customers need a wider range of options. Equity release from their home is a potential alternative to fund buy-to-let purchases and will benefit estate agents too. Agents also benefit from an additional revenue stream by way of a referral commission.”
Daniel Owen-Parr, Together: “Estate agents need to educate clients on alternative finance – their options don’t end at the high street bank. We removed the maximum age limit on our buy-to-let mortgages, whilst our maximum age for personal mortgages is 80 at the end of the term.”
Alastair McKee, One77 Mortgages: “This sector of the market has become easier over the last 12 months. It’s great to see that lenders now recognise that people are no longer retiring at 65.”
Darren Pescod, The Mortgage Broker Ltd. Over 55s have struggled in the past to get mortgages as most lenders limited the term to age 70 next birthday, making the term very short and therefore the mortgage payment much more expensive, this also has an effect on the perceived affordability of the loan. Thankfully this is changing, albeit slowly, with some lending to 85 and beyond.”
Alistair Hargreaves at John Charcol: More mainstream lenders (eg, Nationwide and Halifax) have extended their maximum age to 80 for existing clients. A range of smaller, bespoke lenders will take a view on older borrowers. There is an acknowledgement that people are working for longer, so stating that you will work until 70, or even 75, in a white collar job is acceptable for a range of lenders.”
BUY TO LET LENDING
John Goodall, CEO of buy-to-let lender Landbay: “The changing regulatory landscape for buy-to-let is driving more landlords toward different tax setups, either limited company status, or moving into the mixed use or commercial space.
“Traditional lenders are becoming restricted in their lending approach as a result of this new complex regulation, taking only applications which fit strict and simplistic criteria. This is creating a gap in the market for new, innovative entrants to fill. Borrowers need flexibility but still underpinned by robust processes and it is here that the market will see the most disruption, through a breed of new lenders that can deliver secure loans but via a mechanism fit for purpose in a rapidly evolving marketplace.”
Alistair Hargreaves at John Charcol: “Rates and products change, but with new restrictions on rental income and new requirements for professional landlords (anyone with three or more BTL mortgages) it’s more about who can offer the mortgage, as opposed to the best rate. Lenders such as Mortgage Trust, Precise and Fleet are offering innovative ways of making the most of rental income. For most of my clients the actual rate and fee are now secondary; the primary concern is whether they can borrow the amount they need.”
Daniel Owen-Parr, Together: “The PRA (Prudential Regulation Authority) has set tight guidelines for affordability assessments and lending criteria for buy-to-let and portfolio landlords, to ensure rigorous underwriting standards. Their statement sets out the minimum expectations that firms should meet in underwriting buy-tolet mortgages, including affordability testing and there has been a big focus on the new income ratios.
“Estate agents can help buy-to-let clients, whether new to the industry or seasoned investors, by making them aware of the options, as despite the significant changes made by the Government to curb buy-tolet investment, it’s still a thriving sector and there is plenty of appetite to lend to investors, it’s about knowing where to look.”
Alastair McKee, One77 Mortgages: “Without the advice of a good broker and accountant combined, clients who try to ‘DIY’ their buy-to-let lending could end up with a huge tax bill. A good broker can advise clients on options regards limited company buy to lets and the best set up to structure it in for their circumstances.”
Darren Pescod, The Mortgage Broker Ltd.: There are many new lenders for buy to let investors including lenders such as New Street, Vida Home Loans, Fleet mortgages, so there is a wide enough choice to find a lender to fit the applicant’s scenario. However, the majority will still have a minimum income threshold.”
UNBLOCKING FRUSTRATING CHAINS
Alistair Hargreaves at John Charcol: “Lenders such as UTB, Masthaven and Precise are popular, but it depends upon the situation. There are circumstances where we can approach lenders such as Harpenden BS and Market Harborough BS, if the client has a strong enough proposition we can potentially obtain more competitive short term lending.”
Daniel Owen-Parr, Together: “We specialise in short-term funding, offering both regulated and unregulated bridging loans, and chain breaks are a common reason for a buyer to require this finance.
“Estate agents can work with bridging finance specialists like us, to help their customers find funding when there’s a danger of a chain break. This is a scenario we see often, as the short-term loan can ensure the customer gets the property they want, then typically they will refinance with a mainstream provider for a traditional mortgage and then pay off the loan within 12 months.
“As the understanding and popularity of bridging finance continues to increase, we have also introduced cross-charging for our regulated bridging offering, so that homeowners can leverage equity in their current property, as well as the property they are planning to buy. This is useful for customers looking to take the next step up the property ladder, which could be significant jump.”
Alastair McKee, One77 Mortgages: “There are a number of short term or bridging lenders, all with the aim of ‘chain break’ lending. The rates are very competitive now but the fees vary wildly. A good broker can look at everything impartially and advise on options, best set ups, turnaround times, entry and exit fees etc. Without using a broker to compare the options a client could cost themselves many thousands of pounds more over the term of the loan.”
CONTACTS
- John Charcol www.johncharcol.co.uk
- Key Partnerships www.krgroup.co.uk
- Landbay www.landbay.co.uk
- Loughborough Building Society www.theloughborough.co.uk
- One 77 mortgages www.one77fs.co.uk
- The Mortgage Broker themortgagebroker.co.uk
- Together www.togethermoney.com
