Mortgage-money is out there for those who know where to look, says David Sheppard
It will not come as a surprise that the mortgage industry has been turned on its head in the last 2 years. Market share is no longer the primary focus of lenders and the days where money appeared to flow like water. Nowadays we have the financial equivalent of the Thames Barrier sat between the banks and eager homebuyers. It is not all doom and gloom though and little chinks of light do shine through from time to time.
The important message that needs to be brought out is that property finance is there for those that want it. It may not always be easy to find and it takes tenacity and patience together with the knowledge of where best to look. From the City employee that requires a lender to take account of bonuses to the self employed business owner needing a commonsense approach to accounts, there has possibly never been a time where independent advice has not been more necessary.
When the run on Northern Rock sparked a frenzy of queuing savers it was unexpected to lead to the meltdown that ensued. With Lehman Brothers, RBS, Halifax Bank of Scotland, Bradford & Bingley and numerous building societies either disappearing or receiving significant funds to prop them up, the world suddenly took a turn for the worse.
What we have now is a leaner, more lightweight lending environment but this will change. Given time we will see the return of overseas banks, securitisations and wholesale money markets working. That said, we will also carry the battle scars of the last 2 years and this should keep us from going down the same path again. There is still a place for all the above but with greater controls.
So where is the mortgage world right now? The bulk of the country’s residential lending is still carried out by the names on the High Street. It always was and there is no indication that will ever change. The big names of Lloyds Banking Group, Santander, Royal Bank of Scotland and Nationwide now account for around 13 different mainstream lending brands still alive so there is a chance that even if you think you do not have any business with them, you may have without knowing it. There are also the Private Banks like Drummonds, Coutts and Child & Co which are all part of the RBS Group as well. It has been a long time since so few entities existed.
As for the lending itself, the more straightforward the deal is, the better. Of course, this would have been expected at all times but in the build up to the Northern Rock saga, high loan-to-values, generous income multiples, no evidence of income and unlimited credit issues were widely encouraged by a lot of lenders to try and make greater returns and in some cases a combination of two or more of these were put together for even higher interest rates.
Today, those looking for the best rates should have upwards of 25% deposit or the equivalent amount of equity in their property should they be looking to secure a new deal without moving. For most this is not proving beyond reach or has led to a family redistribution of wealth to allow siblings onto the property ladder.
One area that does not appear to have suffered as much as most has been the higher purchase price bracket. There are still the underlying issues that all hopeful borrowers face in getting the required finance but the options are greater due to the nature of the clients. From the previously mentioned Private Banks to offshore lenders and of course the everyday names, there is still not a shortage of places to secure the funding for the next phase of property ownership. The key is in the presentation and a good knowledge of what a lender takes into consideration.
We have recently had a client who, despite the well documented reduction in City bonuses has continued to do quite well in this regard. When he approached his current lender he was informed that they no longer accept bonuses into permissible income and as such, he had to look elsewhere. The trouble of course was that this particular client had hoped to move his existing mortgage to avoid the early closure penalties which was no longer possible. Another client in a similar situation was informed that his income was okay but the mortgage he wanted was not available due to school fees commitments.
What can also happen is a lender ends up knowing more than they actually want to. A couple applied for a new mortgage through us not so long ago and, despite the first applicant being the main earner in the family by a considerable margin with a healthy six figure income, as the second applicant ran a small business, the lender also asked for 2 years trading accounts from this. When it was pointed out that the first applicants income was more than sufficient to cover the mortgage, the lender decided to classify the second applicant as a ‘homemaker’ in order to avoid the need for accounts. Whilst this has the same end result in terms of getting the required mortgage offer, this shows how little scope for true underwriting there is in the modern world. The computer is King.
For those looking to arrange finance on their next home or even the one they are in now, the lending does not have to be complicated. Whilst it is true that some people will need a more specialised service from a lender, the vast majority can be catered for quicker and in some cases, at a lower interest cost by using a big lending institution. The skill is knowing where to go.
David Sheppard is CEO of Perception Finance