Current considerations in the mortgage market – Q2 2012

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Mortgage News – Q2 2012

Interest only Mortgages

Lenders made their biggest changes to criteria in the first quarter of 2012 in the area of interest only mortgages. The focus is on encouraging more clients to take their mortgages on a full capital repayment basis. Both Abbey Santander and Halifax (among others) have set maximum loan to values on interest only mortgages to 50%.
This can be a problem for home movers who are currently on interest only and cannot borrow more from their current Lender without switching to a full capital repayment basis.
We are now frequently having to tell clients that one range of rates and Lenders is available if they require interest only, and another for capital repayment.
We often have enquirers requesting interest only ‘for a couple of years whilst we are finding our feet’ – please be aware that interest only repayment methods are not a solution to affordability issues.
In all cases where Lenders allow interest only, they expect to see evidence of repayment vehicles in place to cover the capital borrowed at the end of the term.

Criteria for repayment vehicles has also tightened and most Lenders will not now allow the sale of the mortgaged property as an options. ISAs are the favoured interest only support products but expect to be able to prove regular payments and a current value with most Lenders.

New build Mortgages and loan to value

Lenders have never been confident on the sustainability of values for newly build property. In the current market they do not want to be left ‘holding the baby’ if a purchaser defaults on a mortgage on a property for which they may have paid a premium price.
Lenders protect themselves by reducing their maximum lending on newly built property and this can be a problem for first time buyers who favour new property. There are only a handful of channels we can use for low deposit cases on new build houses and even fewer on new build flats.
If you do intend to purchase a new build make sure we are aware of this at outset. There are a number of things we can do if fore warned to position your application effectively.

Tightening of credit scores

There seems little doubt that many Lenders have raised the bar in relation to their credit scoring on plus 75% loan to value lending. This has left clients, who we would expect to go through comfortably having a bumpy ride through mortgage underwriting.
As mortgage Lenders have less money to lend they can afford to be picky about who they will and will not accept.

You can help us to help you by being clear at outset if there are any problems on your credit file. Also, make sure we know about all outstanding credit items. Mention in particular anything that has recently been paid off.

Service standards

Lending criteria changes by many of the major Lenders in quarter two have seen a workload shift in some sectors of the market.

We are seeing a number of mortgage providers with simply more work than they can handle. This had led to waiting times of over 15 minutes on the telephone and in one case seven days delay between receiving an item of information and looking at it.

Lenders websites and IT systems (never reliable at the best of times) have caused further problems and we even had one Lender this week that did not have a working fax number.
You can help us but giving us a little more notice when you want to take action and getting any requested information back to us as quickly as possible.

Increasing rates

At the start of 2012 there were a number of competitive fixed rates on the market and we were seeing clients take the opportunity to fix for two to five years terms, particularly with re-mortgages under 75% loan to value.
Since the end of February, Lenders are not competing in the fixed rate market and we have seen rates move steadily ‘North’.
Having said this we still believe current two and five year fixed rates are good deals for clients and the remainder of the spring and early summer may be the best time to access them.

The message

Underwriting criteria continues to tighten and every day applicants are confronted with complications they did not expect.

Make sure you use an experienced independent mortgage broker to assist you throughout the process.

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