Mortgages/Finance

Introduction

The mortgage market can often be seen as a minefield of different terminology, most of which refers to the type of mortgage available or the reasons for which you are applying. Hopefully the brief synopsis below will assist in understanding the market a little better.

Traditional

A traditional mortgage is simply a conventional mortgage offering the benefit of a healthy initial deal, i.e. a discount, a fixed rate, etc. This type of product will usually attract the best headline rates, although this will generally be at the expense of redemption penalties or fees. If your intention is to keep your explicit monthly outgoings to a minimum in respect of a main residential purchase or remortgage, this will usually be the most appropriate option.

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First Time Buyers

Whilst in comparison there are perhaps more competitive mortgages, these will include targeted features which will appeal to the first time homebuyer. This may be no arrangement fee, a free valuation or a modest cashback to assist in meeting the legal costs.

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Status

This is not a type of mortgage but rather the manner in which it is underwritten and is generally the approach adopted in the mainstream mortgage market. Providing suitable evidence of your income allows the lender’s underwriter to offer you access to their best product terms. A majority of lenders will use an income multiplier to either single or joint income, which can often increase depending upon the strength of the credit assessment and the level of Loan To Value (LTV) being applied for. Before income is multiplied, loans, hire purchase and credit card commitments will usually be deducted, although there are a small number of lenders that do not deduct these.

Some mortgage lenders adopt a slightly different approach in looking more at the affordability of a loan instead, which can result in higher mortgage advances being accessible, particularly where there are no commitments.

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Self-certification

We consider the self-certification market to fall into two brackets; true self- certification and fastracking. True self-certification allows applicant(s) to certify and state their own income levels without the lender seeking proof. This flexibility is particularly appropriate to those who do not have any up to date accounts available or where information that is available is not reflective of current income.

Additionally, alternative sources of income that a lender may normally exclude or dilute, e.g. investment income, undocumented self employed income, etc. may be utilised. As you are certifying this, in essence they take your word for it. Clearly, in some circumstances, this can greatly aid the smooth processing of a mortgage application or even grant the applicant a mortgage, which would not otherwise be available if underwritten on a status basis.

Please note that although income verification is not sought, a common sense test is applied and where the income stated appears unreasonable for the stated occupation, evidence of income will be requested.

Fastracking is where, subject to a strong credit assessment and a LTV of usually 75% or less, income verification will not be sought. We regard this as ‘lazy underwriting’ as they rely heavily on the credit scoring, although the lender reserves the right to randomly spot-check such cases.

Since the beginning of the 'credit crunch' it is fair to say that the availability of true self-certifcation is very limited indeed and fastracking is only generally considered where the client proposition is very strong.

The actual rate available will depend upon your circumstances. Ask for a personal illustration.

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Flexible

These became popular a few years ago, emanating from the ‘Australian Mortgage’ concept of charging interest on a daily basis.

A true flexible mortgage is regarded as a facility that permits either lump sum or regular overpayments to any level without penalty. In addition, there will be the option of underpaying or taking payment holidays, usually subject to previous overpayments. Also you may withdraw funds from the mortgage, either against previous overpayments or from a pre-agreed reserve facility.

It would be fair to say that these remain popular, although with a majority of traditional mortgage lenders adopting daily interest charging, and offering some degree of overpayment flexibility within their facilities, their popularity has plateaued.

Whilst these may be desirable, it is important that any client applying for one uses it to it’s full potential as, if the flexible features are not utilised, the mortgage will prove more expensive due to the higher interest rate that typically applies.

Warr & Co will be happy to carry out an appraisal of an existing flexible mortgage to ensure it is working to your advantage.

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Offset/Current Account

Similar to flexible mortgages in that they offer a variety of flexible features, these mortgages go a step further in allowing current and/or savings account balances to reduce the interest being charged on the account, without being actually held in the mortgage account specifically. This assists clients in differentiating between what is savings and what is debt.

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Graduate

After years of studying, it’s usually hard to find the money you need to put a deposit down on a house. Graduate mortgages recognise this and can offer a solution.

You can apply for typically 90% of the cost or valuation of the property, whichever is the lower, plus further borrowings that will assist towards associated costs that come with buying a new home such as stamp duty and legal fees.

This approach is generally available to graduates who have graduated from a recognised UK University and are aged between 21 and 35 years.

The reason for this flexible approach to income multiples and LTVs for such clients is that there is an appreciation that graduates will enjoy the prospect of a rising income stream as applicants complete their occupational qualifications and/or gain promotions.

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Professional

A professional mortgage is usually designed exclusively for doctors, dentists, accountants, solicitors, teachers, vets and pharmacists. It allows you to borrow typically 90% of the valuation or purchase price of the property (whichever is lower).

In addition you may be able to borrow further funds on top of this for any other purpose, e.g. renovations of your new property, a holiday, car, business or education needs.

The reason for this flexible approach to income multiples and LTVs for such occupations is that like graduates there is the expectation of a rising income stream as applicants gain occupational qualifications and/or achieve promotions.

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Capital Raising

Clients may consider raising capital against the value of their property, either by way of a further advance, a secured loan or as part of their main mortgage during the course of a remortgage exercise.

Most lenders will permit capital raising for any purpose upto 75% LTV and some even as high as 95% LTV. This may be for such reasons as holiday or investment property purchase, divorce settlement, home improvements, car purchase, holidays, etc. However, where this is for business purposes, this maybe restricted.

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Debt Consolidation

A common reason for capital raising against your property is to facilitate debt consolidation. Undoubtedly, the interest rate applying on an ongoing basis is likely to be the lower than an alternative option such as a secured or personal loan. However, it must be borne in mind that whilst ongoing repayments and interest may be lower than loans, credit cards or higher purchase, because this is often repaid over a much longer term, the overall interest payable is likely to be higher.

Whilst not desirable to tap into the value of your home to such an extent, where affordability permits, facilities are commonly available, although the LTV for such purpose has very much reduced from previous highs.

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Buy to Let

Personal – A buy to let mortgage is a facility which from the outset will permit an individual to purchase or remortgage a property and let it out for investment purposes. The assessment of such mortgage applications is geared more towards the achievable rental income from the property, and lesser so the personal status of the applicant. However, a small number of lenders will look at personal income, which can in some instances be advantageous in regards to the rates available. The debt accumulated under buy to let facilities does not usually compromise affordability of a main residential mortgage in the eyes of the underwriter.

A minimum deposit of typically 25% is sought, however, it is not uncommon for 30% to 40% deposits to be required. The level of deposit for a purchase can also often be dictated by the rental assessment.

Limited Company – A number of lenders will allow investors to utilise the medium of a Limited Company to facilitate such purchases. These are essentially bordering on commercial facilities, albeit offering rates more in keeping with the buy to let mortgage market, which are less than those available on a strict commercial basis. Note, however, that the majority of such lenders require a Special Purpose Vehicle (SPV) to be utilised for these purchases, i.e. the Limited Company must be set up for or change it’s trading activity to property investment or letting. The company’s SIC code will also need to reflect this.

Buy to Let products (where the resident is not related to the borrower) are not regulated by the Financial Services Authority.

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Commercial

A commercial facility differs in a number of ways from a mortgage. For one, the underwriting is not just based upon your particular circumstances but is geared towards the business proposition overall, i.e. what are the likely results from approving it. Commercial loans are available for a variety of reasons such as to facilitate buying a business; for business development reasons, e.g. expanding workforce, investing in research and development or increasing manufacturing capability; and property or premises purchase.

Rates that apply are based upon the strength of accounting information, the value of available security and the availability of personal guarantees.

From an individual perspective, we have engaged in effecting commercial loans for property investors and/or developers. These offer more flexibility than a standard buy to let, as via a second charge, they allow you to tap into equity upon which another lender holds a first charge. Also, drawdown facilities are available for those who require funds periodically as a development progresses. Penalty free terms are available for those who are likely to develop then sell the property in question.

Whilst we have access to the whole market, Warr & Co has developed connections with local high street banks, which have yielded excellent rates for clients, both on a status and self-certification basis.

It is fair to say that no two loans are alike, as every situation is different. For any such enquiries, call Steve Prosser on 0161 477 6789 or email at stevep@warr.co.uk.

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Adverse Credit

Have you had difficulties in obtaining a mortgage due to credit problems, either recent or historical?

Many high street lenders will not entertain clients unless they are proverbially ‘squeaky-clean’.

In the first instance, our advice is to seek copies of your credit records from the leading credit reference agencies used by most lenders. This will enable you to ensure that the records accurately reflect your circumstances as you understand them. In some instances, it can be simply a case of error that lenders are making their decisions upon. Detailed below are the two main credit referencing agencies.

Once your understanding of your credit problems is clear, Warr & Co can assist with your mortgage requirements. Be these a history of late personal credit payments, mortgage arrears, County Court Judgements (CCJs), Defaults or Individual Voluntary Arrangements (IVAs) or you are a discharged bankrupt, we can help in sourcing a mortgage, whether this be on a status or self certification basis.

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Self Build

Sometimes, you just can’t find that house of your dreams for sale on the property market. Spurred on by the achievements of people in programs such as Grand Designs and Build A New Life In The Country, for those brave enough, the alternative of building your own home is often considered.

Building plots are extremely hard to acquire. Estate agents are a good source of local knowledge, followed by property auctions, local newspapers and magazines such as ‘Build It’ available on-line or from some branches of W H Smiths, and professionals within the building industry. Other options include using a plot finding service such as PlotSearch offered by Buildstore. PlotSearch can find you a plot of land or a building for renovation and by using them you can also gain access to Britain's largest and most accurate land database, the National Building Plot Register. An alternative for seeking your ideal plot of land is using the Landbank Services database.

With the current situation of demand outstripping supply, good plots of land sell quickly as builders and developers are always on the lookout for prime sites. Searching the planning records of District Councils is another way to find your plot. Some useful links are as follows: -

Once you are on the road to building your new home, we can provide you with information on appropriate lenders to suit your requirements, based upon status and funding needs. Such lenders in this market will provide staged payments and depending on cashflow these can be tailored specifically to  your situation.

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Shared Ownership

Shared ownership schemes are intended for people who cannot afford to buy a property outright and gives them a helping hand to get on to the property ladder. This is particularly beneficial at present given the present level of property prices.

Although you will not own the property outright, you will still have all the normal rights and responsibilities of an owner-occupier.

Shared ownership is the most common way of purchasing affordable housing from a Housing Association or Registered Social Landlord (RSL). It allows you to purchase a share in a property, which can be anywhere between 25% and 75% with 50% being a typical starting point. As with buying a conventional property purchase, you organise a mortgage to cover the cost of the percentage you are buying, with rent being paid in respect of the amount not being purchased.

The Housing Corporation is sponsored by the Office of the Deputy Prime Minister and is a Non Departmental Public Body. Its role is to regulate and fund Housing Associations in England. Housing Associations are the principle providers of new social housing. There are currently over 2,000 Associations in England. RSLs are social landlords who are registered with the Housing Corporation. The majority of RSLs are Housing Associations, but some are co-operatives, companies and trusts. Housing Associations are run as businesses, but they do not trade for profit and any money they make is ploughed back into the organisation to fund new homes and maintain existing ones.

A full list of Housing Associations is registered with the Housing Corporation and can be found in the Public Register of Social Landlords. The Housing Corporation office covering your area will also have a list of Housing Associations offering different schemes. Both can be found on the link below.

Once you have purchased your share in a property, your investment doesn't have to stay at the same level. As finances permit, you may buy further shares in your home, ultimately buying it outright if you wish to.

www.housingcorp.gov.uk

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Green

A green mortgage, aims to reduce negative impact on our environment. The lenders that offer such facilities will often make contributions to charities that support the environment or the welfare of the less fortunate. Some will only finance houses that are seen to be environmentally sound. In addition to this most lenders will not work with businesses that are known to pollute or damage the environment in any way.

At the moment there are only a few lenders that offer a ‘green’ mortgage package. One point that these lenders do have in common is that they all support reforestation schemes, so when you effecting mortgages with them, you know that you are helping the environment.

Often you will be able to take out a package, where your household emissions and energy usage will be monitored, therefore, you can benefit from the knowledge that you are causing less damage to the environment, and you can save money on your utility bills.

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Home Equity Release Mortgage (HERM)

It is very common nowadays to find those individuals in or nearing retirement to be asset rich and income poor. That is they have an unencumbered property and perhaps some personal savings, but provision for income in retirement is lacking.

One means of generating income in retirement that you may wish to consider is a Home Equity Release Mortgage, which is very commonly known as a HERM.

The HERM market is in its relative infancy, although it is very much a growth market and indeed anticipated continuing to be over the next few years. The current HERM market has developed from the old Home Income Plan market, which received widespread media and industry condemnation, predominantly for their product structure and sales mal-practice. Such schemes came to prominence in 1988 and were eventually banned in 1990.

The equity release market is today, along with mortgages generally, highly regulated and scrutinised by the Financial Services Authority (FSA).

Within the HERM market in particular, an organisation called Safe Home Income Plans (SHIP) was set up in 1991, dedicated entirely to the protection of planholders and promotion of safe home income and equity release plans. All participating companies pledge to observe SHIP’s Code of Practice and are bound to provide fair and easily understood schemes. In the course of any research carried out on behalf of clients, we only consider providers that adhere to this code.

The plans are primarily used for either the generation of income or to release a cash lump sum.

Of the lenders available it is fair to say that their terms differ greatly. Of these plans, there are generally two groups.

The first is interest based where, like any typical mortgage facility, interest is charged on the loan released although, unlike a normal mortgage, no interest or capital repayments are made, rather the interest is rolled up. Thus the amount outstanding increases but the home remains the property of the owner, the lender simply taking a first charge as they would do a normal mortgage.

The second type is growth participation or shared appreciation schemes. These plans do not charge interest at all on the plan, rather they take a fixed proportionate charge against the property or indeed in some instances that proportion is sold to the company. For example, if a loan of £30,000 were granted against a property value of £100,000, if the property were to ultimately increase in value to £200,000, the mortgage to be repaid would be £60,000. The level of charge is determined from various factors and in some schemes may be greater than the proportion being released. Furthermore, the property may be sold entirely to the provider to release capital.

If you require any further information, please do not hesitate to contact us.

http://www.ship-ltd.org

A HERM is a lifetime mortgage. To understand the features and risks, ask for a personal illustration.

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Think carefully before securing debts against your home.

Your property may be repossessed if you do not keep up repayments on your mortgage