A group of homebuyers

Shocking! 81% of First Time Buyers?

Shocking! 81% of First Time Buyers?

A group of homebuyers

81% of first time buyers have failed in their first attempt with a mortgage application. That is the headline from a survey by a mortgage lender this week. 

A survey by Aldermore shows an incredibly high proportion of first time buyers have their mortgage application rejected at least once.  

Though it is shocking on one hand, it is a pain and a heartache that can be easily avoided.  The survey doesn’t say whether the participants had gone directly to a bank or used a broker.  The level of rejection is also an indicator of the wider impact of covid.  Many of the reasons may be rooted in the resultant financial impact on the applicants (see table below). 

The survey shows, twice as many FTBs failed at their first attempt at a mortgage application in March 2021 compared to March 2020.   

81% had their first application declined, 38% succeeded on the second attempt and 43% was declined more than twice. 

The biggest reason for failure was finance and credit conduct related.  This is followed by lack of deposit, not being on the electoral roll and being self employed. ‘Lender making an administrative error’ also scores high.  However, this is not easily quantifiable as the survey doesn’t say whether this is at the application stage or later.  

Many of the applicant’s could have saved lots of time and pain by discussing their application with an experienced broker.  The survey is shocking for one reason, at Axess we hardly ever have an application rejected, because it is our responsibility to thoroughly check your criteria to ensure the selected lender is suitable to you before submitting.  

Each rejected application also negatively impact the credit score.  27% of applicants failed due to having too many credit applications. Even those with high credit scores can be declined if you didn’t check your income matches the income multiples of the lender.

Our feeling is that these are applicants that have gone directly to a high street bank, perhaps searching through price comparison sites and used the lowest rate lender. 

It shouldn’t be the end of the road.  There are many specialist lenders that does not need a perfect credit score and will provide higher income multiples.  This will allow more of debt to be taken in to account.  

Specialist lenders also rank credit mishaps at different levels and offer rates based on severity.  So rather than rejecting an application they will offer rates based on the level of adverse.  To understand how this work check our adverse credit mortgage page.  Check here for nine factors that impact your mortgage application.

A good broker will always say that the rate is only a part of a successful mortgage application.  Other parts of the jigsaw includes income multiples, credit score, deposit, debt levels and employment.

Finance related issues the banks have said that impacted on participant’s mortgage application.

    • Credit issue*
    • Used my overdraft
    • Had a gap in employment
    • Had a student loan
    • Been responsible for dependents (e.g. children)
    • Been in credit card debt
    • Any account handled by collection agencies
    • Missed bill payments
    • I have had gambling transactions on my history
    • Taken out a payday loan
    • Been declared bankrupt

*(Source: Aldermore Bank)

Image house with crown

Advantages and Disadvantages of the new 95% mortgage scheme

Advantages and disadvantages of the new government sponsored 95% mortgages.

Image house with crown

With the guarantee provided by the government lenders have started to offer 95% mortgages again. Even better news is that the scheme is not restricted to new builds.  

It is thought that over 70% of private renters and those living with parents are saving for a deposit to buy a home.  In the UK homeownership is still a goal to strive for. 

Advantages 

Available to both first time buyers and home movers.

Property values up to £600,000. 

Scheme available until 31st December 2022.

Available to non-new builds.  So will offer a wider selection of properties to choose from.  

Disadvantages

No new build property. 

Value of property limited to income multiples and cannot be just a share or topped up with a loan such as a Help to buy purchases.  Complete our affordability form to get an accurate maximum loan availability. 

Higher rates – under the scheme the lowest rates currently available is around 3.75% for a 95% loan.  Rates may fall if more lenders join the scheme. 

Compare that with a 90% mortgage with 10% deposit.  The lowest rates are around 2.99% for a 2 yr fixed.  

Lower income multiples.  Maximum may be around 4.5x income.  Compared to one high street lender offering 5.5x income at 90% if you take a 5 or 10 year fixed rate. 

Why use a broker for your mortgage?

10 Reasons to use a broker

Most common questions Googled on Mortgages by the public answered.  

Later in the series we will cover “What”, “Where”, “When”, “Which” and “Why” questions.  

The idea of these posts are to provide non-finance experts with guidelines, so they can make informed decisions regarding property finance. 

Series B: “Why” questions.

Question 1 : Why use a broker?

Correct lender is only one part of the home buying process.  It is, the service level of the lender, the experience and knowledge of the broker, that will add value to your mortgage process.  A broker can provide insights in to the market, lender criteria and access to information.  A broker works for the client and is independent from the estate agent and the bank.  A broker doesn’t have a vested interest in the applicant buying a particular property, like the estate agent.  

We started with the aim of writing a long article blowing our own trumpet; how a broker can supplement and act as a companion to guide you through the mortgage process.  

Then this just popped up on social media.  Why listen to us, we can let a bank tell you the reasons. 

https://www.aldermore.co.uk/blog/2021/03/why-use-a-mortgage-broker-here-s-10-great-reasons/

If you like our posts and find them useful why not join our twitter so you will not miss any future post and mortgage related news. Join us at @axess_fs

Image of maximum loan

How much can I borrow for a mortgage ?

Image of maximum loan

For todays’ “How” on Google, we will shed light on what affects the amount you can borrow on a mortgage. 

Most Common “How” Google questions on Mortgages answered.  

In this new series we try to answer the most common questions on mortgages Googled by the public.  

Later in the series we will cover “What”, “Where”, “When”, “Which” and “Why” questions.  

The idea of these posts are to provide non-finance experts with guidelines, so they can make informed decisions regarding property finance. 

Series A: “How” questions.

Question 3 : how many multiples of income can I get for a mortgage?

In the old days of less regulation, it was a simple calculation based on income multiples that lenders used to decide how much to lend to a particular customer. Fixed and committed outgoings were not strictly factored in to income multiples. There was even, what was called self certified mortgages, where applicants were allowed to declare their own income in-return for a larger deposit.

After the market crash at the end of the last decade, the financial regulators instigated stronger checks on affordability for mortgage lending. Fall in property prices and jobs left many homeowners unable to pay their mortgage, leading to increased repossessions, while making some owners mortgage prisoners due to negative equity and inability to remortgage.

To prevent such issues lenders are requested to strictly check affordability levels for all residential mortgage and somewhat for buy to let mortgages (although part is sustained by the rent) these days.

So how much can you borrow. Lenders use numerous criteria to assess affordability. It is still roughly based on income multiples. Lenders won’t admit it, but there is a ceiling. For example, you won’t be able to borrow 10x income irrespective of how much you earn. However, the calculation is more nuanced and multiples are graduated. So it is not easy to establish until a decision is obtained. Lender will also tweak this based on market conditions.

If you fulfil all the requirement you get the highest multiple. If not, it’s reduced.

Nine factors that will determine your loan amount. 

  1. Credit profile and not the score. How credit is conducted is more important than the score. Not having adverse credit such as late payments, defaults, county court judgements etc, will give the highest multiples. How long ago the judgement resulted also affects the score; as well as if it is satisfied at application. Lenders that lend to adverse credit tend to only give 3.5 – 4.25x income. 
[Low credit score is not always a reflection of credit status as it may be due to lack of credit rather than poor credit conduct].
  2. Monthly outgoings. If you have high levels of fixed expenditure such as loans, credit cards, travel costs etc, there is an impact on the maximum loan. 
Outgoings that cannot be avoided are annualised and deducted from the income before income multiples. For example, if you pay £100 per month for a loan, the annual income will be reduced by £1,200 (100×12) before multiples.

    Outgoings are not just deducted from income.  The amount compared to total income also matter.  It is called the Debt to income ratio or DTI

  3. Level of income. Higher the income higher the income multiples. Some lenders will give 4.75x income as standard, however, if the income is above £60,000 it can be 5x and over £80,000 even 5.5x.
Specialist lenders can provide 5x income even at a lower income, subject to credit profile, but at a higher rate.
  4. Financial dependants – bigger the family lower the level of lending. Costs of childcare and school fees can be taken in to account.
  5. Type of job or job security. Employment deemed to be secure are preferred for lending. So ‘professions’ such as Drs, Solicitors, Teachers can have a higher multiple. 
There are special considerations for IT contractors, where the calculation is based on day rate rather than tax returns.
    Company Directors with over 20% shareholding have two options to maximise their borrowing.  Some lenders will use salary + dividends to calculate the loan, whilst other lenders can use salary + net profit after corporation tax.
  6. Kind of contract – permanent, non-guaranteed regular or zero hour. 
If the income is shown to be consistent, even if it is zero hours, some lenders will consider it. 
Full or part time and the number of hours worked also impact. If the job or (combinations of) jobs involve too many hours, it is considered unsustainable and a higher risk in the long term.
  7. Level of deposit – self evident. Higher the deposit less risk to lender. Some high street lenders will advance 4.75x up to 85% LTV, but only 4.5x above this. Larger deposit is not only good for higher multiples, but also give a better rate.
  8. Rate tie-in period – a longer fixed rate period gives lender more security on affordability. So higher lending for fixed rates of 5 years or more.
  9. Age – shorter the time to retirement, lower the multiple. When you are paying capital and interest, shorter the time to repay, higher the monthly payment needs to be. So less affordability.
    The reverse is, the maximum loan can be increased by choosing a longer payment period.  Lenders can allow 35 – 40 years term.  Term must end before retirement.

If you like our posts and find them useful why not join our twitter so you will not miss any future post and mortgage related news. Join us at @axess_fs

Latest News

If you wish to know more, call us for a free discussion.

Lenders return to 95% First Time Buyer deals.

Income multiples up to 5x

How can I raise more money on my property?

Remortgage, Further Advance or Second Charge.  Three options to raise capital on your property.

Most Common “How” Google questions on Mortgages answered.  

In this new series we try to answer the most common questions on mortgages Googled by the public.  

Later in the series we will cover “What”, “Where”, “When”, “Which” and “Why” questions.  

The idea of these posts are to provide non-finance experts with guidelines, so they can make informed decisions regarding property finance. 

Series A: “How” questions on remortgages.

How – Question 2.

For todays’ “How” on Google, we will shed light on the ways additional money is freed on a property.   There are several common “how” questions on the topic, looking for the same answer. 

How to remortgage to release equity?

How can I raise more money on my property?

How do I get a second charge loan?

In the previous question about rate change we addressed one meaning of the term remortgage.  For most of the public, a remortgage is same as a product switch as they achieve the same result.  Similarly, when it comes to releasing equity in a property, remortgage for additional capital  can have the same meaning to the layman as it produces the same outcome, but to a professional it can be three different processes. 

  1. Raising capital on outstanding equity with the same lender is called a further advance.
  2. Changing lender and increasing the loan at the same time to free up equity from the property is called a remortgage. 
  3. Staying with the current lender, but raising capital with a different lender is called a second charge.

In general these conditions apply to both residential and buy to let property.  This does not cover Equity Release type / Lifetime Mortgages for over 55s. 

There are many reasons people raise additional funds from their property.  These could be for home improvements, repaying debt or even investing in another property.  

Why would you use one option over another?

This comes down to several factors.

  • Type of existing mortgage.
  • Fees
  • Penalties
  • Income multiples
  • Property value.
  • Rental assessment (BTL).

1. Further Advance.

This is when you ask the existing lender to increase the mortgage and lend you more money based on the equity on the property.  

Let’s say you are in the middle of a special rate period, such as a fixed rate for 5 years.  It is likely there will a penalty (redemption) to move the mortgage to a different lender.  So the first call is to ask the existing lender for additional money.

Disadvantages 

  • the current lender may not do a new valuation, instead rely on an average house price indexation calculation to determine the value.  So it might not reflect a true increase in market value – which can lower the additional funding available.
  • Maximum can also be restricted to lender’s income multiples or rental assessment (BTL).  These might be lower than someone else’s. 
  • lender’s appetite for lending.  They may not want to increase their risk on the property/applicant.  
  • the further advance is treated as a new loan and will go on a new rate.  This might not be market leading.  
  • unlikely to agree a further advance if credit status has deteriorated.  

Advantages

  • low fees: low application fee or the fee is based on additional borrowing only and may not require a new valuation fees.
  • lender has your history of payment.
  • no redemption penalty.
  • quickest option when capita raising.

2. Remortgage to a different lender. 

If the existing lender refuse to give the required funding, the next option is to move the mortgage to new lender.  Changing the lender will be  treated as a new mortgage application.

Disadvantages

  • if the current mortgage is in the middle of a special rate e.g. fixed rate, discounted rate etc, there is likely to be penalties to leave to another lender.  In general the penalties are a percentage (%) of the loan in descending order.  On a 5 year rate this could be 5%, 4%, 3%, 2%, 1% or 3%, 2%, 1% on a 3 year rate.  Therefore the cost of moving can be too high in the middle of the special rate.  
  • there can be other fees, application fee, solicitor fee.  Although most high street lenders these days offer free valuations and possibly legal costs on a remortgage.
  • you will be credit scored and your financial status assessed by the new lender.  If your credit status has declined since the current mortgage, you may not get a comparable beneficial rate.  
  • takes longer as it is a new application and needs to go through the legal process.

Advantages

  • your property will be appraised new, consequently the loan can be based on the latest market value. 
  • the new lender might provide higher loan to income (LTI) multiples allowing you to borrow more. 
  • the whole loan can go on a single beneficial rate.  Compared to additional borrowing through a further advance.  Which is treated as an add-on loan and have a different rate (likely higher) to the main loan.
  • your income may have increased allowing increased borrowing limits.  

Lenders for illustration purposes only.  Other suitable lenders also available. 

3. Second charge mortgages

If the penalty on an existing mortgage is too prohibitive to remortgage and the existing lender is unable to provide the required additional funding, the option is to obtain a top-up loan from a different lender.  This is still secured on the property, i.e. a second charge.  Meaning this lender is second in line to recover their monies if the property is to be repossessed.  

Important: the lenders that provide second charge loans tends to be specialist financial institutions.  The average high street lender does not provide second charge lending. 

Disadvantages

  • fees plays a major role, when it comes to deciding if a second charge is the best option.  It is important you identify all the potential fees before going ahead with an application.  There can be a huge variation in the fees charged by different brokers.  Some can charge 10% – 15% of the loan amount.  Best is to keep away from those type of brokers.  
  • Second charge loans tend to have a higher rate.  Partly due to most people using second charges when they are unable to obtain a further advance from the existing lender.  This allow specialist lenders to charge a higher fee.  
  • LTV restrictions may also apply and can limit the total amount that can be borrowed.  
  • A 2nd charge loan also require consent from the first charge lender.  If you have fallen in to arrears on the main loan or had missed payments, the main lender can refuse consent for another lender to put a charge on the property.  

Advantages

  • lending can be more flexible.  Second charge lenders tend to use higher income multiple and are more generous in taking in to account all types of income, such as non-guaranteed or regular income.  Therefore can lend more.
  • allows to retain the existing main loan without loosing a beneficial rate or paying an Early Redemption Penalty to remortgage.
  • greater flexibility for the reasons allowable for raising capital.  Some primary lenders can restrict the reasons for additional funds.  
  • can allow some adverse credit.

Check out our decision tree on options at time of rate change.

Criteria that affects your borrowing level.

If you like our posts and find them useful why not join our twitter so you will not miss any future post and mortgage related news.  Join us at @axess_fs

How early to remortgage?

Most Common “How” Google questions on Mortgages answered.  
We are starting a new series where we try to answer the most common questions on mortgages googled by homeowners.  

Question 1:

How early to remortgage before the current rate end?

When your existing rate comes to an end, you have two main options. 

  1. Stay with current lender and get another rate with them.  This is called rate switching.
  2. Research the market to find, if another lender has a better rate.  Then switch mortgage to them.  This is called remortgaging. 

All lenders like to retain their customers, so they try to prevent the customer from becoming a “rate tart”, i.e. switch to another.  However, not all are generous enough to offer market leading rates to existing customers as they are taken for granted. 

Some will try to entice you months before the end of an existing rate, even up to 7 months before the end.  It means the benefit of a good rate can be cut short leaving the customer loosing £1000s over the term of the mortgage. 

Best is to switch a month before end of the rate so you can explore all the rates from other lenders as well.  This may mean doing your research a couple of months before the deadline.  You can do a comparison yourself or ask a broker to do it.  

On the other hand there are advantages to staying with the existing lender.  If there is no change to the loan and term, switching is quick and easy and there is no credit scoring.  If you have a broker they can arrange the switch painlessly while looking at other options as well.  

If a change in the terms of the loan is required, such as additional borrowing, change to payment method or term of the loan; then it will be treated as a new application.  The lender will carry out checks on credit status, income etc.  

Disadvantages of staying with the existing lender are, missing out on a better rate with another and possible better lending terms such as higher income multiples.  

What happens if rate is not switched at end of term?

The lender will automatically switch the loan to their Standard Variable Rate or SVR.  This will almost likely to be higher than the special rate the lender gave to obtain you as a client.  It may mean £1000s extra payment annually.  

Example: Current loan of £250,000 has a fixed rate of 2% and the loan term is 25 years.

The monthly payment = £1,059.64

The rate moves to a SVR of 4% if the rate is not switched on time.

The new monthly payment = £1,319.59.

That is additional £3,120 annually.  

What if the rate switch deadline is missed?

When you are on the standard variable rate you are allowed to switch or move lender without a penalty.  So it is always best practice to check you are not on a SVR and if so try to find a better deal.  

Click to Find Remortgage Rates Here

 

EWS1 Requirement for flats

New guidance on EWS1 from April 2021

From April 5th 2021 new recommendations of fire safety test requirements will come in to effect.  It is expected to remove up to 500,000 properties from the EWS1 requirement and free up the property to be mortgaged.  

Some buildings that were not on the original list are however included, such as buildings with any height with high pressure laminate (HPL) as needing an EWS1 now, but many are removed.  It is also endorsed that a valid building control certificate under building regulations can supersede an EWS1 for buildings 18 metres or higher from 5th April 2021. 

However, it is important to remember this is only guidance and mortgage lenders will still have the right to make a risk based decision to lend or not on a particular building.  

Material affected:

-high pressure laminate (HPL)

-curtain wall glazing

-timber

-metal composite material (MCM)

-aluminium composite material (ACM)

A guide for consumer to be published in the near future.

Further information can be found here : https://www.mortgagesolutions.co.uk/news/2021/03/08/rics-updates-ews1-cladding-guidance-to-unlock-the-market/

EWS certificate was designed to bolster lender concerns about lending to high rise buildings of 18 metres (above 6 storeys) or more that may contain high fire risk external cladding.  Specially any metal composite cladding with unmodified polyethylene fillers.  Lender fears about fire risk including other types of external cladding, not just Aluminium composite material (ACM) , the type that was found at Grenfell Tower has lead to many homeowners in multiple occupancy buildings not being able to remortgage or sell their property. 

This was exacerbated by the general guidance by the Government, extending the  need for fire safety assessment to all types of property included those less than 6 storeys.  The Guidance in January 2020 states that, all building owners will have the responsibility to ensure all buildings with multiple occupancy does not have combustible material in the external structure including balconies.  We at Axess Financial Services found many clients caught on in this net, even those that do not have external cladding. 

Last month came some respite.  On November 21st to be exact, Government issued the general guidance that EWS form is no longer required for buildings with no cladding.  

The EWS is not statutory, but the lenders are still insisting on it as a commercial decision.  A new form of the certificate will be  introduced, the EWS2, for property below 6 storeys.  As the inspection does not involve high level of resources, it is something that will help some homeowners.  

Next battle for leaseholders on high rise flats would be who is responsible for the cost of repair.  Watch this space. 

Help to buy scheme logo

Help to Buy – new scheme from Apr 2021

The current Help to Buy (HTB) scheme comes to an end on 16th December 2020.  If you have not applied by that time you will need to wait till 1st April 2021 to move in to the new property when the new scheme starts.  However, you can start the new application from that date.  

The new scheme from 2021 – 2023 will only be available to First Time Buyers.  However, it is not clear at the moment if it means only for those who have never owned a property or owned in the past many years ago but no longer home owners.  Some mortgage lenders will consider those who haven’t owned a property for many years to be first time buyer appliance, 

New Help to Buy for First Time Buyers Only.

Help to buy scheme logo

Other important factor is that the value of the property will be capped, based on the region.  Highest property value will be in London and lowest in North East.  

There is no change to the other aspects of the HTB scheme such as level of deposit.  It is still limited to new builds only.  

To understand the advantages and disadvantages of the scheme, click here.