• EVERY MORTGAGE TELLS A STORY

     

Every Mortgage Tells A Story: Are you ready for this year's Spring Bounce?

Spring Bounce
 

Every year for the past few years there has been a £5bn uplift in property purchase-related mortgage completions from Q1 to Q2, as a result of the ‘Spring Bounce’ in the UK housing market.

A quick glance at UK Finance figures mortgage completions to fund property purchase since 2013 shows a strikingly uniform pattern in activity every year except 2016, where the change to stamp duty on BTL property in April caused a sharp spike in BTL mortgage lending in March to beat the deadline (a 79% increase on March 2015) followed by a relatively subdued Q2.

This year, the bounce has started early, with UK house prices rising at the fastest rate on record for 8th December to 11th January as sellers feel more confident about the future after the general election. Property website Rightmove reports that there has been a 2.3% surge in the price of property coming to market, the largest monthly rise they have ever recorded at this time of year. Their view is that increased optimism is also releasing pent-up demand as potential buyers see a ‘window of stability’ given the clear election result. Rightmove also recorded over 1.3 million buyer enquiries since the election, up 15% compared to the same period a year ago, suggesting a vigorous Spring Bounce ahead.

But first-time buyers (FTBs) face record house prices in trying to get onto the property ladder. The average property with one or two bedrooms now has a national average price of £193,000 according to Rightmove. Whilst affordability may have been stable over the last year or so, with the annual rate of house price inflation remaining fairly modest at 1.6%, FTBs are still finding it tough out there, especially if they have complex income, a less than perfect credit record or need gifted deposits to buy their first home. So what can you do to help them?

Advising ‘difficult to place’ first-time buyers

Recently, we were contacted by an intermediary whose clients were looking for their first property, a two-bedroom flat for around £200,000. Like many couples in their position, they had not been able to save a deposit, but one set of parents had kindly offered to gift 15% of the purchase price (£30,000) so an 85% LTV mortgage was required. One borrower was employed but the other had just started a new six-month contract, paid on a daily rate and he had also recently missed a small payment to a credit card provider. The intermediary knew that Vida is one of the few mortgage lenders who will consider all aspects of this case in combination and help these first-time buyers get their feet on the housing ladder.

Next steps

If you have FTB clients who have complex borrowing requirements, why not call a specialist lender like Vida Homeloans? A short conversation with one of our experienced telephone BDMs will help you pinpoint the pressure points that are making the case difficult to place with a mainstream lender. The case might be easier than you think!

At the same time, don’t forget about your existing clients who are staying in their current property but planning to extend or alter it in some way this Spring. Because of issues such as impaired credit records, non-standard property or changes in employment status, they may find that high street lenders are unwilling to grant them the loan they need for a loft conversion or extension. They be unaware of the existence of specialist lenders who can help them achieve their objectives.

For more information on how Vida’s expertise in specialist mortgage lending can help you take advantage of the Spring Bounce, call 03300 246 246 and talk to one of Vida’s experienced telephone BDMs.

 

Case Study – Spring movers Chris and Kate look for their first flat

first-time-buyers case study

 

Chris and Kate have always wanted to have a place of their own. Now things look settled in 2020, they have started to look seriously for a two-bedroom flat for around £200,000. Like many couples in their position, they have not been able to save a deposit but Kate’s parents have kindly offered to gift 15% of the purchase price (£30,000) so they need an 85% LTV mortgage. Kate is employed but Chris has just started a new six-month contract where he gets paid a daily rate and he has also recently missed a small payment to a credit card provider. Although they have been turned down by a couple of high street lenders their broker knows that this is just the sort of case where Vida’s specialist lending criteria could help these first-time buyers get their feet on the ladder.

 

First-Time Buyer Lending Criteria Highlights

 

  • Flats & houses accepted up to 85% LTV (80% LTV for ex-Local Authority flats)
  • Gifted deposits accepted for the full deposit amount from close relatives.
  • For New Build properties, builders’ deposits are also accepted, providing the incentive does not exceed 5%.
  • Minimum age is 21
  • 40-year term available
  • All property types considered, including flats above commercial premises (up to 75% LTV)

Case Study – Spring remortgagers Tony and Nicky need a loft conversion

VIDA BRAND

 

Tony and Nicky have a growing family but cannot find an affordable larger house in their area and don’t want to move away from the good local schools. They have been thinking about converting their loft into an extra bedroom, using the equity they have built up in their property, and now the economic outlook is a bit more settled they have started to get some quotes for the work.  Nicky works part-time and Tony has been working on a Construction Industry Scheme (CIS) contract for the last 3 months. He has also recently missed a small payment to a utility provider. Although they have been turned down by a couple of high street lenders their broker knows that this is just the sort of remortgage case where Vida’s specialist lending criteria for contractors could help these clients get the loan they need.

 

Residential Remortgage Lending Criteria Highlights

 

  • Flats & houses accepted up to 85% LTV
  • Remortgage for any legal purpose
  • 40-year term available
  • All property types considered
  • CIS contractor’s income assessed via last 3 months’ payslips
  • Minor unsecured missed payment in the last 6 months considered

The BTL remortgage market – strong and stable?

HMO & MUB

 

In its latest market forecast*, before the economic effects of Coronavirus were first felt, the Intermediary Mortgage Lenders Association predicted that gross buy-to-let (BTL) lending was likely to fall slightly to £40 billion in 2020 and £39 billion in 2021. The recent decline in BTL house purchase lending is set to continue, as the mortgage interest tax deduction is fully removed from April 2020 and the effects of Coronavirus begin to take hold of the UK economy, particularly in the property purchase market. BTL remortgage activity, which replaced the reduction in property purchase until 2018, is also likely to show a decline this year as the higher take up of 5-year fixed rate loans and product transfers reduces the frequency of remortgages and overall economic activity is suppressed.

 

Whatever the overall effect of Coronvirus and other market dynamics, BTL remortgage business is likely to continue to outstrip purchase business by a factor of approximately 3:1 so it is therefore more important than ever that mortgage intermediaries know when their existing clients are either looking to add to or improve their property portfolios, often remortgaging to raise capital, or coming to the end of a 2 or 5 year fixed rate period and looking to remortgage to minimise monthly repayments. UK Finance data for November 2019 shows that 40% of BTL lending was for equity release and 60% for pound for pound remortgages.

 

In many ways, the BTL mortgage market has survived in better shape than might have been expected, given the series of challenges it has been set since 2015. Changes in Stamp Duty Land Tax, wear and tear allowance, mortgage tax relief, affordability stress rates and the interest cover ratio, HMO licensing, EPC requirements and a ban on tenant fees have all been introduced which has dampened down enthusiasm for property investment in the UK. And yet it remains a £40 billion market, a slight increase on 2015. There is currently little indication that the social housing sector will be expanded sufficiently to meet the growth in demand for rented property, so the private rented sector (PRS) should remain robust in spite of higher tax and regulations still to come.

 

The specialist BTL sector

The specialist mortgage sector still requires guidance from brokers due to the bespoke and complex criteria available. The term ‘specialist BTL’ refers to those BTL cases that do not fit mainstream lenders’ criteria or where the case has such a combination of different pressure points that the adviser needs the help of a lender who is more likely to look at the case as a whole.

For example, one area where brokers experience difficulty placing cases is where the client has an impaired but improving credit record, which might mean missed mortgage payments or CCJs and defaults in the past, often due to a life event, or maybe a Debt Management Plan that needs to be taken into consideration.  It tends to be the specialist lenders who will consider customers in this space.

Unusual properties are another element of the specialist BTL sector; ex local authority flats, high rise, flats above commercial property, multiple units under one freehold title, student accommodation and HMOs. Where the legislation has changed in recent years, landlords may find that they can no longer remortgage their HMO properties on the same basis as they used to.

The number of limited company transactions has also grown significantly in the last couple of years due to the changes in taxation rules.  Again, you will find the specialist lenders operating in this sector and, in some cases, they will lend to trading limited companies as well as the more widely known Special Purpose Vehicle (SPV) set ups.

Specialist BTL lenders also tend to be more comfortable lending on a ‘no minimum income policy’ and treating the transaction as a self-funding BTL, using the appropriate stress rates to ensure there is a contingency for rental voids.

Next steps

If you have BTL clients who have complex borrowing requirements, why not call a specialist lender like Vida Homeloans? A short conversation with one of our experienced telephone BDMs will help you pinpoint the pressure points that are making the case difficult to place with a mainstream lender. The case might be easier than you think!

For more information on how Vida’s expertise in specialist BTL mortgage lending can help you take advantage of the Spring Bounce, call 03300 246 246 and talk to one of Vida’s experienced telephone BDMs.

* ‘The new ‘normal’ – prospects for 2020 and 2021’ by Rob Thomas, Principal Researcher, Intermediary Mortgage Lenders Association (IMLA), published in January2020.