MORTGAGE SPECIAL
come to an end. Lenders have had their fingers burnt, or seen other lenders get badly scarred, and are now keen to micro- manage demand rather than pursuing lending growth at all costs. Michelle Slade describes lenders as
‘reticent’ and says many lenders now are working on a case by case basis, and requiring more data before lending. “Lenders have been burnt before. They want to establish affordability now, not just can people afford current repayments, but can they afford an interest rate rise?” Even if a mortgage is technically available doesn’t mean that many applicants will be accepted. “Although lenders’ windows may be full of best buy deals, it doesn’t mean they want to lend. The increase in the
number of mortgage deals for those with smaller deposits is encouraging, but only a limited number of such mortgages are likely to be approved.” The importance of underwriting has
become evident. For instance, John Heron claims that Paragon’s over-three-month arrears are running at a third of the market rate, due mainly to its in-depth underwriting process and use of local valuers. Chris Smith says Yorkshire is paying attention to its due diligence, not just to improve its lending ratios, but also to help customers. “The heart of it is we want to do right by the customer, so they’re sitting down in the branch and talking it through with one of our people before they go ahead.”
BRIDGING LOANS, BY YOUSOUF ROZE, DIRECTOR, FIRST FOR BRIDGING The ongoing caution of lenders has meant
bridging loans have played a far more prominent role in the residential property market of late. No longer are they the preserve of the professional property developer but they increasingly meet the needs of average buyers who need a quick fi x. For example, a number of the cases we have dealt with of late have been a result of a lender either taking an age to commit to an offer or, worse still, making an offer on a property and then pulling it at the
eleventh hour, leaving the would-be buyer — and you, the agent — fi rmly in the lurch. In cases like this,
when the high street lender has thrown a
spanner in the works, the bridging lender will provide the fi nance to ensure a buyer is
able to proceed with the purchase. In this sense, the bridge is an agent’s best friend, oiling the market and ensuring sales moves ahead where they would otherwise fall fl at.
In a stagnant market with relatively
low transaction levels, it’s more important than ever for agents that sales proceed — and bridging fi nance, which can come to the rescue when a sale is under threat, can go some way to ensure that happens. So what kind of rates are out there and
how easy is it to get a bridging loan? Well, on lower loan to value (LTV) loans — generally considered to be those of 60 per
Admittedly, these kind of rates will probably only be offered on prime
properties in the Capital, but they’re still out there. Saying that, rates aren’t that bad at higher LTVs, either. At the time of writing in early July, you could get 70 per cent LTV loans around the 1%pm level, which is quite something.
In terms of loan
criteria, some lenders will be content to asset-lend at lower LTVs (lend purely on the charge they have on a property), but
once the LTV rises, they will generally start to dig a little deeper to ensure the
borrower will be able to service
the loan. By and large, though, taking out a bridging loan is by no means as tough as many people think it is. An application form, ID, proof of serviceability and a valuation will generally be enough to kick things off. As you would imagine, each lender has
its quirks and preferences. Some, for instance, won’t touch anything if it’s outside the M25, others will focus purely on super-prime properties, while others still prefer to limit their lending to smaller loans. As ever, it all comes down to knowing which lender to go to given the aims and needs of your client.
cent and below — it’s possible to get rates from as low as 0.75%pm, which is not much worse than you can get from a mainstream lender.
But there is significant political pressure
now being brought to bear on mortgage lenders. The housing market is obviously broke, and it’s lenders who are being told to fix it. That’s already been seen in the lack of repossessions so far; while the last housing recession saw repossessions peak at 75,000 in 1991, the CML expects only 40-45,000 this year and next (after 36,000 in 2010), largely due to lenders’ forbearance in response to government pressure. However, that will have an impact on lenders’ desire to secure new business, and could temper any recovery. There’s also been a call for more
regulation. While the CML approves of sale and rentback schemes being regulated, it is not happy to see proposals from the FSA or politicians to impose regulation on LTV or salary multiples, believing that it is up to lenders to decide their lending policies. Bernard Clarke says, “The FSA’s market review is continuing, so we don’t know what the final proposals will be. But we feel these kinds of restrictions are not what the market needs. It’s a very blunt instrument.” Instead, he says, the imposition of higher
capital ratios for selected types of lending is a more flexible way to discipline the market. “Lenders now have to hold 6 to 8 times as much capital for lending at 90 per cent LTV, compared to a loan at 60 per cent, for instance”, making such a loan costlier. This style of regulation allows lenders to make up their own minds on credit risk and the mix of their mortgage portfolios, though still encouraging prudence. Some regulation might well help. The
Institute for Public Policy Research recently released a paper which blames loose lending for the fact that the UK has had four house price bubbles in 40 years. The UK now has more mortgage debt than any other major economy, relative to income. Mortgages represent 81 per cent of GDP, more even than the 73 per cent in the US and way above Europe’s 44 per cent. But that cuts two ways. It may mean
mortgage debt is unsustainably high, but it also means, as Bernard Clarke says, “We have a population with a huge stake in the mortgage market.” With a 70 per cent rate of home ownership, changes in the market will affect the vast majority of the population in the UK, so any change is likely to be slow and gradual.
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26 AUGUST 2011 PROPERTYdrum
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