What does a ‘red letter day’ mean for you? A day out at Silverstone? A hot air balloon ride? It may have been acquired by a friend for a wedding gift or from a prize letter in a magazine? For others – perhaps the majority – it means something else.
Picture this – you only have £500 to spend in a month. Where do you allocate it?
A friend reminded me recently of a Spike Milligan gag: “Each month I write each of my bills on a piece of paper then put them in a hat. One of the aggrieved parties wrote a red letter to me demanding payment, I rebuffed with: ‘You take that tone, but I will withdraw your entry.”
Without meaning to go all Bob Geldof, ‘a red letter day’ could well mean something unhappy for others. A plight that requires the spinning of plates, David Copperfield-style – what is a priority, and in some cases, a necessity, to pay? Not Plasma TVs, DVD players and ipods. Rather heat, light and normality. Moreover, which red letters are the most important in terms of my family’s well being?
Included in this trauma is the mortgage payment. Interest rates have, of course, risen in recent months, and according to most pundits are likely to rise once more. Where is the salvation, mortgage payment protection insurance? Probably cancelled already.
The good news, however, for the industry is absolutely everything can be affected before someone decides not to contribute at least in part to the mortgage. Although not priced that way, I recently heard statistics from one specialist non-conforming lender that any number of CCJs up to a £7,500 total is the equivalent risk of someone that has missed one mortgage payment in the last 12 months.
Living by candlelight on an HP bed is an option; however telling the wife that they have to sleep on a park bench is simply not.
Think about it for a moment. From our standpoint, we are bullet proof from society – almost on our 10th life. As Jose Mourinho would delight in proclaiming, ‘untouchable’. Others simply fall on their sword before us. The £500 is ours. It’s in the back bins.
Does it then make it right to push the boundaries? Many lenders do, and sometimes intermediaries will roll over, putting common sense to one side – otherwise they may lose the business to the ‘unscrupulous’ chap down the road.
For example, one current lender returns six and half times joint borrowing as regular as clockwork? Mrs Jones used it to good effect and now Mrs Brown wants to – to keep up with her. Forget the actual repayments the computer said I was eligible for.
Is Mrs Jones paying her other bills though? Is she juggling them? Or simply forgetting about them altogether?
A growing number need Copperfield to magically change the £500 into the £1,500 they require, otherwise payment or excessive borrowing may be the only answer.
Apparently not. Not only do we encourage people into debt, we allow them to reinvent themselves – proven by the doubling of Individual Voluntary Arrangements – so we can lend to them again.
As a society, we are undoubtedly on a downwards spiral. Don’t get me wrong, everyone deserves the finer things in life. But without knowing it, Mrs Brown thinks Mrs Jones is coping – so can she? For example, take house prices where inflation is false and egos push the prices up.
As a broker you can do your part by showing your applicants that running a house is more than one payment to a lender. It may hit you in the pocket temporarily, however that new generation will give you greater moral satisfaction.
Mainstream
Building societies are leading the way on fixed rates. Portman has a 5.12 per cent fix to 31/3/09; Leeds a 5.29 per cent fix to 30/4/12 and Yorkshire a 5.35 per cent fix to 30/4/17. The latter causes advisers problems as it insists on being on Trigold, although does not recognise brokers financially.
Buy-to-let
The January Base Rate rise has caused some lenders to re-think their rental calculations as they were effectively taking themselves out of the market.
Leeds has introduced earned income on its three-year fixed rates – a sensible approach. The income multiples are up to four and a half times. However, unlike others this is a ‘full status only’ option. Its 80 per cent maximum loan-to-value (LTV) is beginning to look tired.
UCB Homeloans has dropped its rental coverage factor from 125 per cent to 110 per cent.
The Mortgage Works (TMW) has decided its mix of fees, LTV and rental coverage had too many footnotes. The 100 per cent calculation is now available to 90 per cent LTV.
BM Solutions now has three tiers 100 per cent, 110 per cent, and 125 per cent at Base Rate plus 1 per cent, depending on product selected.
The Mortgage Business (TMB) has extended the number of properties to three on its self-cert of earned income product, House2House.
Self-cert
TMW is leading the pack when it comes to loan sizes, allowing £1 million to 85 per cent LTV. To have a debt this large and take a floating rate requires some spunk. It has therefore come up with a switch to fix option.
Adverse
Kensington has combined its Simple and Extra Choice range which makes sense.
TMW is proving to be very flexible in its underwriting approach.
Thought of the fortnight
If you are not living on the edge, you are taking up too much space.
