Dear Sir,
Towards the end of last year, a lender brought out an investment property mortgage at 85 per cent loan-to-value (LTV) without any need for a rental calculation. This was an ideal opportunity for one of my buy-to-let (BTL) clients to downsize, swapping an old residential property for a smaller one which nevertheless did not fit on rental yield. There was easily surplus occupational income to cover the shortfall and the client foresaw a possible further downsize in the future. They already had another mortgage with one of the lenders who use a combination of income and rental so this wasn’t an option.
The product was only available through packagers and at the time there was considerable confusion among the several packagers I spoke to about the portability of the product. Some thought only the variable rates were portable, some thought none were, some thought they all were. I obtained a non-regulated illustration through the sourcing system of the packager I submitted through, which said that the fixed rate deal was portable.
However, when the offer letter was received, it said the deal was not portable. At this stage, my client had little option but to go ahead and sign the non-portable offer letter, but I actually managed to get a packager to provide me with a name of a senior underwriter with the lender. He said there was no intrinsic difference between the rate types in portability, but that the offer letters were covering themselves against the mortgage subsequently being sold on and a subsequent lender not honouring it.
Six months down the line, my client had the chance to swap this for a smaller, more desirable property and offered the lender to port to a property virtually identical in value and mortgage but with a better yield, which was presently on a no early redemption charge (ERC) mortgage with Northern Rock. After some weeks of no reply from our lender, I eventually managed to speak to the same underwriter, who was confident that it would waive the ERCs, though the client would have to take a further two-year fixed rate at the now higher rate. He asked me to send him an e-mail. The decision came back from the highest level that, although the mortgage was still on their books, no such offer would be made; they would rather take their quick £9,000 rather than have a new lending at a higher interest rate.
I have evidence in my file of all this, including the underwriter’s name in my product confirmation letter. Despite this, the lender shows a complete lack of integrity and while the offer letter is a legal document, a senior underwriter surely has ostensible authority legally to at least commit his organisation to look at such a situation positively. Is this sort of conduct an argument for regulation of the BTL market?
Des Platt
Hunter Mills Ltd
Answers to the AVM questions
Dear Sir,
In response to his ‘letter of the week’ (Mortgage Introducer, 9 September 2006), I can answer the questions that Rick Gifford poses to GMAC-RFC as follows:
The use of automated valuation models (AVMs) will substitute objectivity where there is currently subjectivity. This should positively impact the issue of subjective down-valuations which he perceives to be prevalent in the market.
We ran 17,500 previously undertaken manual valuations through an AVM and found that, based on a portfolio as a whole, the use of an AVM would have made no material difference to our security. Two leading credit rating agencies reached the same conclusion on a larger sample.
Lenders’ valuation reports have been inappropriately relied upon by mortgage applicants, whereas in fact they are a short, subjective opinion prepared solely for use by lenders. The use of AVMs by lenders will encourage applicants to do what they should always have done, which is to commission a Homebuyers’ survey that is a report designed for them, going into the right detail about value and condition.
The application fee paid up-front by mortgage applicants is to cover the lenders’ costs of pre-completion processing. It is one component of the fee and interest charges that make up a competitive mortgage product and most lenders, including GMAC-RFC, are prepared to refund this fee across large parts of their product ranges.
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Our new Point-of-Sale Offer (POSO) will empower applicants by giving them a binding offer immediately, at point-of-sale. No waiting, no chasing, no stress. This is exactly what 68 per cent of applicants said they wanted in our recent survey. The negative expense and wasted time that POSO takes out of the market will benefit all, and we believe that the security for our loans will be enhanced by the objectivity that AVMs bring.
Jeff Knight
Director of marketing
GMAC-RFC
Smoke and mirrors
Dear Sir
The coming Winter could have a major influence on confidence. If we have a long cold snap and a late Spring, the housing market will slow further. The effects of higher energy prices have not yet been felt by households. The current ‘smoke and mirrors’ approach to politics over the Labour party leadership will do nothing to improve the economic conditions and merely distract voters from the real issues.
Joe Kelyy
IFA
Parkrow
Getting the balance right
Dear Sir,
There can be little doubt, it is an exiting time to be in the mortgage market, whether product provider, packager or intermediary. The technological rate of change has frankly been astonishing. The recent news that a two-hour mortgage has been achieved is, I feel, a red letter day for the industry. From identification checking through to AVMs and credit score, this is some acheivement indeed.
I do have to sound a note of caution. Some in the specialist mortgage market have embraced this technological change but there is a potential downside. The very driver of the specialist market in the early days was doing something that the conforming market could not do and doing something different. The real success of the market was built on decisions made by human underwriters, not machines. Looking to lend and taking a positive underwriting approach.
The irony is that in the early days of specialist lending, much of the sector’s growth was providing mortgage solutions to those people who failed credit scoring from the traditional lenders. Yes, there will always be a need for the two-hour mortgage for those really urgent cases. However, this has to be seen in the context of the market we are working in. Some specialist cases are highly complex and I doubt if a machine would be able to make the correct final decision.
I firmly believe a lenders approach to technology is about getting the balance right. There will continue to be a place for the underwriter, the machines won’t be taking over just yet.
Simon Biddle
Head of marketing and
communications
Infinity Mortgages Limited
Taking responsibility
Dear Sir
Adrian Fowler (Assurant Solutions) recently discussed how our industry is moving closer to delivering a sound product that represents a good deal for consumers (Mortgage Introducer, 2 September). He also commented on how it was good to see the session giving priority to providing customers with choice and value.
Isn’t this what we should be doing anyway? It’s a shame players in the payment protection insurance (PPI) sector need the Office of Fair Trading (OFT) to lead the way. The insurance industry was built upon the cornerstones of robust underwriting, sound products, choice and value for money, so why aren’t these principles extended to PPI? I don’t see the household or motor sectors under investigation from Citizen’s Advice or the OFT.
Our industry should never have got to the stage where it needs external intervention to ensure we offer a sound, fairly-priced PPI product. While it’s easy to point the finger at the retailers, the wholesalers need to shoulder their share of the blame.
Why have insurers allowed PPI claims ratios to continue at less than 20 per cent, as opposed to 74 per cent for motor and 55 per cent household? Profits, at the expense of the consumer, are huge in this sector – but then, given the high commission rates, profit sharing and bonus agreements, insurers will no doubt argue they need to be. How did the PPI issue spiral out of control and why weren’t those basic principles adopted?
It’s unfair to put the pressure on retailers and industry trade bodies to change perceptions and ‘educate’ consumers better – the wholesalers need to take a long hard look at how they’ve contributed to this situation.
Sara-Ann Burgess
Britishinsurance.com
