He wants to draw a line under his difficult mortgage history, turn over a new leaf and move to a new property. The home he has in mind is on the market for £240,000, but he fears his income as a salesman (£30,000 on-target earnings) will not meet the demands of income multiples, so he is looking for a self-cert or affordability product. He has £35,000 in positive equity in his existing property which he will use as a deposit on his new house. Can you advise?
Ian Batterbee at Clancy le Surf
“The good news is that we can do something with this client.
The important thing is clear advice regarding his existing arrears. Is this change of mortgage really going to change his life, or will he be back to square one in six months?
It is unclear as to how much in mortgage arrears he is.
Realistically, he needs to show a deposit of somewhere in the region of 15 per cent in order to utilise the concept of self-certification – the higher the better.
It’s also unclear as to what his salary is, and again, this will be a determining factor in who we would look to place this case.
Kensington Mortgages has a good range of products, from very light, to heavy adverse, and they would certainly be an option to consider.
It would credit score the client, and fit him into one of its tiers.
Depending on the level of the adverse credit, Kensington could offer a two-year fix of 5.74 per cent per annum for near-prime, or at the other end of the spectrum, this would rise to a rate of 6.99 per cent per annum if the client has heavy adverse credit.
Both of these rates assume self-certification, and require a deposit of 20 per cent.
Sue Cox, business manager, Bananas Inc
“Those in your client’s situation have always found it very difficult to move forward if they fall into mortgage arrears with a non-conforming lender, given that prior to obtaining a non-conforming mortgage they would have had credit problems.
That is no longer the case though – there is a product available that allows for non-conforming arrears.
Available through Bananas Inc and High-Street Home Loans, the mortgage will lend up to 90 per cent loan-to-value (LTV) to those with five months arrears in 12 (maximum of three in six) and offers rates that start from 7.19 per cent, with free legal services. The product comes with loadings for self-cert and is suitable for purchase and remortgage. The affordability calculation on which the product is based is ideal for the client.
There is no higher lending charge and no extended tie-in, but an early repayment charge of 6 per cent applies within the fixed rate period. An arrangement fee of £695 can be added to the loan. As you can appreciate, the mortgage has the advantage of drawing a line under the non-conforming arrears and offers individuals the chance to restore their standing and buy their next home. However, as you can appreciate, it is not cheap, which is what you would expect given the level of risk the lender is shouldering.
With that in mind, you need to impress upon your client that he should view this product as something of a ‘last chance saloon’. Fall into arrears on this one, and there is much less hope of him patching up his credit record in the future.
You have not mentioned his income, so it goes without saying that you will need to be sure that he will be able to afford this new mortgage going forward and that he has disclosed all his outgoings to you.
Some clients can have a rather unrealistic view of their financial position, which is usually the key reason why they get into problems in the first place.
If you fear there are factors he is under-playing, which are likely to mean he won’t be able to meet his new mortgage payments, advise him to shelve his house purchase until a later date. He does not want to make his situation any worse than it is”.
Alan Lakey, senior partner, Highclere Financial Services.
“Income and affordability are the major factors here. Lenders using income mulitiples will limit the borrowing to around £120,000 as opposed to the £205,000 required.
Self-certification will not help because a declared income of £51,250 is needed and on-target earnings are only £30,000.
Because of the arrears and because the required loan is fractionally over 85 per cent loan-to-value (LTV) it means that even with a discount the interest rate is likely to be over 5.50 per cent. On an interest-only basis this equates to £863 per month. With an average net income of £1,830 it means that 47 per cent of income is being used on the loan.
More importantly, when the discount finishes the interest rate will jump by around 2.50 per cent making the monthly payments £1,367. Quite simply this will stretch him too far. The fact that the current loan is in arrears is also indicative of this. What’s more, interest rates are likely to rise over the next year and this will only add to the misery.
Preferred, which is one of the more generous lenders, would only lend £192,000 – some £13,000 short of the required borrowing.
Even if a mortgage lender could be located, my advice to the client is to stay put and resolve the current position before embarking on any additional borrowing.”
