Ever felt like a lender is keeping you in the dark? Have you ever had the response, “Your case is declined but we cannot tell you why”? Even worse: “We do not know why but regrettably that’s computers for you”? Conversely, are you taken aback when a case sails through the credit score system even though in your mind it was touch-and-go? Do you react by looking nervously over your shoulder in case the Men in Black are about to erase your memory?
The fact is computers aren’t as clever as lenders would have us believe. For a start, in order for a query to return a negative or positive response there must be rules in the machine to start with. Presumably there is a Select Committee that meets regularly in New Mexico and operates a ‘for your eyes only’ policy on underwriting. Surely it’s bad enough that they don’t share these rules with us but evidently they do not trust even their own staff with the information. Why is this? Maybe if someone knew the inside track on relaxation in risk assessment they might – wait for it – actually write some business.
However, could the reality be darker than this? There is a growing conspiracy theory that the technically advanced lenders’ actions are becoming harder to monitor, with them choosing to move in and out of riskier applicant profiles at will, and without the detection of ‘Mulder and Scully’ at the FSA.
For instance, how can traditional lenders react to the generosity of some affordability calculators without having the technology themselves? Surely if they published a straight seven times multiple they would be rightly vetoed. And who’s to say that, if they could, the advanced lender’s affordability calculator wouldn’t just move up a notch? How about the acceptance of 15-storey flats for a while – easily done at a flick of a switch. Or perhaps more likely, changing the adverse rules to trigger different risk bands, or dare I say skipping the natural cascade by a level? Or swap to a product with longer early repayment charges (ERCs)? Maybe the really clever ones in this industry are unknown. The truth is out there.
Market overview
It was interesting to see the discrepancy in Bank of England Base Rate predictions for the end of 2006. City heavyweights Alan Castle of Lehman Brothers and Geoff Dicks of the Royal Bank of Scotland suggest a cut in February with their year-end predictions at 3.5 per cent and 4.25 per cent respectively. David Hiller at Barclays Capital and Melanie Baker of Morgan Stanley predict 4.75 per cent (a 0.25 per cent rise). SWAP rates eased over Christmas and most lenders are poised for re-launch after the first one puts its flag in the ground.
Mainstream
Nationwide has launched an option to switch from selected new business trackers to fixed rates. The leading two-year fixed rates without extended ERC are: Yorkshire Building Society 4.38 per cent to 95 per cent LTV; Northern Rock 3.99 per cent to 85 per cent LTV with a 1.5 per cent completion fee.
Remortgages may be key at this time of year and the following two-year variable options include free conveyancing and valuation: Tipton & Coseley Building Society 4.49 per cent to 75 per cent LTV; Britannia 4.5 per cent to 95 per cent LTV, followed by Abbey, Halifax and Nationwide at 4.54 per cent.
On the underwriting front, Mortgage Express has adjusted its 100 per cent loan size to £300k in keeping with similar recent increases by its competitors.
Prime buy-to-let
West Bromwich Building Society now calculates the rental coverage based on the lowest pay rate in its range, currently 4.69 per cent; igroup has reduced its factor to 120 per cent.
GMAC-RFC now allows flats over commercial premises to a maximum of 75 per cent LTV. Ex-local-authority flats and maisonettes are now also considered. The Mortgage Business (TMB) has doubled the loan sizes on its standard flagship House2House product at 85 per cent LTV to £500k.
Newbuild buy-to-lets are currently under scrutiny with The Mortgage Works, Heritable Bank, Capital Home Loans and Derbyshire Building Society tightening their underwriting stances.
Prime self-cert
The benchmark 85 per cent LTV sees two-year fixed rates without extended ERC slightly over 5 per cent with UCB leading the way. Expect this psychological barrier to be broken shortly.
The FSA presence has certainly ensured brokers stick rigidly to income multiples for this type of borrowing. Therefore Mortgage Express’s move to increase its multiples will be greeted warmly by those who operate in the £200k to £400k loan size sector. The multiples extend from 3.5 to 4.75 times for single applicants and 2.75 to 4 times for joint applicants, depending on annual salary and commitments. 10 per cent deposit is required.
Adverse
igroup relaunched its product range just before the seasonal break. Its style of operating has suited the commercial broker arena – fast offers rather than dependency on rate – with its sister company, First National, serving the supporters of packagers. This latest range extends its Near Prime offering but also plays heavily on earning potential for it and the broker at the heavier end of the market. This probably entrenches them further with their traditional market and gives a clear brand distinction within GE Capital.
As a marketing ploy Kensington Mortgages has rebadged its capped rates as ‘Fixed Plus’. Scarborough has become the latest in a succession of building societies to walk into the lighter end of the market. Accord Mortgages now boasts a cascade facility on its online proposition. Cheshire has launched into online.
Richard Stokes is head of product development at The Mortgage Times Group
