Over the past couple of years, lenders’ appetite for risk has hardened significantly and the shutters have been pulled down for the self-employed and those with small deposits. The only applications that now likely to sail through without a hitch are those with low loan to values but even then that is far from guaranteed.
Clients that may have expected a light underwriting touch or a fast-track application might now be in for a rude awakening so it is crucial to prepare them and their case carefully. We call it getting them “mortgage fit”. This means all the budgets, finances and paperwork must be spot on.
As a result of tougher regulation, mortgages are much harder to come by in the current climate and that means a much longer application process with more paperwork. It’s a good idea to warn clients up front so that they know to expect potential delays, particularly if they are on the edge of criteria or have a case which isn’t standard in any way.
We’ve noticed more and more lenders coming back to us several times asking for more evidence or paperwork. In addition more cases are being declined often for spurious reasons. We’ve also seen a big increase in applications returned if they aren’t fully completed.
This can be incredibly frustrating but ultimately it is the adviser’s job to set things up so that the chances of delays are minimised. So if you understand lenders’ underwriting positions then you should be able put yourself in their shoes assessing an application and plan accordingly.
Handy things to have up front are:
• Bank statements, including details of ALL regular monthly outgoings
• Payslips and P60s
• Evidence of income from other sources such as stocks and shares
• At least three years of accounts if self-employed
• Household budget showing disposable income
Overall it is important to demonstrate that the client is on top of their finances. No mean feat actually for many families, which is a great shame.
It’s also worth noting that clients are now being asked to justify regular expenditure shown on their bank statements, such as gym membership, childcare fees, and film rentals!
This level of scrutiny might strike some people as being intrusive and over the top however it is up to the lender to set their level of risk management and you just have to work with that.
In many ways it is a useful exercise to go through this procedure with clients beforehand. Ultimately lenders are balancing disposable income with financial commitments so maybe understanding and trimming those financial expenditures is no bad thing.
If you equate this to a business that is going through due diligence before investment, that business would make sure that it is in the best financial health possible, with costs well under control and healthy revenues. The same could almost be said for a family looking for a mortgage.
It is a huge amount of money to borrow and lenders, being the nervous sort that they are these days want to know as much about the applicant as possible and build a picture of their life.
Right or wrong, that is what the market is like now. Almost back to the old days when you had to go to the bank manager cap in hand to ask for the great privilege of taking out a mortgage.
There are clearly applicants that all lenders want – the high-earning, long-term employed ones with big deposits – but unfortunately you’re only ever going to get a certain number of those types of borrowers. It’s in times like these that mortgage brokers really earn their money and prove their worth though.
