Without wishing to sound like a self-help agony uncle: ‘It’s what’s on the inside that matters.’ Over Christmas I pulled a cracker and out popped what every self-professed mortgage man needs – a plastic thimble. I instantly cast my mind back to November where I was equally duped and ripped off by a packaged firework entitled ‘ Battle of the skies’ - judging by this analogy my wife’s bath candles could pass as the ‘Towering Inferno’.
The fact is that lenders appear to be placing more and more emphasis on the property shell than on what lurks behind the door. This is supported by the constant undermining of the surveyor (an occupation incidentally that involves copious exams and carries qualifications in line with top accountants). I refer, of course, to ‘comparables’ and/or ‘audit valuations’ which are arguably a prudent measure but nevertheless a sideways swipe shouting: “You’re okay but you don’t mind us getting a second opinion, do you?” Lenders are set to travel further down this road with automated valuations touted to take an ever-increasing hold on decision-making.
This leaves me dumbfounded. The collateral (as our friends across the Atlantic would trumpet) or ‘property’ as we choose, is the fundamental reason why rates can be so low and loan-to-values so high. It is vital to fully understand what you are lending against.
You do not need to have the same tendencies as Harry Enfield’s lovable Michael Caine character to know that neighbouring houses could have: knocked through walls; added extensions, loft conversions or conservatories; and some will exercise commercial usage. Judging by the weird and wonderful enquiries that hit our enquiry desk at Mortgage Times, I know properties can also have: multiple occupancy; locks-on interior doors; shared bathrooms; and tenants that would pocket the kitchen sink on eviction.
In addition there are factors which affect quick-sales in the event of repossession, such as: Lawrence Llewellyn-Bowen purple walls; submerged motor bikes in the lawn; or conversely a landscape garden or en-suite bathroom.
The surveyor not only visits the property but asks questions and has a nose for things. A computer will merely tell you that three properties in the vicinity have sold for £150k in the last eighteen months. Ideal if you are a cross-purchase new-build developer.
Despite this vague conclusion on market price, lenders are bound to embrace this new method of assessing value in a quest to deliver in the shortest time possible. My concern is that the system will not only turn out to be the preferred way for lenders to operate, but the only way. Processors will lose the ability to interpret valuer’s comments and lenders will eventually steer clear of high loan-to-value products altogether.
There is a theme being followed in our industry: first the One Minute Mortgage (credit score decision); then the One Minute Offer (includes automated valuation) – what comes next: the One Minute Repossession? The trouble is: what will the lender get back?
Market overview
There has already been an influx of lifetime tracker products from lenders this year. Lender’s rationale behind this move is that if the customer does not encounter a rate hike after the initial benefit period, they may not go shopping around. However, the intermediary market is unlikely to support this bout of products as they will, in turn, miss out on a re-visit. It is also even more unlikely that they will even contemplate searching a lifetime product as the key search is ‘two year without extended early repayment charges’.
Mainstream
First Active are boasting their lowest ever fixed rates at 4.55 per cent until 31 March 2008. Nationwide have brought their let-to-buy criteria in line with the market, requiring 125 per cent rental coverage on the previous residential home.
Yorkshire Building Society has introduced the ‘Freshstart’ range, a series of products for those trying to re-establish their lives after a relationship break-up, with no interest charged in the first six months and a ‘help with fees’ options. Caution should be taken however, as the rates do not remain low for long and the ERC period is five years.
Skipton has amended its lending policy. I think their income multiples for combined income may be beneficial: three times joint for three applicants and 2.75 times joint for four applicants. Amber Homeloans has withdrawn its 100 per cent product and requires the latest month’s payslip, P60 and latest month’s bank statements on 95 per cent which is not ideal for introduced cases.
Prime buy-to-let
TMB has updated its Ten-to-let product and renamed it ‘Multi Buy to Let’. It works on the familiar 125 per cent of interest (regrettably at reversionary rate). The products are ERC-free. Like BM Solutions and Bank of Scotland the maximum £5 million portfolio is available across the HBOS brands without restriction on the number of properties.
BM Solutions has launched a three-year fixed rate at 4.89 per cent with 1.5 per cent completion fee, which is roughly 0.15 per cent off the pace but has the distinct benefit of their service offering.
Woolwich now allows properties to be in a single name if applicants are married and also in the name of a special property vehicle limited company. This potentially allows a family to triple the loan maximums. Rooftop Mortgages has increased the rate by 0.25 per cent on its self-cert buy-to-let to 5.75 per cent. SPML has launched their first ever online-only product; in Ronseal style it is titled ‘Buy2Let Online’, which requires an automated DIP to accompany the application.
Prime self-cert
BM Solutions appear to have introduced three-year products to support their traditional two-year offerings. Maybe they are looking for more profit in the coming months. Bank of Scotland will now lend to £1 million at 75 per cent LTV.
Adverse
First National has a Near Prime three-year fix at 5.49 per cent to 85 per cent LTV that should boost sales ahead of their full re-price in February. Preferred has relaxed its arrears policy on a number of product areas, and introduced an ‘or’ or ‘and’ CCJs/arrears in its mid range. BM Solutions has introduced an option to switch out of adverse into a buy-to-let rate.
Richard Stokes is head of product development at The Mortgage Times Group
