I read somewhere that drinks firm Coca Cola lost 16 per cent of its market share last year, and interestingly only 1 per cent of this went to Pepsi. Nevertheless it has made a concerted effort to recapture its crown by re-branding its dietary product, backed by an intense marketing campaign that is as sexist as anything edeus has churned out in recent weeks.
Rather than confront Pepsi head-on, Coca Cola’s clever stance is to flip the consumers’ thoughts to ‘Zero’, the opposite to Pepsi ‘Max’. At mortgage helpdesks too, you can hear uttered the immortal words: ‘My client wants to pay zero, and borrow to the max.’
Of course it isn’t quite possible, but there are ways of moving up the gears to the max by selecting appropriate lenders for seemingly no cashflow impact.
If your client is looking to make money out of equity growth rather than monthly letting income they could potentially borrow an extra £20,000 without putting their hand in your pocket. With only 10 per cent deposit required on some buy-to-let products, two extra houses of £100,000 could potentially be purchased. Depending on the lender, imagine the amount you could realise across a portfolio.
All very straightforward and exciting – but who gives 100 per cent rental coverage? Well Future Mortgages as a matter of course, and GMAC-RFC and The Mortgage Works for a premium completion fee. West Bromwich for Intermediaries also allows earned income to be factored in covering the difference between 100 per cent and their standard rental coverage factor of 120 per cent – there are more than you’d think.
Some lenders of course look solely at earned income, including The Mortgage Business (TMB), Platform, UCB Homeloans, Rooftop Mortgages, and new Merrill Lynch stable mates Mortgages plc and Freedom Lending. This method can, in theory, realise a greater borrowing potential than 100 per cent.
So how else can your clients ‘max’ up their portfolio where there was ‘zero’ potential before. Say they fancy a particular area for future equity growth but unfortunately the rental return is 75 per cent and earned income cannot make up the shortfall. The answer may reside in future product development into the cross-subsidy of rental yield across more than one property.
For example:
Property A, is achieving 125 per cent rental return
Property B, is achieving 75 per cent rental return
The blend of 100 per cent rental return across two properties surely solves the problem if the lender takes on both?
In theory ‘yes’, but what happens if the landlord decides to cash in on Property A – we have one unhappy exposed lender on our hands. ‘So what’, I hear you cry? Well, the ‘what’ in this instance is the rationale which prevents them from taking the plunge. Traditionally underwriting-based lenders such as Heritable Bank, The Mortgage Works and Paragon may be able to take a view – but the fashionable BM Solutions and Mortgage Express are sitting on the sidelines. Come on guys – that’s a Pepsi challenge.
Market analysis
The big news was obviously the timing of the increase to the Bank of England Repo rate, with market experts predicting a rise later in the year. With oil prices hitting inflation hard, some predictions show 0.5 per cent by the year end taking the rate to 5.25 per cent. Let’s hope not.
Mainstream
Northern Rock continues to reduce its ‘Help With Costs’ value. It now stands at £700 down from £1,000, suggesting the recent reduction in early repayment charges is causing internal concern. The good news is its leading two-year fixed rates from 4.39 per cent are still available.
Norwich and Peterborough has launched into the 100 per cent loan-to-value (LTV) market to help first-time buyers.
Woolwich is guaranteeing to assess cases within 24 hours provided they are received via the Mortgage Trading Exchange (mte).
Self-cert
The Heritable Bank has introduced an affordability calculator on its self-certification mortgage product range. It would be helpful if lenders would share the expected average income multiple this will equate to rather than the market spin of the maximum income multiple.
Platform is looking to slow down business by removing several exclusive products.
Buy-to-let
Mortgages plc has shown confidence in the new build market by maintaining its 10 per cent builder deposit rule despite increasing its LTV to 90 per cent – effectively 100 per cent. It also allows foreign nationals and ex pats but the criteria are disappointingly restrictive. A self-cert earned income option is also available as an alternative to rental coverage.
Amber Homeloans has withdrawn all its early repayment charge free mortgage products.
Adverse
Northern Rock follows Alliance & Leicester’s lead into a planned strategic alliance with Lehman Brothers to provide adverse mortgage products to its customers.
Amber Homeloans has offered a free HLC to 90 per cent on its re-badged near-prime product.
igroup’s new 100 per cent LTV product is available for remortgages.
GMAC-RFC Partners has reduced its right-to-buy two-year fixes.
Freedom Lending has launched a new ‘unlimited’ adverse risk band.
