Well normally this appeals to those who have the courage to recognise when enough is enough and admit their problem, much like an alcoholic admitting they enjoy a few too many drinks. Historically this has always been a taboo, but the culture of borrowing has hit virtually all of us, even if we don’t necessarily recognise it. For example, most of us have credit cards and a car loan, but we are in no way immune to life-changing events such as unemployment, failed businesses, divorce or illness.
Restoring dignity
The reality is that an IVA protects the family home, unlike bankruptcy, which could see it snatched away. It also has a relief period while an agreement is reached by those who are owed money, preventing red letters and knocks on doors at a time when stress is at an all-time high. Furthermore it restores dignity as it allows the debtor to honour their previous failed commitments, albeit at a reduced level.
The creditors in this instance are also normally happier as they will receive something; they don’t have to go through the legal expense of bankruptcy, and can still claim for tax relief on bad debt.
Personal finance can still be arranged while in an IVA, and this is one of two areas where mortgages come in. The debtor rarely chooses to go the course of an IVA which is typically five years, because the consequences in the small print at the end of the term can be fiercer than anticipated, particularly if they come up short in their obligations. Debtors often choose to release themselves early by remortgaging in order to provide the necessary capital to facilitate this.
GMAC-RFC Partners (95 per cent) and Kensington Mortgages Extra Choices (90 per cent) are among the most generous loan-to-values (LTVs) on the market; both require confirmation that the terms of the IVAs have been adhered to. The actual wording is ‘satisfactory or good’ conduct, which leaves the overseer of the IVA some latitude. It will be interesting to see whether as experience grows lenders allow ‘average’ conduct.
The other method of using mortgage finance is for those who know their destiny will be an IVA but are not quite there yet. Ahead of this they want to release capital to hand over on day one via an unlimited adverse product. Platform and the Preferred Partnership range allow 85 per cent LTV. All products are available through Mortgage Times.
IVAs are here to stay and I believe the work, advice and counselling involved justifies the proc fees paid much more than the odd £250 CCJ.
Mainstream
Yorkshire Building Society, Portman Building Society and Alliance & Leicester are leading the way on two-year fixed rates at 4.79 per cent, 4.89 per cent and 4.89 per cent respectively.
Kent Reliance Building Society has devised the inter-generation mortgage to aid first-time buyers. The net outcome of this product is the same as a lifetime mortgage, whereby the siblings receive their family home with the remainder of the existing mortgage. Novel and appealing to the step-mother, but surely the advisers should have the same qualifications as lifetime, as the same emotions, legal and personal indemnity ramifications apply. The CEO has defended the product, which has faced criticism from some quarters, stating that Kent Reliance’s arrears record testifies prudent lending practices – however if this is a new and untested product, surely you cannot draw on historic data to prove the point?
Economic Lifestyle and Stonehaven are two new additions to the lifetime mortgage market. Is it me or is a new lender launching in this field every other week? The sourcing systems might also need to rethink their exclusion strategy. The market is still relatively small and if it does not keep pace they will end up getting one daily case each – that is unless they beat each other up. Economic Lifestyle’s answer to this is to offer a 3 per cent proc fee – that might raise a few eyebrows at the regulator.
Northern Rock has launched a new build mortgage product with a 2.5 per cent completion fee added to the loan. New builds have a poor track record with valuations and a depreciation curve likened to a new car – so with this size fee, who’s to say the borrower wouldn’t be negative equity in six months time?
Self-cert
CHL Mortgages is planning to entice brokers to its new online system by enhancing the proc fee by 0.1 per cent. This method has worked for others notably BM Solutions (£50) and Northern Rock (£250).
Buy-to-let
Mortgages plc has clarified its criteria on its ‘house to let’ product. This is for residential homeowners who wish to buy one additional property via self-cert affordability rather than rental coverage. Its not for first-time buyers or ex-pats.
Adverse
As I write, it is anticipated that the quarterly LIBOR resets will come in around the 4.93 per cent mark which is a fair increase from the typical 4.72 per cent last time around. The easing of swaps will probably mean the lenders will retain their current fixes, which will begin to look attractive given the LIBOR rise.
BM Solutions has restructured its near-prime and extra light categories. There are now three CCJ options, £500, £1500, and £3500. The rates are not keen but the new bandings will allow it to apply a full-on attack should it wish to flex its muscles.
