Sue Cox is business manager at Bananas Inc
“There are many individuals in Owen’s situation, who, through no fault of their own, find that they have fallen into arrears. Redundancy, illness, divorce and a range of other factors can completely transform someone’s financial situation.
They can have a good payment record and no arrears for much of their working life and then, through misfortune, find they cannot keep up-to-date with their commitments.
It is for this reason that lenders are now much more flexible than they used to be. Brokers who have traditionally found it difficult to meet the mortgage needs of this sort of client find that this is no longer the case.
Consequently there are a number of products that Bananas Inc has access to that will allow ‘unlimited’ mortgage arrears with a non-conforming lender.
There is one available through High Street Home Loans that will lend up to 85 per cent loan-to-value (LTV) and offers three-year fixed rates from 7.29 per cent and free legal services. The new product comes with loadings for self-certification and is suitable for purchase and remortgage.
There is no higher lending charge (HLC) and no extended tie-in. An early repayment charge of 6 per cent applies within the fixed rate period and there is an arrangement fee of £695 that can be added to the loan.
The product may well give Owen the chance to restore his standing and buy his next home. However, he will need to exercise extra vigilance to ensure he can afford the new property should he chose to go down the self-certification route that is suggested.
He also needs to be sure he is not hiding other commitments that will make it difficult for him to ensure he maintains the payments on his new mortgage. I am not sure I like the sound of, ‘he feels the mortgage may be out of his reach if normal income multiples apply’. Self-certification has come in for a lot of negative publicity in the past for ‘stretching’ the income of individuals.
While this might get him the property initially, it may well also lose him that same property if interest rates rise significantly. This mortgage is giving him a second chance and his situation may not be repairable if he falls into large mortgage arrears for a second time.”
Alan Lakey is senior partner at Highclere Financial Services
“Self-certification is a double-edged sword. It allows people to borrow sums whether or not they can actually afford the repayments.
The intermediary has a duty to assist the client but also a duty to ensure rules are adhered to and that a fraud is not being committed. This can present major problems because if the client cannot prove his income to the lender, how can the adviser adequately confirm affordability?
It is arguable that somebody with £10,000 of existing mortgage arrears has in effect proved that the new loan is unaffordable. Assuming he has valid reasons for the arrears, the new loan appears affordable to both lender and intermediary and that the property is valued at £240,000, there are a few options available. Amber Home Loans has an unlimited arrears rate of 7.99 per cent fixed for three years, while db mortgages has a range of London Interbank Offered Rate (LIBOR) discounts from 7.30 per cent upwards. The case may also fit Future Mortgages, which offers 7.51 per cent fixed for three years.
I suggest the client’s mortgage intermediary needs to tread very carefully in this situation, as the case described is exactly the type of dealing that the Financial Services Authority (FSA) is likely to scrutinise for potential fraud, affordability and suitability checks.”
Mike Pendergast is an IFA at Zen Financial Services
“To be honest, I can’t think of a mortgage lender who would lend with £10,000 of non-conforming mortgage arrears – most, if not all other non-conforming lenders would decline this case. Also self-certification is not a substitute for normal lending criteria, and if the client’s income is in excess of the normal income multiples, whether he is self-certificated or not doesn’t matter – he still would not be able to borrow more than the lenders’ income multiple – self-certification is there to avoid the need for formal income verification.
One option for this client is the possibility of renting. Another alternative is to sell his current property in an attempt to clear the mortgage arrears he has built up. He could rent a property for 12 months and build up his credit rating until it reaches a point where a non-conforming lender can assist this particular case.”
