100% Lending Anyone?
No savings Needed! Easier credit scoring & stamp duty paid…………
Following another standard meeting with one of our many high street lenders we were made aware that the lenders credit score has been ‘loosened up’ to allow for more business at higher loan to values. You see, lenders make a lot more profit at 95% as the cost of funds is the same but they are charging around 5% for you to borrow at this loan to value and as low as around 2% for the lower loan to value mortgages and so the profit margins are clear to see!
We put this to the test this week and the lender in question has agreed a 95% loan to value loan (under the Help to Buy scheme)for a client who has 2 previous defaults (all be it small ones) but this is still a big surprise and is clear evidence that they are keen to lend funds this year, to the right clients of course.
In addition to the above changes we have had it brought to our attention that the lender will also allow a loan as the 5% deposit. “That’s 100% lending”, I hear you shout, and yes, you would be right it is, no two ways about it. So long as the loan is not from the same group of banks as the mortgage lender (as that really would be 100% lending from 1 bank) then the lender will accept the deposit from a personal loan or from a family member.
The key is having the affordability to pay both the loan repayments and the mortgage repayments. The mortgage lender will factor in what you will pay for the loan and deduct this from your income, provided you can still afford the loan then ‘Bob’s your uncle’ you’re in the running to buy a new property! This flexibility in a lenders criteria could enable a First time Buyer to buy their first home or for someone who has a deposit or is re-mortgaging it can increase your deposit/equity funds which will enable you to access lower rates.
OUR OPINION: Whilst we have to be cautious of 100% lending and the cavalier lending of the past it is nice to see a lender bringing innovation to the market. Some First Time Buyers are lucky to have the bank of Mum and Dad provide a deposit for them but for those who are not so lucky and equally who have not saved for a deposit this will allow more people to get onto the property ladder. With the imminent Mortgage Market Review coming up in April we will see greater emphasis on affordability and so whilst the client will not have had to save for a deposit they will still need to prove affordability and it is that which should stop us from having any of the issues we faced in the credit crisis just gone.
We think it cannot be a bad thing that with rising property prices, taking out a personal loan to fund your deposit can allow you to get onto the property ladder now rather than waiting perhaps several years to save the deposit. For clients looking to re-mortgage but falling just short of the magic 60% banding which allows access to the very best rates on the market then a personal loan may allow a client to pay the mortgage down to 60% and therefore access those rates.
Of course, we will need to run through affordability in detail and would need the terms of any proposed personal loan to check the mortgage would remain affordable, but we feel this opens another door to our clients, enabling clients to purchase when they may not have thought it would be possible, or to access lower rates than thought possible.
In other news for First Time Buyers, Halifax are now paying for stamp duty up to £250,000 on selected products. Believe us when we say lenders are falling over themselves to lend money this year!
As always if you wish to discuss buying a property anywhere in the UK you can contact us:
Bristol 01173 736200 or London 0203 287 8806 or email firstname.lastname@example.org