Holidays & World Cup…Business as usual.
Well, better late than never. Our normally punctual monthly blog has taken a month off, unbelievable! Holidays and maybe a bit of World Cup action can be blamed for the lack of blogging, oh not to mention that the market remains positively busy.
Let us start with the on-going changes to how your mortgage application is treated. Lenders continue to look very closely at client’s income and outgoings and their lifestyles taking account of all outgoings on bank statements and questioning most things. Fox Davidson do the underwriting that the lenders will do before we choose a lender to place your mortgage with. Our placed first time (mortgage agreed first time with the first lender chosen) rate is very high.
I don’t know how anyone going direct to a bank can possibly now expect to get their mortgage agreed first time (or at all) as the process and the lender requirements really are that constrained that it would be more luck than the skill of an online price comparison site that pointed you in the right direction.
New Mortgage Rules announced by Dick Chaney, Governor of the Bank of England last week stated that:
- No more than 15% of mortgage companies regulated lending can be over 4.5% income
- Lenders will have to stress test borrower’s ability to repay the loan if it were 3% higher than the time taken out at application.
- The chancellor, George Osbourne also announced that the Government would not underwrite any new loans larger than 4.5 times income under the mortgage guarantee element of Help to Buy.
Let’s break it down……
Lending more than 4.5x income multiples to 15% of a banks clients isn’t going to do much to curb the housing market. Most of our business is in Bristol as that is where our head office is and most of that business is residential purchase or remortgage and we see this rule having Nil effect on those clients.
Other areas of our business are spread across the UK but mainly in London where we have our Knightsbridge office. The business we mainly do there is for High Net Worth mortgage lending and the clients we deal with really wouldn’t be troubled by the 4.5 x income rule or if they were then the lender would accommodate them as their 15% as to do the deal is good business for the lender given the clients net asset position. Additionally we deal with a lot of expat mortgages and offshore structured finance or just plain Buy to let which is not regulated and is not subject to these rules. And so I conclude, how can these new rules possibly have any effect on cooling the market especially as we haven’t even considered the Russians and Chinese buying London property for cash. It is a pointless policy in my opinion.
Several banks have also capped lending at 4 x income for loans above £500k. Clearly designed to impact the higher end of the market, but it wont.
Stress testing a borrower’s capability to pay at 3% higher than rates are now. Seems fair enough, I was in the scouts and it pays to be prepared. Let’s look at a loan of £200,000 over 25 years at a rate of 3% – You would pay £948 today and if rates increased by 3% to 6% then you would pay an additional £280pm with payments of £1,228.
Lenders are already stress testing and some at known rates near 6% so we don’t see this as a massive issue. Clearly someone who is pushing that borrowing capability may fall foul but it is sensible lending and that can only be a good thing.
Help to Buy has seen some changes including who can have it and the income multiple cap too and clearly this is designed to curb the housing boom/bubble too.
These measures are designed to cool the market rather than increasing interest rates too soon. It looks like most economists expect an increase in rates in the Spring of 2015. We are in most cases recommending fixed rates where it meets a client’s needs so any changes to interest rates won’t affect those clients whilst the rates is fixed. It is those who are on lenders variable rates now who may get a shock when they try to remortgage and find the rules have changed regarding affordability and interest only and as rates increase they may have wished they had acted sooner.
Build new homes…..
Demand and supply, simple isn’t it really. What I think we definitely need are more properties being built. In central Bristol there are several developments in BS1 which is good to see (although the road works whilst they fit utilities are a pain). We met with a commercial lender last week that specialises in property development, property refurbishment and commercial lending and they are BUSY. The market for the experienced property developer or house builder is good and we have excellent sources of finance for those clients. Coupled with the relaxed planning rules on converting commercial to residential and we are seeing some old eye sores become desirable city centre flats.
I will end the blog by pointing out our meet the team page as we now have a strong team of experts providing mortgage and protection advice backed up by a knowledgeable support team all with a can do attitude.
Until next time, Gadget!
The views expressed in this blog are those of Wesley Davidson, Director and broker at Fox Davidson. Tel 01173 736200. firstname.lastname@example.org