Precise Mortgages, the specialist lender, has introduced a significant enhancement to its bridging lending process.
The introduction of an Automated Valuation Model (AVM) will bring significant improvements to the time that it takes for some bridging loan valuations to be completed, shortening the timescales to minutes instead of days. If the bridging loans fit the criteria below the customer will have the choice to use the AVM instead of a physical valuation at a fee of just £99, representing a significant cost and time saving.
An AVM will be optional provided the case meets the following criteria:
• Standard Bridge only
• Maximum Purchase Price / Property Value of £500,000
• Maximum Gross LTV of 50%
• AVM Confidence Level of A, B, or C
Precise Mortgages has spent several months assessing the risks and is confident that the criteria and controls in place are robust.
Alan Cleary, Managing Director of Precise Mortgages says: “Before we launched AVMs we checked how much of our existing bridging lending would have been eligible and, based on the prior 12 months of applications, we found that over 16% would have passed. Now that we have launched AVMs I anticipate that number to rise to 20-25%.
“This is a genuine win-win situation as customers with cases that qualify will be able to save time and money. The introduction of AVM will also streamline processes for all our underwriters, with improvements in completion times across a number of other cases.”
Having just implemented the MCD, which we spent a year getting ready for, I was looking forward to a period of relative regulatory peace and quiet.
Wrong again! Along comes CP11/16, aka underwriting standards for buy-to-let mortgage contracts. This time, instead of coming from the FCA it comes from the Bank of England’s Prudential Regulation Authority.
Anyway, after reading the paper front to back several times over, I am experienced enough in such matters to allow a period of reflection in order to let the implications set in and to think rationally, not emotionally.
Human beings are not very good at change so CPs tend to create a lot of knee-jerk reactions and quite a lot of hot air. I will focus on the impacts of the CP that are most likely to affect mortgage intermediaries although I should make it clear that the CP is directed at lenders, not intermediaries.
The interest coverage ratio affordability test should give consideration to all costs associated with renting out the property that the landlord is responsible for and any tax liability associated with the property. Lenders can take account of the borrower’s personal income when assessing affordability – this is subject to the same regulations as Residential lending in terms of income validation, expenditure data and credit commitments. The PRA does not expect lenders to reduce the minimum ICR requirement below 125 per cent.
Interest Rate Stress Testing
Firms must incorporate a minimum of a 2 per cent stress on either the initial or the reversion rate, subject to a minimum rate of 5.5 per cent being used. Fixed rate products of 5 years or longer do not require a stress rate to be applied which is consistent with residential lending and MCoB.
A portfolio landlord is defined as a landlord with four or more mortgaged properties – a specialist documented underwriting process is required for lending to portfolio landlords.
Taking data from the slide deck attached to the CP, it is possible to summarise the PRA’s market view in the chart below.
Our view is more conservative than the PRA’s, in that we believe that buy-to-let gross advances in 2017 are likely to be flat with the potential to drop 10-20 per cent before recovering in 2018/19.
Unregulated firms and non-banks
One glaring omission as far as I am concerned is that the CP only covers PRA regulated firms. Theoretically, unregulated firms might see a market to address customers failing the new rules.
However, it is expected that bond investors (remember non-banks are funded via largely by capital markets) and rating agencies will penalise such an approach, which will clearly be non-compliant with PRA policy.
Given the current difficult environment for funding a non-bank, it is considered unlikely that many will take this risk and cost for a relatively small market opportunity.
Furthermore, the PRA has already made clear that it would seek to extend the rules to firms outside of its jurisdiction if it considered that there was a material impact on the overall buy-to-let market.
Further, the Bank has just published a proposal for new buy-to-let reporting (from Q2, 2017).
It is interesting to note that all firms originating £20m+ per annum are captured, even if they are unregulated.
While this introduces further discrepancies in the regulatory oversight, it will mean that unregulated firms will be subject to specific scrutiny if they are active in the market and their policies fall outside the requirements that materialise from CP11/16. But will this level the playing field eventually?
Market fundamentals remain unchanged and the continuing lack of supply of housing coupled with a growing population is likely to continue to fuel house price inflation, making home ownership less attainable for many.
The CP proposals in respect of affordability and stress testing are likely to lead to a more resilient and stable market less sensitive to interest rate rises. These are sensible regulatory precautions which we largely support and believe are likely to be adopted.
Many landlords with low LTV and/or higher yielding properties will be unaffected by the affordability and stress testing proposals.
Smaller or new entrant lenders may perceive a larger barrier to entry in the buy-to-let market and therefore less likely to enter the market, especially by offering looser underwriting standards and/or lower pricing than the incumbent lenders.
Increased complexity in the underwriting process for portfolio landlords is the biggest immediate impact of the proposals. This will significantly impact larger lenders which have less flexibility to adapt to fuller underwriting procedures.
We expect to see some lenders withdraw or retreat from what is becoming an increasingly specialist market.
Simon Carr, Sales Development Director
I may be showing my age a little, but do you remember that festive time of year when your parents would rush around getting those last-minute items ready for the holiday period?
I imagine many of you will recall a mandatory item on the shopping list being a Christmas issue of the Radio Times or TV Times. You would open up the pages in sheer excitement and gasp at the vast array of TV programmes on offer. You simply could not believe the choice on offer from three channels. Then, in 1982, we were dazzled by a new station called Channel 4.WOW – what choice.
In 1989, Sky launched and we saw Penny Smith grace our screens alongside Alistair Yates on Sunday 5th February. This must have sent the fear of god down the corridors of the “Corporation”. This revolution paved the way for the number of channels to exceed 600, not to mention radio and premium channels.
Nowadays, it feels like the wide choice available to us makes our decisions harder. It makes us procrastinate, scared to make a decision... Just pick a bloody programme and pick it quickly! But no – we carry on scrolling through the endless lists of channels; even looking forward to future events we can watch. The advent of the multi-channel TV with Catch Up, On Demand and all the other good stuff, makes travelling forwards and backwards possible. Apparently you can now even pause live TV – that's amazing! Absolutely mind–boggling. Whatever next... Time travel? Now that would make a good programme. You even have the choice to view either in bog-standard definition or HD, not to mention viewing your programme on one of the multitude of ‘plus 1’ channels.
With more channels than ever before, you could argue we are spoilt for choice. Choice can, very often, be overwhelming. Too many options leave you undecided. Conversely, too few options restrict opportunity.
Now then… I'm not sure if this message will be clear enough or whether you'll be tuned in to this station I am broadcasting from, so I’ve included a subtitled version too.
We previously offered access to our second charge loan products via our Preferred Panel of Master Brokers, but you wanted more. You wanted a choice and quite frankly didn't like us pushing you down one route over another. You wanted to decide for yourself. So here's what we have done.
Don't worry! We haven't added another 600 new options; we have simply given you the option on how to do business with us. Pick a member of our Preferred Master Broker Panel – there are 16 in total (you'll be familiar with all of them and you won't be surprised by the selection on offer – they are experts in their field). What you also wanted, in fact, demanded (call it our version of ‘On Demand’) is direct access to our products, too.
I guess choice still plays a huge part in selection. You want to be able to make your own mind up on whom to use, when to use and for what type of business. You wanted a choice of Master Brokers (premier channels) as well as submitting a case to us direct.
Access to our products comes as no surprise to the forward-thinking Preferred Master Broker or Mortgage Intermediary. The perception of poor-quality products is now a thing of the past, a bit like the first airing of a new TV station. You are now viewing second charge loans in full Technicolor 4KHD.
Precise Mortgages, the specialist lender, has today announced that it is launching a direct to broker second charge proposition on 5th May 2016.
The addition of a direct submission route alongside its newly streamlined master broker panel will give mortgage intermediaries more choice in how they submit second charge lending cases.
Second charge lending is a growth market with excellent opportunities for mortgage intermediaries. The FCA states that it expects the vast majority of second charge sales to be on an advised basis – this is undoubtedly an area where intermediaries excel.
The fact that second charge loans are now regulated by the FCA under the MCoB regime means that the advice and lending processes for second charge loans should become as straightforward as in first charge lending.
In order to ensure mortgage brokers and advisers are properly compensated Precise Mortgages has set the procuration fee at 1.25% for direct business which aligns the fee to a similar level as if a remortgage had been advised.
Customers who wish to raise extra funds may be better off leaving their existing mortgage in place and using a second charge loan instead include:
• Customers on lifetime tracker rates paying low margin over BBR
• Customers with an interest only mortgage
• Older borrowers who may not pass affordability tests on a remortgage but may be able to pass with a second charge on a different term
• Customers trapped with lenders who will not allow further advances
Highlights of Precise Mortgages new second charge loan products:
• Rates from 4.45% with a £300 product fee, or 4.75% with no product fee
• Bank of England base rate lifetime trackers and fixed rates
• ERC and no ERC product choices available
• Affordability on 5 year fixed rates is based on initial pay rate not a stressed rate
• Residential Prime, Almost Prime and Near Prime ranges
• Buy to Let Prime
• Loans from £5,000 - £1,000,000 (loans above £500,000 priced on request)
• Terms of 36 to 360 months
Alan Cleary, Managing Director of Precise Mortgages says: “We firmly believe this direct to broker second charge proposition will improve the choices available to the mortgage intermediary market and to the end consumer. We are in talks with many major mortgage clubs and networks about bringing this opportunity to as many brokers and advisers as possible and anticipate making a number of announcements very soon.”
Despite numerous government schemes aimed at supporting the UK’s first time buyers and renters take their first steps on the property ladder, a significant proportion of these renters are still unaware of the assistance available, according to research from Precise Mortgages in conjunction with YouGov.
Over two fifths (41%) of people in the UK have a low awareness of the government’s Help to Buy ISA, which launched in December 2015. More than a quarter of people surveyed (27%) admitted to not knowing much about the ISA, whilst 14% stated they had never even heard of it. A further 13%, despite knowing about it, don’t think it is enough to help people buy homes, and greater government help is needed.
The announcement of the proposed Lifetime ISA as part of last month’s Budget was greeted with much interest, with many industry commentators suggesting that it could incentivise under-40s to think about saving for either a home or retirement. However, with such little knowledge of the Help to Buy ISA – which is set to last until 2019 – it unclear whether the Lifetime ISA will actually reach the people who it could benefit.
This is all the more concerning when saving for a deposit remains the biggest barrier for renters when thinking about home ownership. Over half of renters (51%) still see saving a large enough deposit as the biggest barrier to owning home. This is followed by finding an affordable property (41%) and getting a mortgage approved (33%). Additionally, 37% of UK renters state that they are not currently seeking to purchase a property simply because they can’t save for a deposit.
Alan Cleary, Managing Director of Precise Mortgages says: “Barely a month ago, the Chancellor announced the introduction of another initiative to help first time buyers. The Lifetime ISA will see the government gift £1,000 to savers who can put away £4,000 a year. It’s clear from this that the government is trying to support first time buyers up and down the country to access the property ladder.
“However, better communication of the support available is needed – if the message isn’t getting to people it needs to, it follows that some of these people will be missing out on help that could prove vital in helping to get them on the property ladder. More must be done by the government and industry alike to increase the knowledge of these schemes across the board, not just amongst first time buyers, but also those who they turn to for guidance when thinking about saving to purchase their first property.”
All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 4288 adults. Fieldwork was undertaken between 28th August - 1st September 2015. The survey was carried out online. The figures have been weighted and are representative of all UK adults (aged 18+).