The Buy to Let Business’s roadshow hosted excellent discussions on new-build and Government initiatives
I was fortunate enough to be invited onto the panel at the recent round of The Buy to Let Business’s roadshows. The week started off at Aston Villa Football Club’s stadium and there was a great turnout of quality brokers. One of the first questions put to the panel asked if lender attitudes to new-builds had changed.
My view is that lenders, brokers and housebuilders alike have enjoyed a renewed sense of optimism of late as Government initiatives, coupled with a much better economic outlook, have driven the housing and mortgage markets into the most positive territory seen since the financial crisis. Lenders’ nerves – which were shredded as considerable sums of money were lost on new-builds post-crisis – appear to have calmed.
A potential issue for lenders active in the new-build space is that mortgage fraud may rear its head again. Property clubs – which Fleet Mortgages chief executive Bob Young was vociferous about – were previously at the root of many of these issues. Bob stressed that brokers should watch out for the return of property clubs and avoid them like the plague.
We are confident that changes introduced over the past few years, such as the Council of Mortgage Lenders’ disclosure of incentives form and improvements in technology, make new-build a much safer market.
Next stop for the roadshow was Old Trafford and, again, questions on new-build. The main topic here was about new lenders. I highlighted the fact a lot of new-build lending is controlled by housebuilders and their chosen brokers, which are often based in the marketing suite of the development. New lenders to the new-build market, which include big names like Santander, are finding it difficult to get brokers and housebuilders to even consider anyone other than Nationwide and Halifax.
It seems to be the case that, if a customer wants to buy a new-build but does not fit the Halifax or Nationwide criteria, it is not worth the effort trying. Of course, I am against this. Why should a self-employed person, for example, who fails that criteria not be given a chance to buy their dream home?
Day three’s venue was in Bracknell; not a football club this time but a hotel in the style of a Swiss skiing lodge. Here, the hot topic was buy-to-let regulation. It is a subject that has been covered extensively by Mortgage Strategy so I will not go over it again. What I will say, though, is that the panel agreed the driver of buy-to-let lending is the demand from the private rented sector and not investor or lender appetite.
The big finale was at a DoubleTree by Hilton hotel in Canary Wharf. I arrived fairly early and could not see a single sign for the roadshow. At this point I was told there are two DoubleTrees by Hilton in Canary Wharf and I was on the wrong side of the river.
I finally arrived at the correct venue with time to spare and to a packed audience of more than 100 business writers. There were more excellent discussions about the future of the market, growth of the new-build sector and how Government initiatives were stimulating demand.
All in all, it was a really productive week. Time very well spent as far as I am concerned.
• Over 14,500 loans completed in buy-to-let, residential and bridging to date
• Exceptional asset quality
• New mortgage lending forecast at £1.5 billion for 2015, up 114% on 2014
• Over 32,000 savings accounts opened at Charter Savings Bank in just 8 months since launch
• Savings customers have deposited £1.4 billion
Charter Court Financial Services Limited (Charter Court), the specialist challenger bank and owner of Precise Mortgages and Charter Savings Bank, today announces it passed through £2.5 billion of mortgage completions to the end of October 2015, helping over 14,500 buy to let landlords and home owners achieve their property ambitions.
New mortgage lending in 2015 is forecast to grow to c£1.5 billion, an increase of 114% vs. 2014. This has been driven by strong growth in core lending markets, competitive product rates and the current mix of stable economic conditions, rising real incomes, improving housing equity positions, and modest expectations of interest rate increases. Buy-to-let lending represents the largest sector, accounting for approximately 62% of Charter Court’s total lending. The remaining 38% of lending includes residential home owners, many of whom – such as the self-employed – are not well served by high street lenders.
Charter Court has just eight mortgage loans where there are three or more payments in arrears – this equates to an arrears rate of 0.07%*, and reflects strong lending controls and underwriting criteria. The CML mortgage industry average arrears rate is 1.19%**.
Charter Savings Bank, which has regularly been featured in the best buy tables since it opened for business in March 2015, has already opened over 32,000 savings accounts, in which customers have deposited £1.4 billion.
Ian Lonergan, CEO of Charter Court Financial Services Limited said: “Passing £2.5bn in cumulative lending and attracting £1.4bn of savings balances is a major milestone for the business. Along with other challenger banks of a similar scale, we are bringing a new level of choice and service to customers who are disillusioned with high street banks. Our loan performance and service levels remain very strong due to the investment the business has made in excellent people and a scalable infrastructure.”
*arrears rate based on mortgages as at month end September 2015.
** CML mortgages >3 months in arrears at end of Q2 2015.
In a recent conversation with Gareth Lewis, our Head of Bridging, and Chris Parr, our National Sales Manager, they talked me through a recently published article about why bridging loans remind us of Marmite’s famous slogan – You either love it or hate it.
Take a look at Chris’s thoughts below...
Bridging loans... Some brokers have embraced the concept and product, whilst others have steered clear. You can then add into the mix, those brokers who have had a bad experience and got caught out with hidden exit fees, for example.
The bridging market should be a genuine consideration for a commercial broker and its customers. Fees and costs are more transparent than ever before, exit fees are charged by the few and not the many, and because interest is charged by the day and not by the month, transactions are more commercially viable for both the broker and the customer.
Why should you consider a bridging loan for your customer?
A regular comment from brokers is that they just aren’t asked about bridging loans. This doesn’t surprise us, because a customer may not be as well versed with the fundamentals of a bridging loan as we are. But it does make me wonder how many times a bridge has been missed as a viable option.
For example, if you have a landlord looking to buy or renovate a property to rent, chances are they will contact you for a long term loan. They may not understand that a long term loan may not be funded until the renovation works etc. have been completed, and the property is in a rentable condition.
This would be a perfect opportunity to educate the customer about how a bridging loan can help. If structured correctly, this would allow the landlord to acquire a long term loan for the property with a stronger product and a higher loan amount. Take a look at the scenario below which utilises the light refurbishment product offered by Precise Mortgages.
An experienced property landlord wants to acquire a property that needs refurbishment. The property had been occupied for a number of years by an elderly lady and requires a full modernisation to become suitable for rent. Work on the property includes a new kitchen, bathroom, windows and complete overhaul of the central heating system.
The current state of play
The customer has budgeted £15,000 for the refurbishment and estimates that all works should take 6-8 weeks to complete. A purchase price of £110,000 has been agreed although comparable evidence suggests that properties within the area are selling for over £150,000.
The customer has the finances to cover the cost of the conversion, but this will leave him without the money for a deposit. As a landlord, the customer has built up a good sized property portfolio over a long period of time. Like many investors, his portfolio is geared to the maximum LTV. However, he also has a main residence valued at £250,000, with a £100,000 mortgage outstanding.
· 70% LTV bridging loan against the property for purchase
· A second charge loan against his main residence to cover the deposit and roll up of interest and fees to cover terms of 4 months
What happens once the refurbishment is complete?
The majority of buy-to-let (BTL) lenders still have the 6 month rule of ownership before the customer is able to remortgage. Precise Mortgages is able to let customers remortgage from one of our bridging loans to any of our BTL products the customer qualifies for upon completion of the works - although they may not have owned the property for 6 months. So, if a customer qualifies for the 80% LTV BTL and the valuation after the completed refurbishment is confirmed at £150,000, he can remortgage within 6 months for £120,000, which will cover the repayment of the initial bridging loan, fees and interest borrowed.
The sense behind the solution
By adding a bridging loan to the solution, a customer will be able to achieve his aim of purchasing the property, carrying out the works and acquiring a BTL mortgage. His aspiration to grow his portfolio will be met, and he will also learn how to continue expanding his portfolio by using a minimum cash outlay.
Add to that mix the fact that Precise Mortgages will allow customers a maximum of 5 BTL mortgages, and the customer also has the opportunity to develop his portfolio with us further if he wishes. I think you’ll agree that it makes a lot of sense – and quite unlike Marmite – I’m sure you will all love it!
Just 12% of UK adults* believe access to mortgages has improved in the past five years, but not enough, despite recent moves to open up the mortgage market. In similar research commissioned by Precise Mortgages last year, 29% of adults believed that access to mortgages had improved, but not enough**, marking a considerable drop of 17% from a year ago. The new findings from Precise Mortgages, are part of the 2015 Mortgage Voice report in conjunction with YouGov.
Despite this negative sentiment, the report witnessed improvement in some of the wider issues facing homeowners. Over the last year UK renters, in general, see saving for a deposit (51%), finding an affordable property (41%), and getting a mortgage approved (33%) less of an barrier to owning their own home than in 2014.
However, 49% of UK adults believe that mortgage rates only favour those with large deposits and 36% feel that mortgages are too difficult to obtain for first time buyers. With 76% of renters aged between 18 and 24, seeing saving enough for a deposit as a barrier to owning their own home, and 67% say finding an affordable property is a barrier. With the average cost of a property now upward of £200,000 and house price inflation set to hit 6% this year, affordability is likely to remain a challenge for first time buyers.
Despite an uphill battle, 41% of those renting aged 18 - 24 still hope to own their own home in the next five years. However, amongst the older demographic the situation differs, with only 14% of renters aged 45 – 54 planning to own a property in the next five years, with the majority (67%) instead, having no aspirations to be a home owner.
Alan Cleary, Managing Director of Precise Mortgages, said: “Prospective homebuyers are feeling more positive about their ability to save and find an affordable property, but with consumer sentiment towards mortgage accessibility falling in the last year, the industry has a vital job to do in reassuring prospective homeowners. The mortgage industry should serve prospective homebuyers, and we must dispel the belief that lenders continue to favour large deposits and are unforgiving of those with blemishes on their credit record.”
“There are specialist lenders in the market ideally placed to help navigate the obstacles potential homebuyers face, but there is still more to be done across the wider industry. Ensuring that all viable homeowners have access to mortgage products should be the aim of the industry as a whole.”
Precise Mortgages recently improved its new build lending policy to give those left unserved by mainstream lenders a greater chance of securing the mortgage they need to purchase a new property.