Alan Cleary - Managing Director of Precise Mortgages
May’s House Price Index from Nationwide makes for very interesting reading. The index report explains that whilst activity in much of the housing sector remains sluggish, one area that’s bucking the trend is the number of first-time buyers entering the market.
While most of the key indicators used to assess the health of the housing market remain subdued, first-time buyer numbers continued their recovery of recent months. In the year to March 2019, numbers reached 359,000 – that’s just 10% below their 2006 peak.
At first glance, it may seem strange that first time buyer numbers are up when, according to an article in What Mortgage, the amount those looking to buy their first property must earn has soared by 9% in just three years. What Mortgage reckons first-time buyers now need an average income of £54,000 to buy a typically-priced house in a UK city and be able to put down an average deposit of more than £38,000.
That’s a lot of money in anyone’s books, so why is the first-time buyer sector so bullish when the rest of the market is so cautious?
On closer examination of the market, it may just be that the stars are aligning for those looking to take their first step on the property ladder. On a macro-level, employment is at record levels and wage growth has finally started to outstrip inflation – quite simply, there’s more money in more people’s pockets. The extension of the Help to Buy scheme until 2023 and the removal of Stamp Duty for first time buyers on the first £300,000 for property purchases up to £500,000 have also helped.
But with house prices remaining high in relation to average earnings and raising a big enough deposit still a major barrier for many first-time buyers, perhaps the most important factor to helping first-time buyers is the considerable financial clout of the UK’s 11th biggest lender – the Bank of Mum and Dad. It’s predicted that parents will support one in five property transactions in 2019 by paying out £6.3 billion to help their children on to the property, with the average contribution rising to £24,000.
So with so many things currently looking as though they’re going in first-time buyers’ favour, are there any dark clouds on the horizon?
Well, the recent admission that the government is way off track on its ambitious pledge it made just two years ago to increase the number of properties built to 300,000 houses a year is a concern. Then there’s the Bank of England’s warning that interest rates are likely to increase several times over the next three years as a guard against inflation – and that’s assuming the UK avoids a no deal Brexit. Which brings us to the ongoing confusion over when the UK will finally leave the EU and, when we finally do, whether we’ll leave with a deal or not and the effect it will have on the UK’s economy.
But maybe the biggest obstacle to first time buyers realising their home owning dream is the continued reluctance of some high street lenders to lend, especially if they’ve only got a small deposit or if they’ve got some skeletons in their credit history cupboard.
This is where we can all help. Competition among lenders is driving rates down and has led to the creation of longer-term fixed rate deals. Here at Precise Mortgages, we’ve designed residential mortgages for those looking for an alternative to high street lenders, those buying new build properties or those with a less than perfect credit history. We’ve also recently reaffirmed our commitment to the Help to Buy scheme by extending our offering to Scotland and launching Help to Buy remortgage products to help early adopters of the scheme make the move to becoming established homeowners.
I believe that with the backing of lenders and the opportune alignment of factors in first-time buyers’ favour, particularly if they’ve got financial support from their family, now could be the ideal time for them to take their first step on the property ladder.
Alan Cleary - Managing Director of Precise Mortgages
When it comes to the business of specialist lending — be that residential, buy-to-let, bridging or second charge loans — we often write about it in the media in terms of numbers.
How much can your client borrow? What’s the maximum LTV, loan-to-income, gross development value? What’s the rate, what’s the fee, what’s the proc fee? We are governed by numbers: the bank base rate, Libor, inflation, cost of funds, profit margins, risk capital ratios, interest rate stress tests, affordability… I could go on and on.
But, as anyone who works in the industry knows, while numbers are important, so are people.
We seem to write far less about just how critical people are in this business, but it is relationships and experience that really make this market work. This is especially true in the bridging sector, where the community of lenders and brokers is really quite small.
In bridging, people buy people. It’s a totally different approach from the residential market, and even buy-to-let, where people buy products.
Brokers know better than anyone just how fundamental relationships are to getting cases completed. There also needs to be trust between lender, broker and borrower before the funds are released. In a market where some lenders come and go, that becomes even more important.
At Precise Mortgages, we’re acutely aware of the value of looking after our relationships.
We’re proud of our approach to both people and product. It’s no use being cosy with developers whose cases don’t add up; there’s also no point in offering the best rates in the market, but failing to understand what brokers and borrowers need from us to make a case work.
We also understand the value of cross-pollination between the different markets we’re in: a lot of the responsible lending practices we learned in the residential market have served both us and our borrowers well in the short-term sector.
Remember the days when some bridging lenders were charging borrowers interest on money they hadn’t even drawn? And then charging fees on that interest? Gone, largely, in no small part down to the determination of lenders, such as ourselves, campaigning to stamp out sharp behaviour that just isn’t treating customers fairly.
There’s also value that the bridging market can add to the residential side, and I think it’s becoming increasingly apparent. Mainstream mortgage lending likes tick-box process, it likes big volume because it’s low margin and that means keeping costs as low as possible.
Increasingly, that’s not serving all customers well. Most people don’t fit into boxes, and as the way we live and work evolves — longer working lives, a rise in part-time jobs and flexible contracts, more and more self-employed and complex incomes — that’s just going to become more common.
This is where relationships become vital; when a borrower or a case makes common sense, but it falls outside the typical numbers, being able to have a conversation can be the difference between securing a home or losing it.
Bridging brokers know this, it’s their bread and butter. There are plenty of mainstream brokers who know it too, and they do a roaring trade in helping customers who don’t meet high street criteria. We believe that more mainstream brokers can benefit from learning about how relationships with a specialist lender can help them serve more customers better, too.
The key here is balance, and it’s something we’re committed to. That’s why we run workshops around the country, educating brokers about our products and processes so they get to know the numbers. It’s also the reason we’ve expanded our sales team. We now have more BDMs in more parts of the UK than ever before, because we know that quickly being able to get hold of someone you know matters.
New research* for Precise Mortgages, the UK’s leading specialist lender**, shows more than half (52%) of landlords use letting income to boost earnings from a full-time job. The findings highlight the need for lenders to offer top slicing to help more customers achieve greater flexibility on buy to let products and loan size.
The study found that even among landlords with bigger portfolios many are still working full-time and have other earnings beyond letting income. Around 32% of those with 11 to 19 properties say letting income supplements day job earnings while 18% of those with 20-plus properties have other income in addition to rental earnings.
Precise Mortgages has enhanced its top slicing feature, which enables customers to use surplus portfolio or earned disposable income to prove they can meet any financial stresses on a new loan application rather than through the rental income of the property alone.
It is now accepting top slicing on all eligible personal ownership, limited company, portfolio, HMO, and holiday and student let applications. First-time buyers are excluded.
Across the market as a whole one in three (33%) landlords earn their living purely from their property portfolios, rising to 47% among those with six to 10 properties. Around one in six (16%) landlords plan to add more properties in the year ahead with 71% funding purchases with a buy to let mortgage.
The research also found that 33% of landlords earn their living purely from their property portfolios, rising to 47% among those with six to 10 properties. 16% of landlords plan to add more properties in the year ahead with 71% funding purchases with a buy-to-let mortgage.
Alan Cleary, Managing Director of Precise Mortgages, said: “Given that the majority of landlords have other earnings that can be used to show they can meet underwriting standards, lenders need to reflect this in their product offering to support landlords accordingly.
“Top slicing allows landlords to manage their properties in a way they choose and gives them greater access to the products and loan sizes they want and particularly for those who may have been restricted by ICR requirements in the past.”
Precise Mortgages’ top slicing feature can help brokers and their customers to access its range of 2-year Fixed rate buy to let mortgages as well as its 5-year Fixed rate products. The specialist lender has also streamlined the application process and enhanced its online buy to let calculator.
Full details of Precise Mortgages’ top slicing feature are available at precisemortgages.co.uk. Brokers can access the online calculator at precisemortgages.co.uk/Misc/BTLCalculator
* BDRC Q1 2019 Landlords Panel syndicated research report prepared for Precise Mortgages. Fieldwork was conducted online between 15th and 26th March among a sample of 829 National Landlords Association members ** Source: BVA BDRC Project Mercury Report Q4 2018
Alan Cleary - Managing Director of Precise Mortgages
Irregular incomes and complex accounts should not be a barrier to self-employed workers when it comes to securing a loan, says Alan Cleary of Precise Mortgages.
The make-up of the UK’s workforce is changing. The recent announcement that the number of people in work in the UK is the highest since records began in 1971 is something to be welcomed, but that only tells half the story.
The UK also has a record number of people working for themselves. According to the latest government figures, of the 32.7 million people now in employment, 4.83 million of these are self-employed. These workers can take many forms – from professional landlords to tradespeople, taxi drivers to freelancers – but one thing they can all experience is a difficulty in securing a residential mortgage or loan.
So with more people than ever before now working for themselves, why are so many of them still struggling to get the mortgages they want?
The Mortgage Market Review in 2014 saw the introduction of new rules to ensure borrowers are only accepted for mortgages they can afford. All prospective borrowers must now prove their income, so the difficulty people who work for themselves have is providing that evidence, as their income can fluctuate from month to month.
Many lenders require more proof of employment from self-employed people than they do from employees; the most common difference being a two- to three-year history compared with just 12 months for salaried employees. As many lenders perceive their financial situation as being too complex or their income as too irregular, it means there are a growing number of potential borrowers unable to access the mortgages they require, as well as an increase in brokers struggling to place their customers’ cases.
Fortunately, specialist lenders understand the challenges and complexities of these cases, and can provide solutions to customers who fall outside of mainstream lenders’ criteria.
Since MMR came into force, these lenders have been in the vanguard of ensuring self-employed workers can still access mortgages.
Specialist lenders have experience of reading financial accounts and SA302 statements, and have the risk management processes and skilled underwriters in place to ensure a good outcome for the borrower, broker and lender.
Many specialist lenders accept one-year figures and will take other income sources, such as pension contributions and car allowances, into consideration.
So if you are approached by a self-employed customer who is struggling to get the mortgage or loan they want with a mainstream lender, make sure they know there are other lenders out there who can help them.
With the number of people working for themselves growing, it has never been more important that they can turn to lenders who take a common-sense approach, taking each customer’s individual circumstances into account and assessing every case on its own unique merits.
Financial Reporter spoke to Danielle Evans, our BDM about the importance of good packaging and who she would nominate in the WRAs.
FR: What area do you cover?
I cover the East Central area. My patch stretches as far north as Huddersfield, down as far as Milton Keynes and everything in the East Midlands.
FR: If you had one ‘top tip’ for life as a BDM, what would it be?
Keep plenty of spare change in the car for parking as not everywhere has functioning ‘pay by phone’ facilities. Also, spare tights in the winter for the ladies. I can guarantee you’ll get some ladders at some point!
FR: How do you pass the time on the road - books, podcasts, audiobooks?
I’ve recently learned how to keep up with technology and discovered that my hands-free can add reminders into my diary. If I’m not answering voicemails, I’m calling out to book meetings for the coming weeks.
FR: What’s one thing you wish all brokers knew?
Brokers know the score. We’re all working towards the same goal which is to get the case completed for the client. The importance of good packaging is the key message I’m delivering at the moment, as well as the importance of adding notes to the case. This means that underwriters are best equipped to make a decision quickly and we can achieve the end goal much sooner.
FR: A quick email on Monday or a phone call in the afternoons - how can brokers contact you?
Either way. I return calls directly through the mailbox so ideally calling from the number they want me to call back on means we can discuss the case more quickly. If you can’t get hold of me, our dedicated intermediary support team is on-hand to answer any questions you might have by calling 0800 116 4385.
FR: What’s your favourite place to stop for a coffee when you’re between meetings?
I am partial to Costa Coffee, but any place that does caffeine will do!
FR: Financial Reporter has recently launched its second Women’s Recognition Awards – who would you nominate and why?
Our head of key accounts, Liza Campion. She’s one of the most hardworking and intelligent women I’ve worked with and is constantly 100mph (not in the car of course!) She always goes out of her way to help everyone. Well worth the nomination!
