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Broker should have known about better NatWest deal

I read with interest the letter in the March 5 issue of Mortgage Strategy from Kevin Manley of KM Financial Consultants (Wessex).

Manley was responding to a letter about NatWest’s branch staff undercutting the products offered by its broker arm NatWest Intermediary Solutions.

Manley had secured a decision in principle with NatWest for a client, but subsequently a NatWest adviser contacted the client, promising to beat the offer. When Manley complained, NatWest said that approaching the client so soon after the DIP was merely a coincidence.

I myself have told clients wanting a NatWest deal to go direct but that I would arrange their insurances
as the lender is more expensive on these

He concluded that if such behaviour persists brokers will end up as little more than unpaid introducers to lenders.

While I accept that based on the circumstances of the case it would have been unacceptable if NatWest did poach his client, I would have done things differently.

I would have charged the client a fee, say £500, for researching the case and then told him to go direct to NatWest to get a better rate. The client would have saved the £999, obtained a cheaper rate and the broker would have been paid for his time.

Even after paying the broker there would have been a saving. I myself have told clients wanting a NatWest mortgage to go direct if there is a potential £999 saving, but that I would arrange the insurances as NatWest is more expensive on these. Manley should have known there was a better product with no arrangement fee available. What if the client had found this out after doing the deal via him?

Brokers should not be expected to be experts on all direct deals but should at least be aware of the products available direct from the lender potentially being chosen.

Tim Stone

Hidden criteria make Abbey’s affordability calculator worthless

I obtained a DIP for a client from Abbey in January. Using its affordability calculator a low score would give £259,000 and a medium/high score £323,000.

The loan amount required was £180,000 using a 90% LTV product.

My clients were subsequently able to raise their deposit and the purchase price, resulting in a loan amount of £203,000 equal to 88% LTV and well within the range that the affordability calculator had given even for a low credit score.

The original DIP was amended accordingly, using the new criteria regarding the input of regular expenditure, but the application was declined.

According to my Abbey BDM it was rejected because its new credit scoring criteria affects any application over 75% LTV.

So the affordability calculator is meaningless if in the background there are hidden forces at work that we are not aware of. My clients have a combined income of £64,000, two dependents and one small credit card debt.

Income multiples used in this case are 3.38.Abbey was my favourite lender but I am having great difficulty in placing business with it as its rates and products have ceased to be competitive.

Also, its change in criteria has made it impossible to determine if it will actually lend anything akin to the result obtained from using its affordability calculator.

What is the point of the calculator and why show low, medium and high credit score loan amounts if in practice they are meaningless?

Does Abbey still support the intermediary part of its business and can it explain the logic of declining the case that I have referred to?

Name and address supplied

 

FSA’s interest-only policy just plays into hands of big firms

After a couple of excellent letters on interest-only mortgages recently, the subject in the last couple of weeks has descended into what I can only describe as stupidity.

The only reason lenders want mortgages paid off by retirement is so they can lend the same amount of money to the same client again but this time on an equity release scheme with a more profitable rate of interest.

Why strive to pay off a mortgage over your working life when, on your retirement, the lender wants to immediately give all that money back to you?

A better mortgage scheme befitting the second decade of the 21st century would be for every mortgage to be on a 99-year term and interest-only basis, but with the ability to make flexible and penalty-free repayments at any time.

It would be even better if every mortgage was an offset although not all lenders can offer that. If the powers that be could learn proper mortgage theory, they could help the average customer more. A good adviser knows the term of a mortgage is irrelevant.

The Financial Services Authority and the government have not sat with hundreds of clients like many brokers have. They lack the training and experience needed to understand people’s problems and help solve them.

The FSA is telling lenders it is more important for a young couple to repay a mortgage than to plan financially for starting a family.

It is playing into the hands of larger financial institutions by insisting that repaying a mortgage costing, say, 5% a year to service is more important than paying down shorter term debt which often costs up to 30% per annum in interest.

I have a simple maxim – repayment mortgages equal missed opportunities. Interest is a cost while repaying capital is not, yet the FSA insists that capital repayments are taken into account in affordability calculations.

For example, a £100,000 mortgage to be repaid over 25 years requires an additional £150 per month over and above the interest.

But in the past I’ve had a client pay off a mortgage over 11 years at the same £150 per month using their employer’s Sharesave scheme as the investment vehicle.

How many eligible clients are told by their broker to consider this as a potential repayment vehicle? The £150 going into a Sharesave scheme is never included in a lender’s affordability calculation.

Again, ISAs have no tax advantages over identical non-ISA investments for 95% of investors. How many people will be conned into investing during this ISA season for the wrong reason?

I telephoned the Money Advice Service two weeks ago and even senior people there couldn’t tell me what tax advantages stocks and shares ISAs have over identical non-ISA investments.

The FSA is dictating that every mortgage customer must arrange their finances so they are in their own mortgage-free property by retirement.

But it does not insist private tenants must achieve the same.

The current stance on repayment mortgages is leading to a generation of first-time buyers being sold reducing term assurance products over 25 years that are not fit for long-term purpose so have guaranteed churnability designed into them – and that’s FSA policy.

Frank Jurga
Independent Financial Consultant

 

Disgraceful SVR hike by Bank of Ireland could trigger defaults

In response to Bank of Ireland’s decision last week to increase its SVR from 2.99% to 4.49%, all I can say is what a disgrace.

A good proportion of people who are stuck on SVRs are in negative equity and cannot just transfer to another provider and obtain a more competitive rate.

I think we will start to see an increase in defaults on mortgages as many borrowers already find they can just about service payments at their current level.

It’s not as though Bank of Ireland is lending any more in the UK so how can it say money is becoming more expensive to borrow when it is referring to the existing book?

Rob Knight

 

Borrowers shocked by SVR rise may be living beyond means

With regard to the comments last week criticising Bank of Ireland’s decision to increase its SVR and the impact this will have on borrowers, if a customer can only service mortgage payments at 2.99%, not 4.49%, it poses the question whether they are living beyond their means in the first place.

It is likely that their rates were higher than this at one point. Also, most other SVRs are in the region of 4% or higher and borrowers in negative equity will still be paying these rates.

While it must be frustrating for customers, if I was an Abbey SVR holder, I would consider Bank of Ireland’s clients lucky to have been able to pay such a low rate.

Maybe they should have continued their payments at the old level and overpaid.

Secondly, although the bank no longer lends as Bank of Ireland it still has a contractual agreement to provide Post Office mortgages. My guess is that it is trying to recapitalise.

Name and address supplied

 

Release FTBs from new-builds and see the market take off

Samuel Dale wrote an interesting blog on Mortgage Strategy Online recently on the end of the government’s Stamp Duty holiday for first-time buyers.

I am a potential first-time buyer. I have the funds minus Stamp Duty but I don’t want to live in a new estate with 30% social housing shoved next to me and prefer to rent a nice place elsewhere.

There are thousands out there like me. The market wheels would turn for sure if they stopped forcing first-time buyers to buy new-builds if they want to own a property.

If the government and lenders would only open the mortgage indemnity guarantee scheme to open market properties it could sit back and watch the country thrive again.

Name and addresss supplied

 

Identity thieves will gain from post-MMR application process

I have a few concerns about the Mortgage Market Review and the rising levels of identity theft, particularly connected with loan applications.

But there could be a far more serious situation linked to affordability requirements for mortgages.

It looks as though lenders will want to see lifestyle spending confirmed in bank statements.

An identity thief would welcome access to thousands of current bank statements passing from applicants to lenders via various routes.

Account numbers, sort codes and bank and personal addresses are all that’s needed for a pretty convincing identity steal.

Maurice Edgington

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