Dear Dippy Mrs Harvey has five CCJs totalling £3,800 and was discharged as a bankrupt seven months ago. She missed two payments on her mortgage 10 months ago but is now up-to-date. Mrs Harvey and her husband want to move as she has a new job. Their a joint income is £50,000 and they want to buy a home for £148,000. They must complete quickly. What are their options?
Dippy says: With a growing number of lenders catering for the nonconforming market, the Harveys have several options. To offer advice we have Mike Fitzgerald from Brentchase Financial Services and Jeff Knight from GMAC-RFC.
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Mike Fitzgerald is sales director at Brentchase Financial Services
The Harveys have had their share of financial problems and a few years ago would have had trouble obtaining a decent mortgage. But now a number of lenders can be approached.
I would conduct a fact-find and give the clients a copy of their credit file. This would give a true picture of just how bad their credit is. Clients can sometimes underestimate the poor state of their credit files.
Assuming that the joint income is £50,000 and is made up of salary and not overtime and unreliable bonuses, I would ask Mrs Harvey if her new job had a probation period as some lenders get fussy about this. In addition I would ask Mr Harvey if he will keep his job when they move. It might be a good idea for the clients to rent or travel to the new area to see if Mrs Harvey likes her new job.
Most lenders would want to see at least three months' employment in the current position and 12 months' continuous employment history. This may or may not cause a problem for the clients. If they can satisfy the criteria, one of the lenders we would look at is GMAC-RFC. It has a large range of products for clients with adverse credit and its matrix of rates offers around 3,000 pricing combinations. This is why a copy of the Experian/Equifax file would be useful – to get the exact state of the clients' credit.
One possible rate we might offer is GMAC-RFC's fixed rate of 6.55%. At a time of rising interest rates the clients may feel happier knowing what their mortgage payments would be for a couple of years. The rate is 6.85% fixed until July 2006 and there are no extended redemption penalties or indemnity premiums – not bad for an adverse case. This lender would also ignore defaults and the missed payments as long as there were no more than three months' missed payments in the past 12 months.
GMAC-RFC will go up to 85% LTV which would mean that the Harveys would have to have a deposit of £22,000. If this is a problem we could arrange a 90% LTV mortgage with such lenders as Kensington or Preferred. But the rates would be more expensive.
If the bankruptcy had been discharged for at least 12 months then we could go to even more lenders. This of course would depend on the clients' timescale. They have to complete quickly and we would expect the usual speedy service from GMAC-RFC. Another advantage is that it has introduced an online decision system which could save a lot of time.
Jeff Knight is head of marketing services at GMAC-RFC
Having clients with adverse credit is no longer unusual and a greater understanding of the market has led to more of these clients being helped by advice from mortgage intermediaries.
In this case the clients have CCJs, mortgage arrears and a discharged bankruptcy, and they need to maximise their loan.
GMAC-RFC is likely to be a source for many intermediaries faced with such a case as we have an extensive product range. Because the bankruptcy was discharged less than 12 months ago, it narrows product availability slightly. We can narrow it down to three rate options, two discounts and one fixed rate, but I have had to make some assumptions. Firstly it is not clear if Mrs Harvey has changed jobs already and is now looking to move so I am working on the assumption she has and that she has worked there for at least three months and been in employment for 12 consecutive months. Also I have assumed that the application will be made on a status basis and that both are employed.
Based on these assumptions I have calculated that the Harveys could obtain a loan of £125,800 with GMAC-RFC. This is based on 85% LTV, which is the maximum available for their circumstances which is well within the limits using the 3 x joint income calculation of £150,000. The interest rate payable would be 6.67% – which is a discounted rate, discounted by 1.35% until July 1 2005 from our nonconforming product menu. This is calculated by adding the appropriate margins to LIBOR (currently 4.27%) based on the adverse credit shown. The redemption period for this product is three years.
If a shorter redemption period is preferred, we can also offer two rates that the Harveys may wish to consider. They could choose a two-year fixed rate of 7.75%, fixed until September 1 2006, or an alternative six-month discounted rate of 6.25%, discounted for six months from completion then reverting to Bank base rate plus 3.25%, both from the GMAC-RFC 'boxed' range. The fixed rate provides certainty for two years and both deals have a two-year redemption period. However, with these rates the maximum loan is less than above, which is 75% LTV equating to a maximum loan available of £110,000. If the bankruptcy had been discharged more than a year ago the rate would be lower and the LTV higher, so an option could be to wait five months before applying if possible.
The first rate appears the best option as they can obtain a higher loan but further advice should be sought to select the most appropriate rate for their circumstances.