Self-employed clients deserve a better deal from the underwriting process
I have a suggestion for any lenders out there that are keen to kick-start the market – drag the dark-art of underwriting kicking and screaming into the 21st Century.
I refer specifically, but not exclusively, to the massive imbalance that currently exits between employed and self-employed clients, but also how proactive it would be for underwriters to think outside of the box when it comes to looking at cases.
Let me give you an example: I have a client who has been a self employed barrister for some years and earns a good living.
In our society that’s a good, healthy, well paid occupation. Two years ago she had a baby and her income for that year was affected, so when the lender asked for the last three years accounts the middle year had a bit of a dip in income and consequently they took an average of her last three years earnings to use on the income multiple.
This obviously affected the amount she could borrow.
If she had been employed the lender would have asked for the last month’s payslip, been none the wiser about the maternity period which would equally have affected her employed income and would have sanctioned a higher mortgage amount.
In fact, if we were applying to Santander on an employed basis that client could have had a mortgage agreed without even having to have started her job for another three months.
Why do all self employed people have to have their income scrutinised over such a long period? Why does their income have to be averaged out if a reasonable explanation for a drop in income can be provided?
Surely there are some categories of self-employment where social circumstances can be easily explored by an underwriter to confirm the longevity of a particular occupation?
This is not modern day, visionary underwriting.
Here’s another example for you. I had another client with a great LTV, that fitted a specific lender’s affordability criteria by a mile, but the client wanted 4.2 times income.
The lender refused an income stretch above 4 times income because the client didn’t bank with it and so the lender claimed to have no idea about the client’s account conduct and couldn’t sanction that sort of income stretch.
I asked why, in that case, could they not ask me for 12 months’ bank statements and study his bank account conduct in detail?
In this case and to the credit of the underwriter, they agreed and the case was passed.
That sort of proactive underwriting used to happen regularly in the past, but in today’s world of computer-says-no underwriting there must be hundreds of great cases passing these lenders by.
Lenders should treat applicants and advisers better
I submitted an online agreement in principle request to Nationwide on the 18 August.
It was referred back to me with a request that further documentation be submitted. This was done on the 21 August.
It was for a capital raising remortgage with a LTV of 52%. The income was not a problem and a joint mortgage could be done using just one applicant’s basic salary.
On 5 September I received a text message from Nationwide saying that it had been trying to contact me without success and would I call it. I had been in my office all of the time.
I duly phoned it back and was advised that I should edit the decision in principle and increase the first applicant’s annual income by £3 – yes, you read that right, £3. I had not included 0.25p per month.
Following the amendment I telephoned on the 7 September to see how the case was going . I was informed that the case was still with head office and “had only been received on 21 August”, so I should hear something during the next week.
My BDM says that he can do nothing to help. I have the distinct impression that the case will after all this time be summarily declined.
I am told that by calling me about the increase in income this will mean that the case will be further delayed due to a “broker error”.
In the meantime the poor clients are wondering just exactly what is going on.
I have been in this business for many years and am appalled at the way lenders treat applicants and their cavalier approach to advisers.
In the case that I have referred to above the income multiple is less than two times yet they query 0.25p per month. The case was packaged correctly and no further documentation was requested.
Just what is going on at Nationwide?
Name and address supplied
Property valuation should not be a one-way street
I write in response to last week’s letter from Marcus Jones. He states that sellers,estate agents and builders are trying to sell overvalued properties and that is why the housing market is flat so instead they should be encouraging prices be reduced to an affordable level.
What about the movers who need that amount of equity to move on themselves?
He mentions that banks are lending but will only lend based on the individual’s affordability.
Well, virtually all lenders now use this criteria so what’s the problem there?
Jones’ paragraph stating that “property is valued at what people can afford , not what estate agents/sellers and builders want to sell at at to make a nice profit” nearly knocked me down with a feather.
So the house I view is valued at £200,000 but I can only afford £180,000 – will the seller accept my offer on this basis? Wish they would. I have a feeling Jones is a banker and I have resisted making the obvious joke of the substitution of the ‘b’ for a ‘w’ just to be controversial.
Advisers do a good service by keeping lenders competitive
On Mortgage Strategy Online last week there was a story that revealed around 52 per cent of homeowners said they went directly to their bank to obtain their mortgage, a survey from Myvouchercodes.co.uk shows.
In a survey of 1,682 homeowners, 87 per cent said they did not look elsewhere for other rates or deals. When asked why they went straight to their bank for their mortgage, 61 per cent of those surveyed said it was “easy” to do.
This is why people are getting ripped off by the tens of thousands. They are not getting advice and not getting choice. This ultimately means the lenders don’t have to offer the best rates and borrowers will pay more. Mortgage advisers keep the lenders lean and competitive by offering only the best deals. So if the lender wants to lend they have to be competitive.
Name and address supplied
More to a mortgage than just looking at the cheapest rate
The responses from some of the brokers on Mortgage Strategy Online last week to the story that 52 per cent of homeowners went direct to get a mortgage explained why lenders want to deal with the public direct, and also why a broker is needed to advise on mortgages. One comment from a broker accused branch advisers of being lazy and not applying compliant measures by comparison with brokers.
One argued: “As you know the remaining 48% of customers who did not go direct the bank would not touch, because it was too difficult for the customer facing mortgage seller to arrange as they where probably self employed and they did not know how to read a set of accounts.” Brokers says they only deal with the cheapest lender – which means no loyalty. Borrowers say they only need to look for the cheapest rate. But I have an offset mortgage that allows me to save on money in the account, and recently following a phone call to the bank allowed me to secure extra borrowing on the account within 20 minutes, with no additional underwriting. I would not have the advantage of either of these facilities if I had opted for the cheapest rate available at the time. There is more to a mortgage than just looking at the cheapest rate.
Name and address supplied
Payday loan firms are no worse than banks for charges
Santander UK last week revealed that one million people in the UK are using payday loans to cover the cost of household bills in a typical month.
The figures are based on research commissioned by Santander and conducted by Opinium Research in June this year with 2,011 UK adults.
On Mortgage Strategy Online one anonymous comment damned payday loan firms as “the leeches of society” praying on the people that have no choice but use them as there is no credit available.
They went on to argue that these types of firms should have been put out a long time ago, and that payday loans firms like Wonga had no ethics whatsoever.
I totally disagree with this comment – while the APR on payday loans is high it is partly because they are paid back over a very short term often less than a month which in turn inflates the APR. Companies like Wonga.com are crystal clear how much interest you pay back and when by so it is crystal clear before someones apply what they have to pay.
I agree in the article these should not be used to pay household bills each month but banks are taking the moral high ground against these because they didn’t think of it first.
Nobody seems to mention some of the interest charges banks charge on their credit cards with a lot of people also use to pay their food and fuel each month and don’t pay off.
But then again banks wont criticise this because they sell them.
I would concentrate more on regulating the companies who force clients into claiming on payment protection insurance as companies are paying FSA complaint fees when in some instances they have done nothing wrong.