Dear Dippy Mr Buckley is a warehouseman earning £22,000 per year. His wife earns £18,000 a year as a supermarket supervisor. They live in a rented flat in Glasgow and have seen a house they want to buy in the city. They fear it is beyond their means at £110,000. They can afford a 10% deposit and have one small CCJ that is two years old. What are their options?
Dippy says: This case highlights the dilemma facing first-time buyers as house prices continue to creep up. We have Andrew Seymour from Optoma and Paul Hunt from Platform on hand to offer the Buckleys some guidance. Have you got a problem for Dippy? Email firstname.lastname@example.org
Andrew Seymour is chairman and chief executive of Optoma
The Buckleys' case is not that much of a problem. Most introducers could satisfy their needs from a variety of lenders without much difficulty, allowing the broker to focus on using the lender that gives the best service to ensure they do not lose the house through poor mortgage administration.
Lenders are keen on first-time buyers as they are new blood. They can be sold a host of financial services products they have never had before and therefore feature strongly in City reports regarding market share. The Buckleys are likely to be well received even with their light adverse credit file.
They need a 90% LTV and this size loan is widely available for first-time buyers although we would advise limiting the loan to 89.9% to avoid MIG. Most lenders take a pragmatic view of light levels of adverse so a CCJ from some time ago does not restrict the Buckleys to non-conforming lenders.
So where do they go for their lending products? The broker should enquire about the couple's financial history and other personal issues such as have they rented at the same address for a long time, have they got a good job title, do they have credit cards and have they been with a bank for a long time? If yes, they are likely to do well on a credit score which will bring into play the prime lenders which offer better rates.
The couple's combined income fits full status lending where £40,000 on a £99,000 loan equals only a 2.47 multiple, again ensuring that a low rate could be accessed. The CCJ could be an issue with a lender if the Buckleys' credit score is low. However, since the debt is satisfied and is over two years old the case will fit Abbey on full status at 90% LTV.
If the credit score fails Platform's minor adverse product would provide a good rate. Platform's two-year discount is available at 4.75% variable with an additional one-year redemption overhang where the rate reverts to LIBOR plus 2%.
Abbey's two-year fixed rate at 4.99% with a £199 booking fee would be even better for this couple.
The type of product should be arrived at through discussions with the Buckleys.
Assuming they plan to live in the property for three years, during this period the mortgage is likely to be the largest element of their outgoing. There is therefore no need for flexibility. The security of a fixed product would be better for them than a discounted product with lock-ins.
Paul Hunt is marketing manager at Platform
In the past year we have seen the rapid growth of low adverse, a relatively new product area within non-conforming lending. These products are designed for people like Mr and Mrs Buckley who fall into the gap between traditional high street lenders and non-conforming lenders. It is an area that is rapidly becoming popular with intermediaries and lenders – and not just those specialising in non-conforming – many of whom now offer low adverse-type products to cater for an increasing demand.
Failed credit scores and minor credit problems are the main areas where low adverse products are at their most competitive and advantageous.
Platform's most appropriate deal for the Buckleys would be the adverse product which allows up to £1,000 of CCJs and any defaults as long as they were registered over a year ago, plus one month's arrears in the past 12 months.
Therefore as long as the CCJ is less than £1,000, Mr and Mrs Buckleys' application fits the criteria.
Although the couple appear to be first-time buyers and the LTV is reasonably high at 90% we will not ask for bank statements. Due to our 3 x joint income multiple the maximum they could borrow is £120,000 and the mortgage they require is well within this figure. Their application will also be on a full status basis.
We have a wide choice of non-conforming discounts with a bonus discount of 0.25% available until May 31 so this couple could not have picked a better time to use us. They can choose from a range of discounted rates which last one year, 18 months or two years. If they chose our one or two-year discounts of 1.75% their payment rate would be 4.50%. Going for our 18-month discount of 2% would cut this to 4.25%. However, our two-year discount with a reduced early repayment charge is 1.50%, which currently has an initial rate of 4.75%. The early repayment charges for our one-year and two-year reduced ERC discount are 6%, 6% and 5% in the first three years and the charges on our 18-month and two-year discounts are 6%, 6%, 5% and 4% in the first four years. After the expiry of any of these discounts the rate paid will be LIBOR plus 2%, which is currently 6.25%.
It is vital that intermediaries recognise that many more clients who have some sort of minor credit problem will be coming to them for mortgages. Because of this it is important that they are confident in discussing the low adverse options available in today's market with their customers – and that they understand the relative merits of each lender's offerings.