High LTV deals can pay off for clients

BM Solutions\' Mortgage Plus product has come in for criticism but such high LTV deals can work well for some borrowers if they take independent advice, says Ray Boulger

The structure of BM Solutions Mortgage Plus product is the same as Northern Rock’s Together deal, launched in 1999. The maximum LTV is 125% made up of a 95% mortgage and a 30% unsecured loan subject to the latter being a maximum of 30,000. Because of this cap it is only possible to obtain an LTV of 125% on property values of up to 100,000. Above that the maximum LTV rapidly reduces.

Some commentators were queuing up to criticise this product even before the details were available, purely on the grounds that its maximum LTV was more than 100%. Obviously the smaller the LTV a borrower needs the better, and in the event of subsequent difficulties a high LTV reduces the options available to deal with the problem.

But the most important single factor in deciding whether a loan might be suitable or not is affordability. In many ways someone with a 25% LTV mortgage that they can’t afford is in a worse position than someone with a mortgage of more than 100% who can comfortably afford it. The latter borrower is likely to sleep more soundly at night and be less likely to need the services of a debt counsellor.

Lenders will restrict maximum borrowing to what they believe is affordable whatever the LTV, although of course different lenders have different views on this. Borrowers also have a responsibility not to take on more debt than they can afford and must allow for the likelihood of future interest rate rises.

Many aspects of BM Solutions’ criteria are stricter than Northern Rock’s. Furthermore, BM Solutions will only offer its deal through intermediaries to try to ensure all borrowers obtain advice. One of the plus points is that all its variable rates are on a tracker basis whereas Northern Rock’s variable rates can be changed on a whim, although they are early repayment charge-free.

Taking account of interest rates, fees, cashbacks and freebies there is little to choose between these products although it is worth noting that Northern Rock is increasing its arrangement fee by 100 to 895. As BM Solutions’ pricing is similar to Northern Rock’s but with less helpful criteria, it is difficult to see this initial product range making much impact on the latter’s dominant position in this market niche.

As always, borrowers should make sure they get independent advice. BM Solutions’ press release states: “The product is only available through independent mortgage intermediaries,” but this is misleading. It is in fact available through all brokers from whom the company accepts business.

Thus, while independent brokers will be able to offer a choice of this product from all lenders where appropriate, those brokers who operate from a panel may only be able to offer the deal from one or two.

For some loans up to 110% and also those above, say, 250,000 the 100% and more than 100%mortgages offered by lenders such as Scottish Widows, Standard Life, Accord, Mortgage Express and the Yorkshire will sometimes offer better value than the BM Solutions deal.