I was interested to read the article last week in which Moody’s predicted that despite the measures announced in the latest Mortgage Market Review to help home owners trapped in their properties or loans, it would do little to help a third of sub-prime borrowers.
It will be interesting to see if the following scenario I have come across is allowed more leeway.
I have a client with an interest-only mortgage with a large building society. Last year he enquired whether he would be able to use its porting facility with a view to downsizing his property – and consequently his mortgage balance – by around 32%.
But as the lender treats porting as new borrowing, he failed its affordability criteria due to changes in his employment status, despite having an A1 credit score and blemish-free payment history.
As the lender treats porting as new borrowing my client failed its criteria, despite having an A1credit score and blemish-free payment history
I asked the lender to explain how it was happy to retain his loan at the current higher rate of repayments, knowing the answer would be that while it was affordable when he took it out, it would not consider much reduced repayments and lending which was on paper even more affordable.
The answer was exactly as predicted.
It strikes me that this client is being prevented from helping himself and the lender would rather see him default and be repossessed than make some sensible decisions.
Ironically this client is due to revert to the lender’s SVR of 2.5% in less than a year’s time so his repayments will drop by 55%.
So this will help, but had he been allowed to do what he wanted last year, the reduction would have been even more helpful.
MMR will see former sub-prime customers forced into renting
Moody’s last week claimed that under the MMR rules at least a third of sub-prime borrowers would still be mortgage prisoners, despite a clause designed to help those trapped in their properties or loans.
The reality is that many previous sub-prime borrowers with equity but poorer recent credit history will need to rent in future if they wish to relocate for work or extract equity. This will lead to a shift in long-term housing structures for our society.
Clients on debt plans should be given the chance to remortgage
If the Financial Services Authority is trying to help address affordability issues for sub-prime lenders, will the MMR allow lenders to reconsider the way they look at clients on debt management plans?
I have a lot of clients who have taken debt advice from debt management companies or charities, and have managed to stabilise themselves by going on to a DMP.
They now have defaults and the odd County Court Judgement, but as they are now repaying their debts, albeit via a DMP, most of the adverse has been minor or they have prevented anything more serious. But the fact they are on a DMP means most lenders won’t look at them, even though most would fit lenders’ adverse criteria.
The lenders either say they view a DMP the same way as an individual voluntary arrangement, which it’s not, or they use the full contractual payments to all their debts when working out affordability, rather than the agreed DMP payments – which could be substantially less and hence fit the lenders’ affordability checks.
This is a short-sighted view by banks. First, the clients have sought debt advice, thus taking responsibility for their debts, and are actively being managed by the DMP companies to repay their debts, and second most of these lenders have also lent to these clients on an unsecured basis.
Surely by offering these DMP clients a remortgage, say into a three or five-year fixed rate, they would create a stable environment for these clients to continue to pay back all their debts.
A fixed rate mortgage equals stable mortgage payments for clients. A DMP equals stable repayments to all the clients’ unsecured debts, and this can only equal a win-win situation for both lenders and clients.
Restrict LTVs, don’t lend to high-risk individuals, but help the majority. If these clients aren’t in a stable mortgage environment by the time rates rise, it will be a lose-lose situation for the banks and clients.
Prevention using common sense is better than the consequences of ignoring this problem.
JF Financial Associates
Arrogant FSA is also to blame for all that irresponsible lending
It’s good to see the FSA take such a sympathetic view of those caught in the trap caused by irresponsible lending.
It was the regulator that was supervising the lenders and allowing them to lend irresponsibly.
It was the regulator that was charged by the government with protecting the consumer and educating them so they didn’t become irresponsible borrowers.
But why should we expect anything different from such a bunch of arrogant, irresponsible, unaccountable civil servants protected from the realities of life?
Drawdown has its place but it is not right for everything
I was interested to read last week the comments from Key Retirement Solutions, which says not enough is being done to educate consumers on the benefits of drawdown plans.
Its latest Equity Release Market Monitor found that although drawdown accounted for 74% of its own sales compared with the market average of 55%, many borrowers are taking out the money in one lump sum, when a drawdown plan could be better.
But who takes responsibility for customers taking out inappropriate amounts from their drawdown pots in the future?
Drawdown has its place but it will not be right in all circumstances. Lenders also need to recognise their responsibilities when allowing a customer to release funds from their drawdown pots without the need for further financial advice.
They don’t usually notify the originating adviser of a request.
A lot of time and trouble goes into making sure the size of the initial release is appropriate. How much time does it take for a lender to say, “Here’s another £20,000”, without giving any consideration to the potential impact on the customer’s estate or on issues such as means-tested state benefits?
Name and address supplied
BDMs fiasco is just the latest writing on the wall at NatWest
To those who in last week’s letters page questioned NatWest’s commitment to the intermediary market following its decision to halve its number of BDMs, I suggest the writing has been on the wall for some time.
This lender was the main offender when dual pricing raised its head.
It then quietly reduced proc fees to a level below those of its competitors. I believe it is the only large lender you can’t talk to on the telephone, and I just can’t be bothered with LiveTALK.
It was also conspicuous by its absence at Mortgage Business Expo last year. I’m sure its BDMs are hard working and committed, and its niche criteria makes it a useful lender, but it doesn’t look like it appreciates our business.
RS Mortgage Consultancy
One underwriter per case is positive and there’s more to come
Barclays’ announcement that it is giving brokers access to a named underwriter for each mortgage application they submit is a positive step as I have had problems with cases in the past.
It also needs to get its scanners upgraded because it often has a problem of not seeing documents correctly and as a result you have to resend them five or six times.
I gather from my BDM that it will soon be possible to email documents. It’s a good step forward. I look forward giving it a go and seeing how it works.
I like the autonomy of speaking to one underwriter – it could be the difference between a case being accepted or declined.
Pushy brokers could make Barclays regret its underwriter move
With regards to Barclays’ underwriter announcement last week, this has been happening in small societies for years but it makes headlines here.
It shows just how little notice many brokers take of any firm outside the big six lenders.
I hope Barclays doesn’t live to regret the move – I am all too aware of brokers badgering underwriters to change a decision and the time this loses to other cases.
Brokers find ’no’ to be the hardest word and can be persistent to the point of rudeness.
Networks are not struggling and are set for strong year
I am writing to comment on what I feel was a slightly unfair headline attached to my recent analysis column entitled ’Networks are facing struggle to survive’ in the January 23 issue.
While I suggested network competition would remain keen in 2012, to state – as the headline does – that all networks are struggling to survive does our corner of the industry something of a disservice.
Indeed, Gary Watts’ review in the same issue proved the resilience of networks in 2011, with only 249 appointed representatives falling by the wayside.
Looking at our own results the table shows we gained 30 AR firms in 2011, an increase of 25.37% and the largest in the list. We also increased profits by 22% in 2010/11 and network turnover by 20%.
As with any industry, there will be natural wastage over the coming 12 months and some smaller networks will inevitably bite the dust, but the majority of us are set fair for another strong year.