Star letter: Pay-rate lending needs to be better understood
True innovation in the mortgage market is rare but that is not to say that lenders cannot explore ways to support lending in areas that are not particularly well served.
For instance, we would not go so far as to say it is true innovation but lenders should be much more able to support high credit-scoring borrowers with bespoke product offerings beyond the norm.
This is certainly the case in our part of the buy-to-let market and it is why we have begun to offer a loan calculated on the pay, rather than the revert, rate.
But I sense this type of lending is not as widely understood as it should be and advisers may be comparing apples and pears, particularly when it comes to rate.
The real benefit for advisers and clients around pay-rate products is that they are attractive to high-quality borrowers who are seeking finance where the value of property is high compared with the rental income. The obvious example is with city centre-based property: there is a relatively low-level rental yield but you have top-quality security and a high credit rating for the borrower.
Where these criteria can be met, we believe these borrowers could secure around 20 per cent more funds up to the maximum LTV level. But advisers will have to recognise the differences between pay- and revert-rate products and the fact that a straight rate comparison is not relevant.
As I have said before, this is all about rewarding the most credit-worthy borrowers – lenders offering pay rates to all and sundry are liable to encounter trouble – and it also requires flexible underwriting, which not all lenders can deliver on. This approach is certainly not for all borrowers or lenders.
Bob Young, Fleet Mortgages
Some criteria don’t accord well with us
Last week, Mortgage Strategy reported that Accord had tightened its buy-to-let rental cover calculation from 125 per cent of 5 per cent to 125 per cent of 5.24 per cent. This obviously makes it more difficult to make a case fit so I am not sure of the motive behind this. I was already finding it difficult to make cases fit their criteria.
I have previously found Accord hard to deal with and have had cases declined at the back end due to it checking bank statements at the last minute before offering a case. I have argued that this should be done at the beginning, before the work starts.
In the main, some of the reasons given do not stack up. For example, the last one declined due to the client being in his overdraft for around six weeks. When I explained that he had just got married and had larger expenditure than normal, this fell on deaf ears. He had not gone over his limit so I failed to see the problem.
Although my BDM assures me things have got better, until I see evidence of this I am unlikely to use this lender.
A chocolate teapot can’t pour good tea
I read last week that HSBC had expanded its broker panel by adding London & Country after entering the market with Countrywide last year.
But Mortgage Strategy and the press generally do not seem to realise that HSBC has fundamental service issues that impose a serious risk to buyers. Apart from declining many cases it initially accepts, the valuation takes around five to six weeks and any so-called mortgage offer is made prior to that happening and can then be rescinded.
In short, it does not matter whether it uses L&C or any broker when its systems are incompatible with the normal housebuying process. I have worked with estate agents for several years and would never recommend HSBC unless the timescales were remotely compatible with the vendor’s.
The press needs to educate buyers that the mortgage is a means to an end, and to give awards to lenders for their low rates but effectively chocolate teapot service is a great disservice to mortgage advisers and the public alike.