MSE News: Guest Comment: Why is it difficult to get a mortgage?

Former_MSE_Helen

This is the discussion thread for the following MSE News Story:

"Melanie Bien, of independent mortgage broker Private Finance, explains why she thinks it's tricky to get a mortgage"

Read the full story:
Guest Comment: Why is it difficult to get a mortgage?

michaels

So we have bolting the stable door after the horse has bolted but even worse the door is effectively beign bricked up so the donkey left inside will burn to death in the event of a fire (taking the analogy too far?)

ON the porting issue this looks like blatant profiteering - he lender may well be being offered better security (if the new property is worth more) against the same level of risk and yet the lenders are taking it as an opportunity to get out of deals they have already agreed as they now find they no longer like the terms.

I can't see the problem with interest only mortgages as long as the lender has a decent equity cushion, if borrowers choose to rent from the bank rather than from a landlord what is the problem - the rules are supposed to be about systemic risk, some may see IO as socially undesirable but it seems to me owner equity is the issue with systemic risk not whether a borrower is repaying the principal.

Fixed income multiple rules also imply that individuals can not take their own decisions on how they spend their income, for example one person might want to spend more on going out and holidays and less on housing, an other might want to spend more on their home and forgo holidays and socialising - surely that is a decision for the individual not the FSA (again subject to the proviso of not causing systemic risk which is about LTV rather than income multiples)?

Finally is there empirical evidence that losses to banks (which is the risk I thought the rules should be addressing) is related to income multiples or is it actually related to unemployment and low levels of equity?

May be an example is needed - as a bank which is more risky lending?

1) 50% LTV IO at 6x income or
2) 95% LTV repayment at 1.5x income

I know which I would feel more comfortable with if it was my savings being loaned out.

danielanthony

I can't say I experienced a problem when we got our mortgage two years ago with Britannia (apparently picky) and recently a re-mortgage offer from Halifax. I think the 'secret' to being offered a mortgage is:

1) Have at least 10% deposit
2) Don't have a history of bad debt in the last six years
3) Your used vs available credit ratio is about 50%

If you meet these three criteria then IN MY EXPERIENCE you should get offered a mortgage from a mainstream lender. I had an IVA which finished in 2008 and spent a lot of time looking at my credit files and talking to people on here who had applied for mortgages at the time so feel that I have done quite a bit of research on this.

As I said, I got a good mortgage despite having an IVA in the past and loads of defaults, the trick was applying rule '2' above and waiting till it all dropped off my credit file before applying. Unfortunately this requires patience though!

sly_dog_jonah

We've shifted our mortgage twice in the past 13months and didn't have any issues with either HSBC or First Direct, who are apparently quite picky. First was a fee-free tracker, then we snapped up a 5yr fix at 3.89% once we'd moved in with £99 fee :beer:

This was despite the missus being on maternity leave, although we did make sure we got the 2nd re-mortgage done prior to her paid maternity leave finishing. We are fortunate that our LTV is low so we had full market to pick from and we didn't have to sweat on the valuation being close to the 60/65% required in each case.

Yes we had to provide a lot of documentary proof of outgoings and income but that is par for the course these days. We also made sure our credit reports were bang up to date with our new addresses, and have had direct debits in place for years to ensure no missed payments.

handytips

It is getting a little more difficult, the main area where the problems seem to rear thier heads is that of affordability, where in the past the lenders used to use income multiples typically 4 x single or 3.5 jonint, now they all have affordability calculators that we as brokers do not fully understand, so what chance has the general public got, however a good mortgage broker/advisor will know the quirks and criterias of the lenders and should be able to advise of the correct route for any given client according to thier circumstances and needs and preferences when it comes to either remortgaging or purchasing, like i have said in many many posts, people will automatically get hooked in by the lure of a Mortgage provider offering the lowest rates on the market, however without naming names these kind of lenders tend to decline the application often weeks after the intitial application has been sent. Do not be lured by the lowest rate and the rate isnt everything, i as a broker have to give rhyme and reason as to the choice of lender i choose for my clients, should my choice of lender be 10th on the list i will have good reason for recommending that product, believe me it is nothing to do with what commission i recieve as i charge a brokerage fee, so i am focused on what is the best overall deal for the client, and more importantly can they HAVE the deal. More than 60% of all mortgages are arranged by intermediaries such as myself, which will tell you the lenders have a huge reliance on us refering business to them, i think deep down they prefer this as i believe the compliance is much tighter in the broker world. I would recommend people employ the services of a good broker one that is recommended via people who have used them being the best way, as at least you will know in a short space of time you will know whether or not you are going to get the loan, rather than phaffing around yourselves thinking I Can do this. On many occasions NO YOU CANT.

davidgmmafan

Why is it difficult to get a mortgage?

Because the entire financial system almost collapsed, surely its not that unexpected???

The real question is whether house prices are about right, too low or too high, and if (once this is decided) anyone is prepared to do anything about this. Governments seem to regard falling house prices as, by default, a bad thing. But if someone has seen thier relatie wealth increase vastly over the last decade or so and it goes down a bit its not a disaster is it?

Reaper

There was a time you could only get a mortgage of 3 x joint income. Then that changed to 5 times or more.

Were people better off? Could more people afford to own a house? No, not really because all that happens is house prices go up. It's supply and demand - a natural reaction to increased demand. So then people owned the same number of houses but had bigger debts.

I approve of tightening lending criteria. Demand falls and therefore house prices sink. The same number of houses are owned by the same number of people but now the debt they took on to pay for them is lower. What's not to like?

I realise the transition will be painfull for those who previously mortgaged themselves up to the hilt, but in the long term everybody will be better off.

Billy-no-Money

I experienced this recently with N&P, but I was looking for additional borrowing for consolidation purposes (long story, been a DFW for three years, needed to reduce my minimum outgoings to cope with an imminent drop in income which in the event didn't happen).

I took the approach of laying my cards on the table with a full Statement of Affairs and a bit of a life history, plus evidence of my debt reduction so far, and found it worked - the main impact was that the mortgage term had to be extended to reduce the payment level to one that met their requirements.

I'm now paying double the standard payment, and putting more aside that I can't repay for a couple of years (10% overpayment limit for two years), on the income originally declared in the application - so I think their affordability rules are very tight. However, I didn't even expect to be able to consolidate in the current climate so I think their wish to look over finances with a fine-toothed comb actually worked to my advantage.

spikyone

Reaper wrote: »

I approve of tightening lending criteria. Demand falls and therefore house prices sink. The same number of houses are owned by the same number of people but now the debt they took on to pay for them is lower. What's not to like?

I realise the transition will be painfull for those who previously mortgaged themselves up to the hilt, but in the long term everybody will be better off.

Agree with everything you say. I can't understand why this story is portraying "it's harder to get a mortgage now" as a bad thing. I'd suggest that those who are unable to port their mortgages are probably those who contributed to the house-price bubble by buying a house they couldn't really afford in the first place. By which I mean that if you bought a house, it's not only the current affordability that matters, but affordability ten or more years in the future. The enormous number of people worried by the prospect of the BoE increasing base rates (from the anomolous low of 0.5%) suggests that a lot of people wouldn't be able to cope with a perfectly predictable base rate of over 5% - and worst-case, well over double that - and can't therefore afford the house in which they currently live.

It really seems like banks can't win - they're blamed for causing the "credit crunch", which in fact stemmed from poorly judged retail lending (and is completely unrelated to the supposedly high-risk "casino-style" banking that's often criticised by the mass media), and yet they get a kicking from Joe Public when they stop lending to people who might not be able to repay!

Of course, I sympathise with the self-employed, but self-certification was so heavily abused that it absolutely had to be canned. And by definition, self-employment means that your income is variable, so it's only reasonable that the banks should want to see 3 years of accounts - particularly since these will cover the worst of the recent economic conditions. It's difficult to see what lenders are doing wrong here.

@michaels - is this really shutting the door after the horse has bolted? Do you propose that the banks continue throwing money at anyone who asks for it?

grumbler

michaels wrote: »

ON the porting issue this looks like blatant profiteering - he lender may well be being offered better security (if the new property is worth more) against the same level of risk and yet the lenders are taking it as an opportunity to get out of deals they have already agreed as they now find they no longer like the terms.

Absolutely.

Melanie_Bien_ wrote:

Borrowers complained to the Ombudsman that, in response to tougher lending conditions, their lender’s change in affordability criteria meant they no longer met the requirements through no fault of their own.

If the value of the new property is the same or greater, "change in affordability criteria" is just a pathetic excuse used by lenders.

I guess I'll face difficulties with porting my small flexible mortgage, 0.99% currently, if I want to move my house.

shortchanged_2

Reaper wrote: »

There was a time you could only get a mortgage of 3 x joint income. Then that changed to 5 times or more.

Were people better off? Could more people afford to own a house? No, not really because all that happens is house prices go up. It's supply and demand - a natural reaction to increased demand. So then people owned the same number of houses but had bigger debts.

I approve of tightening lending criteria. Demand falls and therefore house prices sink. The same number of houses are owned by the same number of people but now the debt they took on to pay for them is lower. What's not to like?

I realise the transition will be painfull for those who previously mortgaged themselves up to the hilt, but in the long term everybody will be better off.

You're spot on with your comments there Reaper. All the banks did was add fuel to the fire a few years ago by lending bigger and bigger amounts. If they had kept a tight reign on the purse strings back then I very much doubt we would have the severe problems we are currently facing in the housing market.