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    • Former MSE Helen
    • By Former MSE Helen 1st Jul 11, 8:09 AM
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    Former MSE Helen
    MSE News: Guest Comment: Why is it difficult to get a mortgage?
    • #1
    • 1st Jul 11, 8:09 AM
    MSE News: Guest Comment: Why is it difficult to get a mortgage? 1st Jul 11 at 8:09 AM
    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"

Page 1
    • michaels
    • By michaels 1st Jul 11, 9:08 AM
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    michaels
    • #2
    • 1st Jul 11, 9:08 AM
    • #2
    • 1st Jul 11, 9:08 AM
    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.
    Cool heads and compromise
    • danielanthony
    • By danielanthony 1st Jul 11, 9:49 AM
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    danielanthony
    • #3
    • 1st Jul 11, 9:49 AM
    What problem?
    • #3
    • 1st Jul 11, 9:49 AM
    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
    • By sly_dog_jonah 1st Jul 11, 10:25 AM
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    sly_dog_jonah
    • #4
    • 1st Jul 11, 10:25 AM
    • #4
    • 1st Jul 11, 10:25 AM
    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

    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
    • #5
    • 1st Jul 11, 10:37 AM
    • #5
    • 1st Jul 11, 10:37 AM
    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.
    I am a Mortgage Advisor. You should note that this site does not check my status as a Mortgage adviser, so you need to take my word for it. This signature is here as i follow MSE's Mortgage Adviser code of conduct. Any posts on here are for information and discussion purposes only and shouldnt be seen as financial advice.

    • davidgmmafan
    • By davidgmmafan 1st Jul 11, 10:50 AM
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    davidgmmafan
    • #6
    • 1st Jul 11, 10:50 AM
    • #6
    • 1st Jul 11, 10:50 AM
    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?
    Mixed Martial Arts is the greatest sport known to mankind and anyone who says it is 'a bar room brawl' has never trained in it and has no idea what they are talking about.
    • Reaper
    • By Reaper 1st Jul 11, 12:00 PM
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    Reaper
    • #7
    • 1st Jul 11, 12:00 PM
    • #7
    • 1st Jul 11, 12:00 PM
    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
    • By Billy-no-Money 1st Jul 11, 12:17 PM
    • 320 Posts
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    Billy-no-Money
    • #8
    • 1st Jul 11, 12:17 PM
    • #8
    • 1st Jul 11, 12:17 PM
    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.
    Long-haul Supporters DFW 120
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    • spikyone
    • By spikyone 1st Jul 11, 12:23 PM
    • 449 Posts
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    spikyone
    • #9
    • 1st Jul 11, 12:23 PM
    • #9
    • 1st Jul 11, 12:23 PM
    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.
    Originally posted by Reaper
    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
    • By grumbler 1st Jul 11, 5:32 PM
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    grumbler
    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.
    Originally posted by michaels
    Absolutely.
    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.
    by Melanie Bien
    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.
    We are born naked, wet and hungry...Then things get worse.

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    • shortchanged
    • By shortchanged 1st Jul 11, 6:10 PM
    • 5,416 Posts
    • 8,597 Thanks
    shortchanged
    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.
    Originally posted by Reaper
    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.
    Why are we here?......................because we are not all there.
    • MacMickster
    • By MacMickster 2nd Jul 11, 10:16 AM
    • 2,939 Posts
    • 9,461 Thanks
    MacMickster
    The problem facing banks (with a knock on effect for those wanting to obtain new mortgages) is that their previous lending policy has left huge numbers of their current borrowers at risk of default (the fault of both parties).

    From Robert Peston's blog on the BBC:

    "The Bank of England estimates that up to 12% of UK residential mortgages could be receiving some kind of forbearance or special help from banks at present.
    A report by the Property Industry Alliance suggests that around 80% of loans to commercial property businesses made since 2004 may be in breach of their Loan-to-Value covenant"

    In other words, many are struggling o cope even with the current record low interest rates. How many more would struggle with even a modest rate rise?

    If this were to lead to the predicted "tsunami" of defaults, property prices would not just weaken. They would collapse, and in turn this would terminally effect the balance sheets of banks who have already received huge government/taxpayer support. Although some might say that we should let the banks go under, but forget that this would have huge impacts on pensions etc.

    It is little wonder, therefore, that banks are now reluctant to take the slightest chance that they might add to their woes, so are now adopting not just a belt and braces approach, but also keeping their hands in their pockets for added security.

    At the moment you could liken our economic future to the end of The Italian Job - in a bus precariously balanced on a cliff edge. Unfortunately everyone (government, economists, Bank of England) are waiting for someone to take the Michael Caine position and come up with an idea to rescue the situation. Unlike The Italian Job, however, we will all find out in due course whether the idea brings redemption or catastrophe.
  • illgetthere
    whilst i agree with the comments it has put people like myself in a horrible position. I bought my first home in 2002, moved in 2004 and then bought a 2nd property in 2007. I used the equity in my first home to raise a deposit (plus my own cash) to purchase house 2.

    I now want to buy a 3rd but am not allowed to use the equity in house 2 to raise a deposit (plus cash again), as the criteria has changed. I have never missed a mortgage payment yet i cannot get another mortgage from anywhere.

    So i am now left in a situation where i don't want to sell, but at the same time really want to buy again. I wonder if i will be in the same situation on 10 years time. Its all due to lending restrictions, not income/affordability.
    • Thrugelmir
    • By Thrugelmir 2nd Jul 11, 4:57 PM
    • 63,452 Posts
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    Thrugelmir
    Unfortunately everyone (government, economists, Bank of England) are waiting for someone to take the Michael Caine position and come up with an idea to rescue the situation.
    Originally posted by MacMickster
    The answer is simple........ time.

    As time passes then the amount of debt owed by those at risk will diminish. May take a whole generation to wash through the system, i.e. 20 years or so.
    “The stock market is a device for transferring money from the impatient to the patient.” – Warren Buffett
  • WhiteHorse
    Many people seem to think that a mortgage is a right. It isn't - it's a business deal, with all that that implies.
    "Never underestimate the mindless force of a government bureaucracy
    seeking to expand its power, dominion and budget"

    Jay Stanley, American Civil Liberties Union.
    • brit1234
    • By brit1234 3rd Jul 11, 3:18 PM
    • 5,191 Posts
    • 11,968 Thanks
    brit1234
    Melanie Bien seems to just be moaning, rather than looking at the reasons for the restrictions. She fails to mention how a large percentage of borrowers were use self certs to falsely inflate their incomes to get properties hence the clamp down.

    She does not link the loose lending to the property bubble and seems to want it to return.

    I for one have no problem getting a mortgage. The reason I payed off my debts, saved a big deposit and took steps to improve my credit rating. It isn't hard.

    Scams - Shared Equity, Shared Ownership, Newbuy, Firstbuy and Help to Buy.

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    • Thrugelmir
    • By Thrugelmir 3rd Jul 11, 3:21 PM
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    Thrugelmir
    She does not link the loose lending to the property bubble and seems to want it to return.
    Originally posted by brit1234
    Simply put it won't return.

    The shackles that are progressively being applied to the global financial system will ensure that.

    People can grumble as much as they wish, but a new era is already dawning.
    “The stock market is a device for transferring money from the impatient to the patient.” – Warren Buffett
    • boatman
    • By boatman 3rd Jul 11, 4:35 PM
    • 4,158 Posts
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    boatman
    How is it that not long ago a bank could offer a mortgage at 0.15% above base rate but now they seem to struggle with anything less than 2.5% above..?
  • opinions4u
    How is it that not long ago a bank could offer a mortgage at 0.15% above base rate but now they seem to struggle with anything less than 2.5% above..?
    Originally posted by boatman
    Becasue the cost of raising mortgage funds has fallen by less than the Bank of England base rate.

    Additionally, those 0.65% loans are making big losses for the lenders.

    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
    by michaels
    Simply put, the 50% interest only loan has less risk of the bank losing money. So I can categorically confirm that the 50% loan with the silly income multiple is the more sensible loan to make.
    Last edited by opinions4u; 03-07-2011 at 4:48 PM.
    • neverdespairgirl
    • By neverdespairgirl 3rd Jul 11, 5:36 PM
    • 16,072 Posts
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    neverdespairgirl
    whilst i agree with the comments it has put people like myself in a horrible position. I bought my first home in 2002, moved in 2004 and then bought a 2nd property in 2007. I used the equity in my first home to raise a deposit (plus my own cash) to purchase house 2.
    Originally posted by illgetthere
    You already own 2 houses. I fail to see how being unable to buy a third house is a "horrible position"!
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