Thanks to lenders it’s more than ever a brokers market. (Or When is a ‘Best Buy’ not a ‘Best Buy’?)
Posted on 22 November 2011 by
HSBC’s recent claim that “81% of all best buys are provided by direct lenders” seems to have missed out on the vital point of it’s only a “Best Buy” if you can actually get it. If you can’t it might as well be on the moon. “How do I qualify for this great deal?” is more the question borrowers should be asking. HSBC also claim that 9 out of 10 applications are accepted, but how many of the enquiries they receive are rejected before they ever get that far. The dark art of getting a mortgage, has gotten darker as lenders keep their cards closer to their chests than ever before. If borrowers don’t know how lenders work their criteria and credit score card, then they can offer these “Best Buy” rates safe in the knowledge that they will only get the narrow client profile range that they are really looking for.
When thinking about getting a mortgage many potential borrowers have little idea that what’s important to a lender is quite often not so important to them. i.e. Ensuring you’ve completed a voting registration form isn’t at the top of most people’s list when it arrives through the door, but for a lender (especially those automated ones), the borrower being on the electoral role is a vital part of their credit score card, and therefore can be a real problem, when through forgetfulness, the borrower finds themselves being declined for a loan.
Similar issues can arise when you pay a credit or store card a few days late, especially where this trips over into the next calendar month and creates a deadly (at least as far as the lender is concerned) “Status 1, missing or late payment” on your credit file. For a borrower a late payment is merely a forgetful oversight, for a mortgage lender, particularly those who are completely reliant on their credit score card, it’s a cast iron reason to decline an application. And woe betide borrowers who dip into their authorised overdrafts, as again for many lenders that’s not good news at all.
It’s not just things like being on the electoral role, or ensuring every credit and / or store card has the minimum payment taken by direct debit, that influences a lenders decision to lend these days. Borrowers need to carefully consider any changes to income and employment and how this may affect their mortgage desirability to a lender. A good example of this is a recent case of a professional client, who just over a year ago was invited to become a salaried partner of the LLP he had been employed by for a number years. This promotion gave him an above inflation pay rise, share of profit, and commission. Unfortunately because it also meant he was now technically self employed as he’d now be doing his own tax and N.I., he was declined for the mortgage he wanted as he didn’t have his first years tax return (SA302) yet. The fact that it was a very low loan to value, and that he’s the same person, doing the same job, for the same company, but for more money, cut no ice with the lender who had the particular product he wanted. As a whole of market mortgage broker we could easily place the case with a number of alternative lenders, but not with the product and rate he’d really wanted. Needless to say it was an interesting conversation trying to explain to the borrower, why he was a worse proposition in the lenders eyes, than when was on a lower income.
A big sector of the market that finds life particularly difficult at the moment, are the Self-Employed. Unsurprisingly many self-employed mortgage borrowers follow their accountants “best accountancy advice” without realising that this can have a huge impact on their ability to obtain a mortgage, particularly following the demise of Self-Certification” loans. Mitigation of tax liability invariably equates to a far smaller choice in the number of mortgage lenders available, as it tends to be only those smaller lenders, that offer manual underwriting and who have underwriters that can actually “read” a set of accounts. Many lenders who don’t have such specialist staff, tend to ask for the clients personal tax figures (SA302) which doesn’t necessarily show the whole picture, and certainly won’t tell the lender anything at all about the strength and position of the borrowers company.
There are many things that borrowers could do to improve their chances of getting the mortgage they want, if only they knew what the lender was looking for. The “Best Buy” tables published in the press and much beloved by Direct Lenders, give no hint as to whether the reader is in any way eligible for said “Best Buy”. If ‘direct only’ lenders such as HSBC had borrowers best interest at heart they’d surely make it easier and give greater access to their products, and have the level of market share that their 81% claim would suggest they should have?
The reasons above, are why mortgage brokers are so vital to today’s mortgage market, and why for more and more borrowers they are the professionals to whom they turn to, especially when they’ve suffered the pain of rejection by a lender. It may well be you approach a direct lender initially, attracted (as you are meant to be) by one of their “Best Buys”, but it many cases it’s a broker who will save the day and get you the mortgage you need.
The blog postings on this site solely reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.