In the final part of the two-part feature we share PTFS’ tips on pre-empting those questions to cut down on processing times to help you deliver a smoother service to your client.
Exposure to credit
Having credit and making regular payments, rather than paying off the balance in full at the end of every month, is a widely known way for an applicant to boost their credit score.
But exposure to too much credit can be damaging.
Transferring balances to keep interest payments down is a smart way to manage your money but if the old credit card is not closed the amount of credit available to a borrower can make an underwriter nervous.
Exposure to several large credit card limits could mean the difference between a pass and fail if the applicant is at the top end of the risk curve already.
Footprints
It is important to make your client aware of some of the less obvious searches which they may carrying out which could be damaging their credit score.
Using comparison websites such as Money Supermarket for quotes will create a footprint each time the applicant views a quote.
One broker at the workshop shared his experience of an applicant failing a lender’s credit score after shopping around for car insurance.
Plausibility of interest-only repayment vehicles
Each lender has a slightly different attitude towards repayment vehicles so get to know their nuances by running the scenario past your BDM.
Inheritance is no longer seen as plausible.
People are living longer and paying for long-term care often eats into the amount of money which has been built up.
Even money which is in the process of being transferred to avoid inheritance tax can be clawed back if the donor dies within seven years of gifting the money.
Downsizing to release equity to pay off the mortgage balance is becoming more acceptable again but only with certain levels of equity.
When an underwriter considers whether downsizing is plausible they will consider what type of property would be affordable with the left over money.
Trading down from a three-bed to a two-bed property would not be a big lifestyle change.
But moving to a one-bedroomed property which would probably involve giving up outdoor space may be seen in too big a drop in the applicant’s standard of living to be plausible.
Any payments being made into a savings plan or investment vehicle to repay the mortgage balance must be included in the outgoings assessment.
Application inconsistencies
The underwriter will cross check information on the application form with supporting documents and the credit report.
Common inconsistencies crop up in address history, length of time in employment and the number of children in the family.
In some cases they are genuine errors but others, number of children, are deliberate attempts to circumvent the affordability rules.
Underwriters refer to this as “dead children”.
On the CAIS information which the lender has access to it will show them information which has been previously submitted by another lender including a changes in family members which must be investigated.
Distressed sales
Applicants pushing for a quick remortgage may be in a distressed sale scenario where they are being put under pressure to complete the transaction.
If an underwriter suspects this they may ask the applicant to seek independent legal advice.
Employment checks
Your applicant will now be asked to disclose any known future changes in their employment.
Most lenders will complete an employment check before they release funds to make sure the applicant is still employed and not under notice of redundancy or termination.
Mentioning this to your applicant upfront may encourage them to be more forthcoming with this information.
To read the first part of the PTFS workshop series on how to assess bank statements like an underwriter click HERE.
