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Missives, interest-only and holiday lets – The Edinburgh Supper Club debate

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  • 15/11/2016
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On a rainy night in Edinburgh, the third leg of this year's Leeds Building Society Supper Club found itself drying off in the oh-so-fabulous Tigerlily, a hotel and restaurant so finessed, Liberace would have felt at home.

In the private dining room the talk touched on everything from retention fees to new build and the Edinburgh market. Here are the highlights.

Lender service is a key issue for the average mortgage broker, but the ruthless efficiency of the Scottish legal system on property in comparison with the English equivalent makes any conversation on lender service more critical than usual.

The letter of missives, or close equivalent to exchange of contracts front-loads both the broker’s and mortgage lender’s workload as a written mortgage offer is often demanded within two to three weeks of offer accepted by the buyer’s solicitor, meaning lenders in Scotland have to move quickly.

One broker said: “It’s no coincidence that certain lenders that are getting so much business are set up specifically for the Scottish market. They know it’s completely different process for cases north-of-the-border.”

Another said the habit of some UK lenders of stringing a broker along for three to four weeks, only to decline it, doesn’t work for Scottish brokers as there’s no time to restart the process.

One broker added: “If a buyer has beaten 10 other interested parties at closing day, and the seller starts to make a noise with missives 2½ weeks in, you’re going to have to conclude missives or lose the property.”

The fact is in the Scottish market, the seller has all the power so the second or third bidder will be approached if the initial buyer looks shaky. As a result, lenders who request a same-day valuation, like Halifax and Santander, got a thumbs up from the Supper Club guests.

Interest-only

In mid-September and in response to broker feedback, Leeds Building Society loosened its interest-only criteria and increased the loan-to-value (LTV) it is willing to lend from 50% to 60%, which includes part interest-only and part-capital repayment and interest-only. It also dropped the minimum equity buffer of £150,000 completely alongside a minimum income requirement on these loans.

The Edinburgh Supper Club guests were sceptical about the need and possible market for interest-only, saying it was largely only high-net-worth or older clients who asked for it. The perceived compliance risk by networks also made it a difficult recommendation agreed several of the brokers, with some seeing this as the next ambulance chasing honeypot, along the lines of Payment Protection Insurance (PPI).

To recommend these deals, a clear repayment strategy was essential and a career path with earnings progression too, said the brokers. A Leeds spokesperson said it was using a ‘common sense approach’ on these deals, in that brokers knew the local area so could outline the plausible downsize figures in their application notes submitted with any case. Arguably, after the loans had been underwritten three times by the broker, the network and the lender, this was likely to be one of the safer lending areas suggested one of the guests.

Opportunity knocks

The changes to buy-to-let affordability assessments confirmed by the Prudential Regulation Authority (PRA) in September were described by one broker as the ‘nail in the coffin’ for amateur property purchase market, particularly higher-rate taxpayers.

However, of the many exclusions in the regulation, including development, contracts of less than 12 months, lending for mixed purposes including commercial, the holiday let exemption was likely to skew the market the most, thought others.

A Leeds spokesperson said more lenders alongside themselves needed to start lending into the holiday let mortgage market. A broker suggested this was a big opportunity for any new lender because so many borrowers were offering holidays lets on the sly or via Airbnb in Edinburgh, and brokers could be having useful conversations with those clients.

The debate went on long on into the night at TigerLily, as did the rain. A huge thanks to all our guests and the sponsor, Leeds Building Society.

Find Leeds Building Society’s Twitter Q&A on interest-only here, which took place on the 10 November.

Guestlist

Robin Purdie, Mov8 Financial
Natalie Jackson, First Mortgage
Martha Martindale, SJPP
Bernie Hughes, Melville Independent
Agata Roberston, First Mortgage
Elaine Kellington, Mortgage Advice Bureau
Alan Wilson, First Mortgage

Hosts

Louise Drummond, Leeds BS
Abigail Jones, Leeds BS
Helen Cawthra, Leeds BS

(Chair) Victoria Hartley, group editor, Mortgage Solutions
Oonagh Sheehan, commercial manager, Mortgage Solutions

Restaurant: Tigerlily, 8/10 – excellent steaks and triple-cooked chips and décor sharp enough to make your teeth ache, but charming with it.

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