The challenge
A couple were denied a remortgage of their residential property, which they wanted to transfer to an offset mortgage to give them more flexibility and some potential liquidity.
The main earner of the couple has a six-figure salary. Their residential mortgage is £160,000 with Britannia (Co-op) and they have £150,000 in savings. They want an offset mortgage to free up some money and also because it is cheaper than their current mortgage.
The couple tried First Direct and HSBC, because of low rates, both of which said no due to affordability criteria problems. The problem, according to an adviser friend of theirs who called one of the lenders on their behalf, was that the lenders deducted all the applicants’ expenses, such as school fees and mortgage payments, from their affordability calculation but didn’t consider the couple’s buy-to-let rental income. ‘What if the income dries up’ was the concern. The result, it looked like there wasn’t enough money coming in to support the remortgage, even though the new mortgage would have been cheaper.
Income
The couple have three buy-to-let mortgaged properties, which they share 50:50 with another investor. They don’t want to touch those mortgages because they are on a low standard variable rate secured before the credit crisis. One of those mortgages is with Mortgage Express, the two others with BM Solutions.
All their buy-to-let mortgages are 50% loan-to-value. The pair have never had any credit issues and have owned the properties for about 10 years.
First Direct told the adviser who rang on behalf of the applicants, it was ‘acting ethically’ because the deal was too risky and despite protests to the contrary, it said it was adhering to its lending policy.
The applicants have currently given up looking for a remortgage.
What our experts said
Simon Collins, product technical manager, John Charcol
There are plenty of other lenders which offer offset mortgages which the borrower could look at. HSBC/First Direct are very much in the “computer says no” camp, with little or no flexibility. Basically policy is policy and that’s that. All lenders have to assess the clients’ outgoings, but they all have slightly different ways of looking at them.
However, large regular amounts like school fees can hammer affordability despite the fact that it should really come under the heading of non-discretionary spending, as in the event of financial difficulty, the children could always be moved to a state school. It’s more of a life choice than anything else, so why should a borrower be penalised for wanting the best for their children if they can afford it? It would be more understandable if all schools charged fees, but that is not the case.
The good news is that there are a lot of other lenders in the market who would be able to look at a case like this, Barclays being one. It is a major player in the offset market and its affordability is pretty good too. Also, quite a lot of the regional building societies offer offset products, and as the majority tend to underwrite manually on a case-by-case basis, one of them would almost certainly consider a scenario like this. The rates may not be quite as cutting edge as HSBC and First Direct but they will do the cases that these type of lenders won’t, and in offset cases, the rates aren’t quite so key.
Cases like this are probably better suited to those lenders which speak to brokers directly to apply that much sought after common sense approach.
Andrew Montlake, director, Coreco
This is a very common theme at the moment, especially from lenders who operate on the high street with some of the cheapest available rates.
More so than some other lenders, they tend to have a much stricter set of criteria and are unable to look at things on a more flexible basis, which is always where the broker comes in.
Without knowing all the salient details and going through a proper budget planner and affordability analysis it is tricky to say with absolute certainty, but it seems that there could well be some different options available from other lenders given the circumstances.
For me this raises a couple of questions. First of all, if a lender is unable to help is it right to just leave them with a ‘no sorry, goodbye’, or should they be saying I am sorry we cannot help but you should be speaking to a professional broker who may be able to assist you further. It seems a shame that the borrower has given up.
Secondly, it also shows the issues created when lenders are ignoring transitional rules and the absence of common-sense underwriting. If the borrower wants a pound for pound remortgage onto a cheaper rate and has that level of savings in the background, then you would have thought that something could be done. How is leaving the client as they are, a good consumer outcome when an offset mortgage would be of such a benefit to them?
Given the above, I would imagine that there should be lenders which can assist and potentially a lender such as Accord, Barclays, Clydesdale Bank or Scottish Widows may be able to offer a more flexible approach.
If any Mortgage Solutions readers have a suggestion on which lenders can help our troubled offset remortgagors and why, we would love to hear from you.
