From London’s iconic Gherkin building, in the heart of the financial district, Mortgage Solutions and hosts Foundation Home Loans invited a group of mortgage intermediaries to discuss the challenges they faced in securing finance for their clients in a market where the average property is more than double that of homes elsewhere in the UK.
A series of markets
London, said the brokers, was not only a separate market from the rest of the UK in terms of the opportunities and risks it offered but it was a series of separate markets; greater London, central London, and super prime London. There was strong opinion that in central London buy to let was dead. “Low rents and high prices,” were the barriers to securing the level of finance clients required.
Stress tests, said one buy-to-let broker, have killed this market. He gave the example of a £1m, two-bed flat, which generated rental income of £2,500. The client wanted 75% loan-to-value (LTV) but the lender’s calculator would not budge over 43% LTV.” Stressing at 155% when the landlord has four or more mortgaged properties was an additional blow.
Lenders such as Precise Mortgages were able to get clients closer to their desired LTV but others which appeared to offer reasonable pay rates applied so many affordability checks, the client struggled to raise a mortgage higher than 60% LTV.
“Why is it that everyone has got a God-given right to live in London”
What the group wanted, were lenders to cater to the London market, specifically, by tailoring criteria which included income multiples for residential mortgage borrowers. One broker said he had a professional couple paying £3,500 on rent but yet lenders would only apply 4.5 times their income meaning they could not be offered a mortgage with much lower payments.
Not everyone agreed in the plight of the poor cash-strapped Londoner struggling to afford their home in the Capital. “Why is it that everyone has got a God-given right to live in London, because they want to live in London? If you can’t afford it, move out,” said one intermediary. “That’s what we all did.”
Where residential borrowers have to give up and wait until their income or deposits grow, investors, by their very nature, will look for a way around the problem to ensure they protect their businesses.
Our brokers had seen buy-to-let clients adopt strategies to squeeze every last drop of yield out of a property. “My client is investing in a property which will be half way between an HMO and a bed and breakfast,” said an intermediary whose clients mostly looked at semi and fully commercial properties. He also believed that landlords were sure to pass any increases in costs, which had arisen from tax changes, on to tenants. He said this would drive the UK to copy Ireland; revoking the decision to change the tax structure affecting landlords.
“We have no choice. To maximise borrowing, I have to use a five-year deal”
The debate returned to the lack of options available to brokers when trying to obtain a loan-to-value which matched their client’s deposit level.
“We need more than either just one lender or a five-year fixed rate option,” was a common opinion. The intermediaries were concerned about the Treating Customers Fairly (TCF) issue when offering a five-year fixed solely to obtain a higher loan for the client. One adviser said: “We have no choice. To maximise borrowing, I have to use a five-year deal, a two-year deal gives me a third less. Where is the TCF? What happens in three years’ time when everything collapses and the rate goes below 1% and they are stuck with the rates we’ve offered them?”
Clients with impaired credit
While buy to let is clearly an important topic for the London market, the intermediaries were keen to discuss another issue – clients with credit blips. Clients with impaired credit it seemed, were common, with brokers adopting different approaches when dealing with these client interviews.
One hurdle they did not have to overcome was clients being embarrassed about discussing missed loan payments. “Most will have access to their own credit files and send them to you ahead of the meeting,” said one broker. Most shared the opinion that spells of bad payment history tended to be clustered around one point in time which generally came with a reasonable explanation; divorce or ill health, for example.
“I read them the riot act”
Brokers who came across borrowers with constant credit problems adopted different strategies. Some preferred not to advise they take a mortgage at all, while one broker took on the role of the disciplinarian.
“I read them the riot act, make them frightened because someone needs to shake them and make them realise what they need to do to get back in the right position,” he said. He continued: “I’ve spent 18 months educating some clients to put them into the right position to apply for a mortgage- and I haven’t charged them anything in that 18 months. Then they come back to me in a stronger position and we can set them up with a loan.”
The evening ended on two quite separate topics, an inward look at whether brokers who did not charge their clients a fee were sending a message they did not value their service. It was generally agreed that a fee must be charged so the client respected the service being provided.
Lastly an outward look, to which way the election, which was to be held the day after the debate, would swing – a debate now settled.
However, the hopes that it would bring some certainty back to the market continue to be anything but a settled matter.
The venue: Searcys at The Gherkin
Justin Foster of Justin Foster Commercial Processing
Paul Flavin of Zing Mortgages
Orlando Heron of Holistic Solutions
Mossy Sowlat of AA Mortgage Gateway
Michael Lawlor of Integrity Wealth management
Amarji Singh Gharial of ASG Financial Services
Waseem Herwitker of First Alliance FS
Tony Silver of White House Mortgages
Foundation Home Loans team
Jeff Knight, director of marketing
Sarah McCawley, regional account manager
Mortgage Solutions team
Samantha Partington, deputy editor
Lisa Jayne Frankel, event coordinator