Failed applications are a huge frustration for both lenders and brokers, with only around 75% making it through to completion, according to Beecham.
With the market at £36bn in 2017, it means around £12bn of lending could potentially be lost a year – and millions of pounds in proc fees for advisers.
Beecham: “Significant amounts are lost, and that doesn’t consider your time, energy, customer frustration.”
Buy to let has become more difficult but doing extra work before submitting a case can make sure it remains more successful and profitable, according to Beecham.
There tend to be four distinct reasons behind an application’s collapse: lenders, surveyors, conveyancers and customers.
Here’s how he suggested advisers mitigate against the risks in each of the problem areas to get more cases through to completion.
Lender
- Check rental cover ratio and stress rates
All lenders have different criteria and stress rates, so advisers should speak to BDMs to make sure their client fits with the lender. If there’s any query, speak to BDMs before you place a case – not after.
- Portfolio landlords have different sub-sets of criteria
Lenders again have big differences in terms of rental requirements, so speak to BDMs and check criteria before submitting cases
- Look out for fraud
Although fewer cases declined by lenders is fraud, it’s still causes many applications to fail.
Advisers should check a customer out by looking them up on Google, checking where they work and getting documentation.
- Get to know lenders’ affordability
Most lenders don’t publish their affordability requirements, but it will be there, Beecham said. Talk to the BDM and get to know where the appetite for lenders is.
Surveyors
- Prevent down valuations
Advisers can help reduce down valuations by using Rightmove and Zoopla to ensure the customer valuation is realistic.
- Stop rents being knocked down
At BM Solutions you can speak to the valuers before submitting an application, and advisers are encouraged to do so – especially in relation to student lets.
- Check the property isn’t inhabitable
Ask the customer about the property and who lives there to make sure it is at a suitable living standard.
- Look for history of Japanese knotweed
Make sure the client has a treatment plan in place.
Conveyancer
- Check the AST contract
The conveyancer will make sure the landlord has an AST that is signed by all parties, so the adviser can stop this being a problem by checking beforehand.
- Ownership of freehold
All lenders have different polices in respect to escalating ground rents, advisers should check with BDMs.
- Due diligence on deposits
Conveyancers check deposits for anti-money laundering purposes – a surprising amount of cases fall because the lender isn’t comfortable with the source. So advisers should check the source with their client.
- Is a free legal service best?
A free legal service isn’t always the right proposition for the customer. In certain applications, it may not be the best route for the client.
Customer
- Get income documents upfront
Advisers can help prevent issues with income by getting documents before submission.
More and more information is required for buy to let.
- Get customer credit files
It’s important to understand the debt levels of a borrower, especially for portfolio landlords. Get the individual details on each of the properties.
- Check for tax evasion
Advisers should check the details given by the customer stacks up. The criminal finances act has tightened up the rules for lenders and advisers’ responsibility for reporting suspicions on tax evasion.
- Check the property’s EPC rating
Around 6.3% of private rental stock is thought to fall short of new minimum energy efficiency standards and are rated either an F or G.
Every lender has a different way of verifying the EPC, either through the conveyancer, valuer or the lender itself checks.
Advisers can find out before submitting a case by clicking on the EPC register.
