So, this week, Mortgage Solutions is asking: Has your reliance on the DIP changed since the pandemic and how are you preparing clients for the application process?
I think it depends on the client. If they haven’t been furloughed and they aren’t self-employed, I’ll be fairly confident it will go through as long as they haven’t had a payment break as well.
Where I’m not confident is with the self-employed. They can pass a credit check but ultimately, it’s down to the underwriter’s discretion.
What I’m forewarning now with the self-employed is I won’t place a case unless they’ve got one month’s bank statement showing a normal level of earning. After discussing it with underwriters, I think they look at it more positively than not having any income and basing it on previous earnings.
A dentist I had a conversation with had returned back to work but not at normal levels. I told him ‘you’re looking for a mortgage bigger than what you have, tell me why you’re a good credit risk’.
So, he had to explain to me, I told him why he wasn’t and then he understood it. What he was earning was less than his usual salary, which was what he was declaring.
So while clients might pass a DIP and credit check, an underwriting decision is a completely different thing.
I advise any clients that it’s an underwriting decision. I say, ‘you might have passed it, but this is why you might not get it’.
I try to think like an underwriter. My trust in a DIP is a 50/50 split now but I would have been more confident about it at the start of the year.
If I’m honest, my view on DIPs changed in 2016 after the Mortgage Market Review. I started to tell clients from then that they weren’t as robust as they might think.
I haven’t changed my mind for three or four years, let alone since the pandemic.
When I speak to clients, I tell them the DIP is based purely on the information I give a lender as they don’t check any documents at that stage.
As they are carrying out increasingly detailed underwriting – underwriting which they won’t do until we submit a complete application – the DIP has become less and less worthwhile.
I tell them, in theory, I could get you a DIP right now that will let you borrow £1m based on made up figures – which I’d never do – and you’ll have the piece of paper that says you can borrow the money.
But as soon as we submit documents to back it up, it’ll fall apart quickly. It’s an extreme example but it helps them understand.
I lost trust in DIPs when lenders put more stake in affordability, started looking at documents and it became harder to marry the figures together with the paperwork.
To get a robust agreement you have to go through at least a level of underwriting and submit paperwork the underwriter can examine to base their decision on.
The information we provide before a DIP is pretty solid. As long as we do our job as brokers correctly and work with lenders, the quality of DIPs can remain high.
I’ve been used to working carefully before that and will continue to do so.
It depends which lender you go to because some have changed how they do things.
Our company does a lot of mortgages for the self-employed so now, a lot of the underwriting questions that would normally be asked post-DIP are being asked prior.
That means it’s more likely to be declined but it’s better because at least you’re not going all the way through to a full application.
For instance, Coventry Building Society are automatically referring applications and coming back to ask questions. Some lenders aren’t so you lose confidence in the ones not asking questions upfront.
It’s completely case-specific now. It’s almost like starting afresh, everything you thought you knew in a post-Covid world doesn’t exist anymore.
I think customers are losing confidence as well. I had one client who was a nurse and their overtime wasn’t accepted.
But it’s good for us because it means more people need intermediaries and someone with the time to source the mortgage for them.
It can be bewildering to do a DIP based on what you know and what you see on criteria platforms but knowing there still could be something that isn’t mentioned anywhere.
Not all changes are communicated.
I don’t try to reassure clients; I try to give them the whole picture and be very levelheaded. I ask as many questions that an underwriter might ask and point out what could potentially be an issue.
It’s just trying to manage their expectations. I’ve always taken that attitude with my clients anyway but more so now.