Lending Criteria & Intermediary Guide

Transcription

1 Lending Criteria & Intermediary Guide The purpose of this guide is to provide sufficient information to our Specialist Distributors to assist with the submission of Decision in Principle enquiries and fully packaged Mortgage Applications. Version Control Version No Amendments made Update By Date V2.3 Alignment to version 2.0 of Credit Risk and Lending Policy AO 10/12/2018 V3.0 Final version including sign off JC 20/12/2018 V3.1 Update to the Meet the Team page JC 01/02/2019 V3.2 Update to proof of income criteria JC 11/02/2019 1

2 Meet the Team Head of Mortgage Operations Oliver Slimm Business Development Manager Samuel Lea Products and Mortgage Systems Manager Lucy Foley Products and Mortgage Systems Support Lauren Samuel Underwriting: Paula Millard Nigel Beach Chanelle Williams Anna Pullen Admin: Michelle Cooper Denise Mooney Sarah Anslow Sarah Timmins Contact details Intermediary website: Relationship queries to: Samuel Lea Principal Office address: Dudley Building Society 7 Harbour Buildings The Waterfront, Brierley Hill West Midlands DY5 1LN Broker Hotline: mortgagesales@dudleybuildingsociety.co.uk 2

3 Contents 1.0 Applicants General Number of Applicants Minimum / Maximum Age Married / Co-Habiting Applicants / Other Occupiers Credit Search and Voters Roll Acceptable Identification Documents Ex Pats Guarantors Applicants Unable to Act for Themselves / Vulnerable Persons Credit History Payday Loans Minimum period of ownership Lending in and Into Retirement Minimum and Maximum Loans Employment Affordability Test Evidence of Mortgage/Rent Payments Income Qualifying Income for Applicants in PAYE Employment or Working on Contracts Proof of Income Self-Employment Definition: Self Employed Income Assessment of Income Applicants with less than one Full Year s Trading History Self-Employed Contractor Applicants Accountants Qualifications Casual Employment Unacceptable Income Maternity/Paternity Child Minding / Fostering Credit Commitments Existing Mortgage(s) Buy to Let with another Lender Repayment Terms and Repayment Methods Repayment Terms Repayment Methods Interest Only Repayment Strategies 20 3

4 Contents continued 14.0 Proof of Deposit Source of Deposit Property Acceptable Security Unacceptable Security Valuations Retentions Final Inspection New Build Valuation Fee Scale Traditional Construction Minimum Lease (Leasehold) Specialist Areas of Lending New Build/Newly Converted Properties Single property Freehold, Separate titles Self-Build Business Use Property with an Annexe: Right to Buy Shared Ownership Buy to Let General Applicant Details Property Affordability for Buy to Let Multi Tenanted Properties Properties with Land Undervalue Transactions Second Home/Holiday Home Exposures Levels Purpose of Loan Solicitors Valuers Insurance Decision in Principle Process Application Packaging Requirements 36 4

5 1. Applicants 1.1 General An applicant must be: a citizen of the UK; or a national of the European Economic Area and a signatory FATF member; or a national of a non-european Economic Area who has been granted indefinite leave to live and work in the UK evidenced by a stamp in a currently valid passport or written confirmation from the Home Office, and liable for UK income tax (unless an ex-pat applicant) Applicants will normally be expected to have been resident in the UK for at least three years immediately preceding the date of their mortgage application. Different requirements apply for mortgages for Ex-Patriates. Where an applicant cannot demonstrate occupancy in the UK for the preceding 3 years, the Society will consider proceeding subject to: a) a documented rationale, b) evidence of current proof of address, and c) evidence of their address abroad. The Society does not lend to: undischarged bankrupts; or applicants who have had an IVA in the last 3 years; applicants who have received a formal police caution in the last 5 years, ever been convicted of, or have prosecutions pending, for any offence other than parking or speeding, excluding any which are spent under the Rehabilitation of Offenders Act; o (If any conviction has been spent under the Rehabilitation of Offenders Act 1974, this does not need to be declared). applicants subject to diplomatic immunity from the UK legal system. 1.2 Number of Applicants We will allow up to 4 applicants on a mortgage. The Society will consider taking an applicant to the mortgage who will not be party to the title to the property. Where this is the case, consideration will be given to requiring that applicant to receive legal advice. 1.3 Minimum / Maximum Age Minimum Age - 18 years at the time the application is signed. Maximum Age No maximum age 5

6 1.4 Married / Co-Habiting Applicants / Other Occupiers The Society will always expect applications to be in joint names when there are 2 or more people occupying the property and who have an economic interest in it. The Society will not lend to a sole applicant, where the partner has been classified as a nonborrowing occupier simply to avoid the declaration of a poor credit history. When an application is received in a sole name and it is known that there is a partner residing with them, consideration will be given to lending in the sole name provided that a justifiable rationale is received and a clear credit search is obtained on the non-borrowing partner (with their express consent). This could occur in instances of relationship changes. In these circumstances, in which it could be justified that the applicant and the non-borrowing occupier s debt is totally unrelated and should not affect the borrower s covenant to repay and meet their contractual obligation, lending may be appropriate, provided the terms outlined below are fully met: a) The applicant and the non-borrowing occupier have no joint related credit of any kind and the adverse is not a result of any connected activities, i.e. joint debts whether arising from personal or business activities b) The applicant and non-borrowing occupier have not bought or sold a property together before c) The borrower must be able to demonstrate that the deposit is 100% from savings (providing commitment evidence) or in the cases of re-mortgages has always owned the property as a single borrower (or in cases of transfer of equity, the non borrowing occupier has never been named). Gifted deposits should not be allowed to support the applicant d) If Mortgage Indemnity Guarantee is required, all details relating to the non-borrower s adverse credit should be fully disclosed e) The applicant can demonstrate a clean credit history with no unpaid or missed payments and any existing credit is being managed in accordance with their contractual obligation f) The applicant can demonstrate full affordability in their own right g) Any borrowing must be for house purchase or pound for pound re-mortgage and not for any debt consolidation of any kind Any such approved cases will be subject to enhanced mandating. Under no circumstances should the Society lend to an applicant when it could be argued that the property is being transferred to avoid litigation or bankruptcy. The Society will allow applications in sole names for married, common-law or civil partners in the following circumstances: For Buy to Let products 6

7 If the existing residential mortgage is in a sole name and the new mortgage is to be in the same name If the existing residential mortgage is in joint names but is being re-mortgaged and changed into a Buy to Let in a sole name The spouse or partner is acting as a guarantor for the mortgage If there are religious reasons for the sole name application All persons over 17 who plan to reside in the property must sign an Occupiers Consent form, permitting a mortgage to be taken over the property. It is expected that legal advice will be given in these circumstances. 1.5 Credit Search and Voters Roll A satisfactory credit search and voters roll search must be undertaken. Each applicant should be registered on the voters roll at each address they have had during a minimum of the last 3 years. In circumstances when an applicant does not appear on the voters roll, a satisfactory explanation must be provided and proof of residency must be established at each address during the last 3 years. The following lists the types of document that can be accepted to verify residency for the date(s) where the applicant does not appear on the voters roll search. The document must show the applicant s name, address and date: Bank, Building Society or Credit Union Statement. Council Tax Bill/Statement/Demand Utility Bill/Statement/Demand for Gas, Electricity, Water only Not Phone bills, or TV Licences. Not Final Bills Inland Revenue Correspondence Not P45 or P60 Certified documents need to be endorsed in accordance with the following procedure: Photocopy the document Write on photocopy Certified Copy of the Original Sign the photocopy and print underneath your signature: name/company/firm (or company stamp), the date An electronic signature is not acceptable Persons able to certify: FCA regulated broker Accountant Bank/Building Society official Solicitor Doctor 7

8 1.6 Acceptable Identification Documents The following table lists the types of document that can be accepted to verify identity. We require one item from list 1 and one item from list 2. List 1: Name Verification Valid signed passport. Valid photo card driving licence (full or provisional). Firearms or Shotgun Certificate. Identity card issued by the Electoral Office for Northern Ireland. List 2: Address Verification Bank, Building Society or Credit Union Statement less than 3 months old must show name and address Branch print outs are only acceptable if stamped, signed by a cashier at the originating Bank/Building Society and dated not printed off the internet. Council Tax Bill/Statement/Demand Issued within the last 12 months must show name and address. Utility Bill (within last 3 months) NOT final reminders. The most recent mortgage statement (from a recognised lender). Local Authority rent card or tenancy agreement. Benefit Book or correspondence confirming eligibility for benefits. HMRC correspondence. (not P45) Note: If a customer cannot provide any of the documents from List 1 then the following can be accepted supported by two documents from List 2: Old style (paper) driving licence Recent evidence of entitlement to state or local authority benefit If the applicant(s) have recently moved house and none of the above documents are available showing their current address, we require a solicitor s letter confirming recent house move and one of the above documents to verify previous address. Applications via Introducers The Society will accept Introduction Certificates from FCA regulated introducers. 1.7 Ex Pats The Society will provide Expat mortgages on the following basis: 8

9 Foreign Currency Income (where some or all of the borrower s income is denominated in a foreign currency, regardless of where their day to day work activities occur). Foreign Currency Repayment Strategy (where the borrower will repay part or all of a mortgage which is partially or wholly conducted on an Interest Only basis, utilising monies or other assets which are denominated in a foreign currency e.g. the sale of a foreign holiday home). General The maximum loan to value is 80% for residential and 70% for Buy to Let Applicant Details Applicants must be UK citizens who are temporarily resident abroad. For Residential Properties; it must be the customer s intention to return back to the UK with this property being their main residence and / or their immediate family must reside in the property. Lending can only be secured upon property in England and Wales only. The applicant must own one existing property in the UK at which we can trace them (this can be either their residential property or a BTL property). Mortgage payments must be paid via direct debit from a UK bank account. Affordability Income will be assessed on the following basis: The exchange rate will be applied on the day of assessment and this will remain with the application. The Society places no restrictions on the foreign currency being utilised, so long as the currency does not fall within any territories subject to financial sanctions or FATF counter measures. Additional Requirements We would also expect the customer to provide: 1.8 Guarantors 3 months bank statements for any non-uk account held that is deemed to their main account, i.e. the customers have main UK account, but also get paid into a foreign account and manage foreign commitments whilst abroad. Clarification of the customer commitments whilst abroad, i.e. regular expenses or credit commitments that are not cover by the applicants employers. All supporting documents must be translated (where deemed necessary) by the applicant before submission. Guarantors may be offered to provide support to an application where there is a current shortfall in the borrowing capacity of the applicant. The maximum LTV is 75%. 9

10 Guarantors must: Be resident in the UK; Have income to support the total loan in full, whilst taking into affordability any existing financial commitments of their own and passing the Society s affordability test; Be given independent legal advice / separate representation to ensure they are fully aware of their responsibilities as a guarantor. Where a guarantor does not require legal advice, they must confirm that fact in writing to the Society; For any additional borrowing (or any other change), the guarantor must be a guarantor to the main account and agree to the additional borrowing; Be prepared to cover outstanding mortgage payments on request There are no restrictions on the type of lending that guarantors would be acceptable on, however each case will be based on individual assessment. 1.9 Applicants Unable to Act for Themselves / Vulnerable Persons The Society will accept applications from individuals who are unable to act for themselves due to either physical and / or mental incapacity. Applications can be accepted where there is either a Power of Attorney or Court of Protection Deputy in place, subject to the following: 1.10 Credit History The Power must be a Lasting Power of Attorney, an Enduring Power of Attorney signed before 1 October 2007, or a General Power; Applicants cannot act as Attorneys for each other; In England and Wales an Attorney cannot act on behalf of more than one applicant. If both applicants wish an Attorney to act, each must appoint a different person to act on their behalf; Certified copies of the relevant documents (LPA, EPA, Court Order etc.) must be provided; Attorney(s) and Deputy(s) must be identified in accordance with the Society s Customer Due Diligence procedures An applicant(s) previous credit history is a strong indicator of the future conduct of any proposed loan. Applicant(s) must satisfy the following criteria: Mortgage applications up to 80% LTV: No missed payments in last 12 months on any (previous or current) mortgage, other secured loan or rent, and no arrears in months (counting backwards from the present date), where the cumulative amount overdue at any point reached three or more monthly payments. No current arrears. No more than 1 missed payment in last 12 months on any (previous or current) unsecured loan or credit card, and no arrears in months (counting backwards from the current date), where the cumulative amount overdue at any point reached three or more monthly payments. No current arrears. 10

11 Applicants should not have been subject to a Bankruptcy order within the last three years. Not being subject to a repossession within the last six years Applicants should not have been subject to an IVAs within the last three years A maximum value of CCJs registered more than three years prior to application (satisfied*) of 5,000 and a maximum number of two instances. A maximum value of defaults registered within three years of application (satisfied*) of 1,000 and a maximum number of three instances. A maximum value of defaults registered more than three years prior to application (satisfied*) of 5,000 and a maximum number of three instances. *If any of the above are unsatisfied a referral must be made to the Society. Other than that: a) Three or fewer Communication supplier defaults of up to 150 each may be ignored for the purpose of calculation value under points 3 and 4 above (where an applicant has four or more, all of them will be taken into account). A satisfactory explanation for any adverse credit (including any disregarded under point (a) must always be obtained. For Mortgage applications above 80% LTV, applicant(s) must satisfy the following criteria: 1.11 Payday Loans No missed payments in last 12 months on any mortgage, other secured loan or rent and no more than 1 missed payments in the last 2 years. No current arrears. No more than 1 missed payment in last 12 months on any unsecured loan or credit card and no more than 2 missed payments in last 2 years. No current arrears. CCJ(s) with a total not exceeding 2,500 registered more than 3 years ago are acceptable if satisfied more than 12 months ago. Defaults one or more with a total value not exceeding 500 issued more than 12 months ago are acceptable, as long as satisfied by time of application. Bankruptcy must have been discharged more than 6 years ago and all credit conducted satisfactorily since then. IVA must have been discharged more than 3 years ago and all credit conducted satisfactorily since then. Not being subject to a previous property repossessed within the last 6 years Lending to applicants where Payday lending has been a source of credit historically, the following terms apply: No more than 2 agreements with a total of no more than 5% net income being raised; No new loans taken in the last 6 months; 11

12 Loan should have been satisfied through repayment rather than rolled over into a new Payday loan Minimum period of ownership The Society will ordinarily expect the applicants to have had a minimum period of ownership of six months prior to a re-mortgage taking place Lending in and Into Retirement The Society does not place restrictions around the permitted age of borrowers at term end and instead will consider borrowers of any age who meet the assessment of suitability and affordability, taking into account their needs and circumstances. The application will be reviewed, considering applicant age, mortgage term requested and expected retirement age. The combination and outcome of these three factors will determine consideration of affordability means, both at initial lending and at various points throughout the loan term. Affordability will be carried out following normal processes, however if the loan term goes significantly beyond the retirement income age, additional conditions (listed below but not exhaustive) may be required: Assurance and evidence, where appropriate, of both current and future financial position Agreement to accelerated level of capital repayment (with monthly payment being amended to reflect this or agreed overpayments expected) Review of monthly payment or overpayment at pension age to ensure remaining loan amount and term are achievable Appropriate Powers of Attorney have been executed Applicant is encouraged to carry out regular financial reviews as circumstances change, through referencing in offers and other ongoing customer contact That the borrower(s) are prompted to obtain Independent Legal Advice 2.0 Minimum and Maximum Loans Minimum: There is no minimum loan amount (although at times, some product specific minimum loans may apply) Maximum: The maximum loan is 1 million Loans in excess of 500,000 must be approved by the Credit Committee loans over 80% must be referred to the mortgage indemnity insurers 12

13 3.0 Employment Applicants must be able to demonstrate a continuous track record of employment or selfemployment and, currently, must be either: Permanently employed for the preceding 6 months and have been with their present employer for at least three months unless starting a new job with no probationary requirement; or Employed on a contract of a minimum 6 months duration, or 3 months duration if the applicant can prove that they have had regular contracts over the last 2 years in the same line of work; or Self-employed - defined as an individual who controls their own business, such as a Sole Trader, Partner or Shareholding Director (holding in excess of 20% of the share capital) of a company. We would normally expect applicant(s) to be self-employed for a minimum of 1 year. Casual Employment We do not accept applications from people employed on a casual basis. We do however accept zero-hours contracts. 4.0 Affordability Test The Society will apply an affordability test to ensure that the applicant can afford the mortgage repayments. The Society maintains a model which it uses for calculating affordability. The model will default to ONS figures if the figures are not inputted or are lower than the ONS figures. 4.1 Evidence of Mortgage/Rent Payments If a profile of the mortgage payments is not available on the credit search, evidence of the last 12 months payments is required from a lender's statement and/or bank statements. For applicants in rented or shared ownership accommodation at the time of application, evidence of 12 months rent payments is required. 5.0 Income 5.1 Qualifying Income for Applicants in PAYE Employment or Working on Contracts The following income and percentages of income are considered when calculating the amount the Society will lend to PAYE employees or contract workers. 13

14 % of income (up to) Qualifying Income (per annum) Condition Verification 100% Current basic income or other permanent contractual income. 100% Overtime, bonus, commission. 100% Large town allowance, e.g. London weighting, cost of living supplement. Allowed subject to verification of 12 months earnings. An average will be taken of regular overtime, bonus or commission. If 12 months evidence is not available, then 50% of overtime, bonus or commission will be used. Employment Reference, P60, Payslips Employment Reference, P60, Payslips Employment Reference, P60, Payslips 100% Private / State pension State: latest 3 months bank statements or a letter from DWP dated within last 3 months. Private: latest 3 months bank statements or latest pension slip. 100% Income from part time employment Employment Reference, P60, Payslips. 100% Child benefit payments 3 months bank statements, coded as CHB and paid into bank account weekly / every four weeks, or a letter confirming amount of benefit. Children must be aged 13 or under. 100% Disability Living Allowance/Carers allowance Last 3 months bank statements evidencing 14

15 % of income (up to) Qualifying Income (per annum) Condition Verification payments, or latest letter from DWP. 100% Child Tax Credit Last 3 months bank statements evidencing payments, or latest letter from HMRC. Children must be aged 13 or under. 75% Working Tax Credit Last 3 months bank statements evidencing payments, or latest letter from HMRC. 75% Maintenance (including payments via Child Support Agency) 100% Industrial Injuries Disablement Benefit 50% Dividend income or interest received from investments 100% Dividend income when the dividend is paid to a director/shareholder in lieu of salary If it is received under the terms of a Court order or a CSA assessment. Or if it can be evidenced that payments have been received continuously for the last 12 months. A copy of the maintenance agreement must be provided and we will not accept payments that have not been received satisfactorily for at least 12 months (and at current level for 3 months). If it is determined income from this source is sustainable. Copy of maintenance agreement and 12 months bank statements showing payment received. If maintenance in respect of children, they must be aged 13 or under. 3 months bank stmts coded as IIDB or a letter confirming benefit. Dividend statements or tax assessment. Annual Accounts 15

16 % of income (up to) Qualifying Income (per annum) Condition Verification 100% Income from permanent secondary employment If both employments represent normal working hours can use 100%. Employment Reference, P60, Payslips. Must have been employed for a minimum of 6 months. 100% Income from lodgers Capped at the level set by the Government under its rent a room scheme (currently 7.5k pa). The property must be judged to be capable of meeting the needs of the borrower(s) and their lodger. Only one lodger is permitted. By way of evidence on bank statements for a remortgage, or by way of a signed lodger agreement for a purchase 100% Zero Hours Contracts If LTV =<80% Max LTV 80%; Capital and Interest Repayment required; The rent from the lodger must not equate to more than 25% of CMP. We will require a minimum employment period of 12 months, and will calculate an annual income figure from an average of the last 12 months data from a combination of payslips and P60 as available. 5.2 Proof of Income For applicants paid monthly we require the last P60 and the most recent payslip For applicants paid weekly or bi-weekly - we require the last P60 and sufficient payslips to cover a three month period; If the applicant is self-employed, we normally require the last 3 years trading accounts. Reference should be made to accountants and professional advisers for details of likely future income and trading prospects. Bank Statements: 16

17 For employed applicants or those retired or with private income, we require the last 3 months bank statements which must show salary / income credits where such could be expected to exist; For self-employed applicants, we will require the last 3 months business and personal bank statements. For applicants applying for a mortgage based upon proof of income for a period of less than 2 years, we would ordinarily expect to see business and personal bank statements for a period of 6 months. We will examine the bank statements to ensure that we have an understanding of the applicant s spending or unusual income patterns. Occasionally, underwriters may seek Credit Card statements to look at expenditure in greater detail. 6.0 Self-Employment Definition: A self-employed applicant may be a sole trader, a partner in a business or a Director who owns more than 20% of a company. 6.1 Self Employed Income Assessment of Income The Society will use the income shown in the Accounts or Accountant s letter. If profit has increased by more than 25% in the last 12 months an average of the last 3 years net profits will ordinarily be used. It will be permissible to use the latest figures where there has been more than a 25% rise if a satisfactory explanation can be given and the Underwriter is satisfied that the increase is sustainable. For a Director who owns more than 20% of a limited company, we will use the remuneration for the Director plus their share of regular dividends based on an examination of dividends paid in the last 3 years. 6.2 Applicants with less than one Full Year s Trading History The Society will expect a self-employed applicant to have been self-employed for at least a year, and to be able to provide accounts for the first year s trading together with a projection for the current year from their accountant. 6.3 Self-Employed Contractor Applicants A sub-contractor will typically be: A sole trader Operating with one client at a time Undertaking work of a nature consistent with previous employment Income may be calculated daily, weekly or monthly. Where a day rate is available, the Society will annualise income based upon an assumed 48 week working year. A 5 day working week is usual unless proof is received to the contrary. 17

18 The applicant must be able to demonstrate industry experience and where the contract is less than 12 months old the Society will use an average of the contract income and the earned income from the most recent P60, to arrive at a 12 month figure. 6.4 Accountants Qualifications Accounts or Accountants letters must be prepared and signed by a professionally qualified Associate or Fellow of one of the following bodies: The Institute of Chartered Accountants (ACA/FCA); The Association of Certified Accountants (ACCA/FCCA); The Chartered Institute of Management Accountants (CIMA); The Chartered Institute of Public Finance Accountancy (CIPFA); The Chartered Institute of Taxation (CIOT). If the accountant is not so qualified, the accounts must be supported by the corresponding years Tax Returns and tax assessments/self-assessments issued by the HM Revenue & Customs. Normally we would expect the Accountant to have acted for the borrower for a minimum of 2 years. The end of the latest financial year/tax period covered must be no older than 18 months. 7.0 Casual Employment We do not accept applications from people employed on a casual basis. We do however accept zero-hours contracts, subject to enhanced mandating. 8.0 Unacceptable Income We will not accept applications where income is derived from incapacity benefits, housing benefit, income support and / or job seeker s allowance. Applications where income is derived from Universal Credits will not be accepted unless evidence can be provided on how any acceptable benefit is derived 9.0 Maternity/Paternity We will accept the income that the applicant expects to receive after maternity / paternity leave. Confirmation in writing from the applicant that they intend to return to work must be obtained Child Minding / Fostering Where an applicant is a child-minder or full-time fosterer they are treated as self-employed. Where an applicant is a full-time fosterer, any appropriate dependants (including those fostered) should be declared and this, combined with fostering income, will be taken into consideration when reviewing affordability. 18

19 11.0 Credit Commitments The annualised payments on any continuing commitments including shared ownership rent, maintenance that extend more than 6 months beyond the anticipated date on which the Society s loan is completed are deducted from the qualifying income. For the purpose of this calculation, credit card commitments must be based on the lower of 3% of the balance outstanding or the required minimum repayment level specified by the credit provider (if known) Existing Mortgage(s) Buy to Let with another Lender The applicant must complete The Society s Personal Asset and Liability statement. The mortgage debt(s) may be disregarded providing the mortgage is conducted satisfactorily and rental income covers at least 140% of the annual interest calculated in accordance with the Society s assessment process for buy to let applications. The Society will accept as income the Net rental figure from existing BTLs, provided that this can be evidenced for at least the previous 12 months. Evidence will be required in the form of SA302s or company accounts Repayment Terms and Repayment Methods 13.1 Repayment Terms Loans can be repaid over terms of between 1 and 40 years. An applicant s age may need to be taken into account when determining the mortgage term Repayment Methods The Society accepts repayments of loans either on capital and interest (a repayment mortgage) or by payment of interest only or a combination of both. LTV Limits Repayment 90% Interest Only 75% Part Interest Only / Part Repayment * 75% For the following types of borrower the repayment method is restricted to repayment (capital & interest) regardless of loan to value:- Right To Buy 19

20 Shared Ownership 13.3 Interest Only All loans arranged where the capital element is not included in the monthly payment (including those that are part capital and interest repayment, part interest only), must have a suitable strategy in place to repay the capital at the end of the term. We must see evidence of the repayment strategy for interest only mortgages so documents relating to the repayment strategy must be received before a mortgage offer can be considered. The Society s Interest Only Declaration Form must also be completed prior to offer to enable the Society to assess the repayment strategy. This requirement does not apply to Buy to Let applications (where sale of property is considered to be the default method of repayment) Repayment Strategies The table shows the repayment strategies we accept and the evidence required in each case. It also shows the methods we use to assess whether a repayment strategy meets our lending criteria. 20

21 Repayment Strategy Endowment (UK) Both with profits and utilised plans Stocks and Shares ISA (UK) Stocks and Shares Pension (UK) Evidence Required Copy of latest projection statement dated within last 12 months Documentation) of the current holding. This should be dated within the last month. Copy of share certificates, nominee account statement or confirmation from a recognised stock broker containing evidence of share holdings together with their valuation. Copy of latest projection statement dated within last 12 months. Assessment Method Endowment companies will present three growth rates to a customer. The Society will use the lowest projected growth rate. The maturity date of the policy must arrive by the end of the term of the mortgage. For a mortgage term of 5 years or less, we will use 80% of the current value. For terms of >5-10 years we will take the current value. For terms of between >10 and 15 years we will take the current value and apply a compounding growth rate of 3% pa throughout the term. For terms in excess of 15 years we will apply a compounding growth rate of 5% pa throughout the term. As above. The projected growth rates will be amended from 3.00% to 1.50% and from 5.00% to 2.50% to provide a measure of allowance for the impact of income and capital gains tax. For the purposes of repaying the capital outstanding on an interest only mortgage, a maximum of 25% of the current / projected fund value. The fund value is to be ascertained using the same formulae as set out for stocks and shares ISAs above. Sale of main residence (UK) The mortgage valuation report. Where the mortgage runs into retirement and pension income is needed to support the payment of the mortgage on a monthly basis, we will not accept pension lump sums as a means of repayment of the mortgage. A borrower can repay their mortgage by selling their home and moving to a lower value home (downsizing). The downsizing must be plausible. In all instances where sale of property is part of all of the repayment strategy, we will assess whether this is plausible for the borrower(s) known 21

22 Repayment Strategy Evidence Required Assessment Method needs and circumstances and this will include obtaining a minimum of two comparables of properties currently being marketed on Rightmove or Zoopla, to be located within a 3 mile radius of the mortgaged property, or in the area that the borrowers have declared to be where they will downsize to. Sale of other residential property Sale of Business Cash Savings Sale of Assets Completed other residential property form and if mortgage lender is not Dudley BS, a copy of the latest mortgage statement dated within the last 12 months. Where the youngest borrower will be aged 65 or older at the end of the mortgage term, we will also allow for the potential that up to 25% of the property bought to replace the mortgaged property can be raised from a lifetime mortgage. We will check the ownership of the other residential property with the Land Registry (ownership of the other residential property must be in the same name as the applicants). We will compare the equity available in the property with the amount of interest only lending required. We will assess the current valuation of the property by carrying out an Automated Valuation Model (AVM). We will use 80% of the current equity value of the property (ies). We will utilise up to 75% of the current value of the business, where the business has been valued within the prior 3 months by an expert in valuing businesses, and where there is no known conflict between the valuer and the applicant. We will disregard any future growth. We will utilise 50% of any current cash savings, as long as we are provided with documentary evidence which shows that the savings have been held for at least six months and we are satisfied that the savings are not needed in connection with the purchase of the property (stamp duty; fees; deposit etc.). The Society will consider the sale of tangible assets (such as jewellery; fine art; classic cars). The Society will accept up to a maximum of 50% of the value. Periodically, we will ask applicants to confirm in writing that their repayment strategy is on track to repay the outstanding balance. If they are unable to satisfy us that their repayment strategy (ies) 22

23 remain on track to repay the outstanding balance on their mortgage, we may ask them to transfer some or all of their mortgage onto a capital and interest repayment basis. Repayment strategies CANNOT be accepted if they include the name of anyone NOT named on the mortgage. Applicant(s) can use more than one repayment strategy to cover their total interest only amount. The on-going cost of any repayment strategy must be included in our affordability calculations. The following are NOT acceptable repayment strategies: Inheritance (unless the person has already died and the exact entitlement is known and can be adequately evidenced); Speculative and uncertain strategies (such as setting up a new business which does not exist at the time of application; gambling); Reliance on future growth in property values (either for the main security or for other background properties); Utilisation of an investment plan where there does not already exist an established trackrecord of investment; Anticipated gifts of either monies or assets; and Future lump sum repayments Proof of Deposit We will require evidence of the deposit such as bank account or investment statements. In the case of a gifted deposit we will require sight of a letter from the donor stating that there are no conditions attaching to the gift Source of Deposit The minimum deposit must be provided from the applicant s own funds. Loans, credit cards, secured loans and other forms of credit are not acceptable as the source of the minimum deposit. The only exception to this is for members of the armed forces, where the deposit is funded via the Long Service Advance of Pay Scheme will be acceptable Property 15.1 Acceptable Security The property must be: used by the applicant or by an immediate family dependant relative, for owner occupation; or used for occasional or eventual owner occupation; or 23

24 used for buy to let; Located in England or Wales; the subject of a first mortgage by the Society; be freehold, commonhold, or long leasehold have either acceptable New Home Warranty or acceptable Professional Consultant s Supervision Certificate if new, or built within 10 years; Classed as suitable for mortgage purposes by the Society s valuer 15.2 Unacceptable Security The property must not be: valued below 75,000; a freehold flat; 16.0 Valuations a property subject to a flying freehold where this exceeds 25% of the property; a Farm / small holdings where there is land subject to current agricultural use; a flat with more than 5 storeys (if built prior to 2000); a flat above a shop or other business premises where the shop directly below or the one either side of directly below is considered to potentially impact on future saleability (e.g. launderettes; fast food outlets). All others considered subject to enhanced mandating, valuer approval, a maximum LTV of 75%; a local authority or ex-local authority flat and maisonette (unless within the M25, subject to a maximum LTV of 65%, 200k valuation, and satisfactory valuer comments regarding demand and re-saleability). a property with occupancy restrictions (HMOs); a property with mixed residential and business use where the residential element is less than 40%; or On a Shared Equity basis or subject to Shared Equity restrictions We require a valuation on all property taken as security. Property valuations are valid for six months from the date of valuation, and after six months a new valuation figure must be obtained Retentions Following an inspection by the valuer a recommendation may be made for works to be undertaken. Prior to the receipt of specialist reports or confirmation that works have been done, a retention may be recommended Final Inspection New Build 24

25 The Society will not normally carry out final inspections on new builds but will rely on the conveyancer providing confirmation that the property has been fully completed following receipt of certificate to that effect from the warranty provider. The exception to this rule is where the valuer has provided the original valuation from plans/site visit only or the valuer has made it clear a final inspection is definitely required for some other reason Valuation Fee Scale Valuation Fee* < 100k 285 < 150k 315 < 200k 365 < 250k 395 < 300k 425 < 350k 455 < 400k 485 For every 50,000 or part thereof the scale is increased by 30 Includes 125 application fee Combined Mortgage valuation & Homebuyers report fees available on request fee confirmed upon enquiry Re-Inspection Fee Traditional Construction The following are regarded as traditional construction and normal lending terms apply: Walls: Roof: Cavity outer walls of brick/reconstituted stone with inner walls of brick or block. Cavity outer walls of brick/reconstituted stone/blocks rendered with inner walls of brick or block. Timber framed property with outer walls of brick/reconstituted stone built 1970 or after. Timber framed property with rendered outer walls of brick/reconstituted stone/block built 1970 or after. Solid stone. Tile (concrete). Slate. Thatch (reed or straw). Felt, asphalt. Copper, lead. 25

26 16.5 Minimum Lease (Leasehold) For leasehold properties where the mortgage will be conducted on a Capital and Interest Repayment basis, we will expect the lease term remaining to be at least 85 years at draw down. For leasehold properties where the mortgage will be conducted on an interest only basis (or part and part) and the LTV is < 50% at draw down, we will expect the lease term remaining to be at least 85 years at draw down. For Interest Only/part and part mortgages where the LTV at draw down is >50%, we will ordinarily expect there to be at least 85 years remaining at the end of the mortgage term Specialist Areas of Lending 1. Flats (up to 5 Storeys) Flats are acceptable subject to a maximum loan to value of 90% (or 80% if new build). Flats above 5 storeys high are acceptable provided that they were constructed in or after the year 2000 (note: this would include conversions post 2000 where original build was prior to 2000) and are recommended by the valuer as suitable security with satisfactory on-going demand. The maximum LTV is 75%. 2. Studio Flats Studio Flats are acceptable subject to no adverse comments from the Valuer and confirmation from the valuation report that demand for the property is good. Although there is no minimum square footage requirement, where this is below 35m2, the application will be subject to enhanced mandating New Build/Newly Converted Properties A new build is a property that was first registered two years ago or less, following construction, conversion (excluding flats in buildings built prior to 2000) or material refurbishment. For materially converted properties, it will be for the valuer to determine whether the extent of refurbishment is sufficient to make the property fall into the new build category of valuation. Maximum LTVs for New Builds: For houses: 90% for purchase and re-mortgage For flats / apartments: 80% irrespective of whether purchase or re-mortgage Where there is an element of capital raising to the application (for re-mortgages), which includes debt consolidation, the maximum LTV will be capped at 75% (irrespective of whether the security is a house or a flat / apartment) 26

27 Note: the maximum LTV is based upon the purchase price minus any incentives (such as free white goods) Single property Freehold, Separate titles If the applicant owns one unit in a block (often a converted house) and owns the freehold of all flats subject to the other flats being leasehold, this is acceptable security as long as: Applicant continues to occupy one of the flats / maisonettes No more than four flats / maisonettes in block (i.e. the applicant s flat plus up to three others) The valuation must include the freehold of the whole block and is subject to the leases of the other flats / maisonettes (the freehold values of the other units is likely to be substantially lower) Insurance is arranged on the reinstatement cost of the whole property (i.e. including the units not occupied by the applicant) The leases of all the flats must contain appropriate covenants by the tenant of each flat to contribute towards the repair, maintenance and insurance of the building. The leases should also grant and reserve all necessary rights and easements. They should not contain any unduly onerous obligations on the landlord / freeholder 18.2 Self Build The Society will consider lending to customers requiring self-build mortgage facilities, subject to the following criteria: No roll up of interest is allowed. Borrowers must make monthly payments on instalments as they are advanced Max 75% LTV of completed valuation 80% LTV of land valuation If the borrower is a not a tradesperson themselves or is a tradesperson and does not have a project supervisor, we will require a professional project manager e.g. tradesmen including plumbers, builders, electricians, etc. We will accept cases where the borrower is a tradesperson and does have a project supervisor without a professional project manager Interest only is permitted during the duration of the build only and must be switched to capital and interest on final release of funds. However, affordability will be assessed on a capital and interest basis Detailed costings for the project are required and a contingency of 20% of total project cost is added on to take account of inflation and unforeseen circumstances. We will consider a minimum of 15% where a fixed priced contract is being used, subject to enhanced mandating between 15% and 19.99% 27

28 If living in their own home whilst building the property, 12 months committed expenditure e.g. rent or mortgage payments are taken into account with expenditure when reviewing affordability. The client may pay for example up to 12 months rent in advance, to enable the rental expenditure to be excluded from the Income and Expenditure assessment. Proof of this arrangement must be evidenced on application A firm timetable for construction of the property is required. Building work must start within 6 months of first draw down of funds and property must be completed 24 months from first draw down of funds Outline planning consent for the type of property the applicant intends to build with at least two years consent remaining is required. Where detailed planning is obtained we will require detailed architects plans and specifications for the property If the property is built before the ERC period has expired, the customer will be offered either a loyalty or the retention product range. The ERC s will be waived in the following instances: If another product is taken out with the Society. The completion certificate will need to be supplied at this stage The customer has transferred to a retention product with the Society and they have plans to sell their existing property once moved to the completed self-build. We will waive the overpayment charge and ERC on the sale value of the existing property only The following stage releases apply, however a flexible approach can be exercised for each case: Percentage of Advance to be released Stage Phase Max % of current value for funds release 1 Land purchase 80% 2 Initial project costs and laying foundations 80% 3 Construction to wall plate level 80% 4 Building made wind and watertight 80% 5 First fix and plastering 75% 6 Second fix through to certified completion including landscaping 75% Note with regard to stage 1, where the applicant already owns the land, 50% of the value of the land, up to a maximum of 80% of the total loan amount, may be released up front (see examples below). Example 1: Total loan amount required is 100,000 and land value is 50,000. Therefore the full 50% of the land value can be released up front ( 25,000) as this only represents 25% of the total loan amount. 28

29 Example 2: Total loan amount required is 25,000 and land value is 50,000. Therefore, as 80% of the total loan amount only equates to 20,000, this would be the maximum that could be released up front (even though 50% of the land value would be 25,000). Up to stage 4, the maximum loan amount released will be 80% of the current value at each stage. At stages 5 and 6, we will release the remaining funds up to a maximum of 75% of the current value at each stage. The amount of funds released at each stage will be subject to valuer s comments The Society reserves the right to carry out interim valuations during any stage of the build. A re-inspection will be required at each stage prior to funds being released to the customer. The fee for this service will be payable by the customer and can be found in the List of Charges document Knock-down rebuild remortgage Customers must be able to reduce the mortgage based on the low value point i.e. LTV at land value plus planning permission (first stage) Expat applications will be considered and normal expat criteria will apply (see section 20.5). In addition to this we will require: Confirmation of who will be managing the build and When the expat customer plans on returning during the build Gifted deposits will be accepted. Funds from family members to assist with initial cash flow costs, that are agreed to be re-paid, will also be accepted however this will need to be included in the schedule of costs. It would also need to be incorporated into the last release of funds Ten years structural warranty is required. List of main providers are held on the UK Finance Handbook. Other providers may be considered subject to checks of the UK Finance handbook Site insurance and a copy of the insurance schedule will be required with a minimum of the following included: 5 million public liability 10 million employers liability Contract works (for the re-instatement value) Dudley Building Society to be noted as mortgagee Site insurance will be accepted from a set list of providers. Other providers may be considered subject to checks of the UK Finance handbook Before building commences the valuer must have sight of the detailed planning and building regulations approvals. A Builders Notice will not be acceptable The building work must be supervised by a suitably qualified Architect. All Architects supervising the build must have Professional Indemnity cover of no less than 1m and one of the qualifications below: ARB UK Architects Registration Board UK (previously known as ARC) *RIBA / ARIBA / FRIBA Chartered Member/Associate/Fellow of the Royal Institute of British Architects MCIAT Corporate Member of the Chartered Institute of Architectural Technicians 29