LEARN FROM THE EXPERTS

Transcription

1 LEARN FROM THE EXPERTS SECOND CHARGE MORTGAGE INSIGHTS TO HELP YOU MAKE INFORMED DECISIONS Produced for members of PHONE: For intermediary use only

2 6 About our sponsors 1 Introduction to second charge mortgages 2 FOREWORD from Robert Sinclair Chief Executive AMI and AFB 5 about csc LOANS 4 Second Charge Versus Remortgage 3 Lending scenarios CONTENTS

3 INTRODUCTION to second charge mortgages QUICK REFERENCE GUIDE Rates from 3.73% Loans from 10,000 to 2.5 million (more on referral) Fixed rates, discounted rates, base rate trackers, variable rate products available Most legal purposes considered, e.g business injection, pay off a partner etc Self employed trading for only 12 months Probation periods accepted Second charges available on Buy to Let properties 3-30 year terms available Interest only available ERCs zero to 3%, depending on product Term of second charge can be longer than remaining first mortgage term Equitable charges available where first mortgagee does not consent to second charge Loan to be repaid by age 85 No legal fees

4 FOREWORD The world I used to know as secured loans has now developed into the second charge mortgage market and has matured following the transfer of responsibility for its regulation from the Office of Fair Trading to the Financial Conduct Authority. The most significant move, however, was the consequence of the European Mortgage Directive which required that the first and subsequent charge mortgage markets became a unitary regime. This means that the same rules apply to both first and second charge loans and therefore firms looking to ensure their customers have access to the widest possible solutions need to consider second charge loans as part of their advice. In keeping with the post financial crisis first mortgage world, the second charge sector is enjoying a growth in lenders, new products and changes to how consumers are charged. Some describe this as the second charge industry growing up, whilst I prefer to think of it as it developing into an expanding market of opportunity with some lenders more focussed at the prime end of the market, whilst others have the right background and experience to work with consumers who evidence issues in their credit history. What is evident is the need to measure and price that risk explicitly. Mark and the team at CSC Loans are to be commended for driving forward this publication which will assist brokers of all types to better understand the opportunities to help more consumers who might not have previously been considered as capable of support. Robert Sinclair Chief Executive Association of Mortgage Intermediaries and Association of Finance Brokers

5 So what s the deal with second charge mortgages? As specialists in the second charge market, this is something we hear a lot! One of the changes implemented by the Mortgage Credit Directive was to ensure that a second charge mortgage was considered as part of the advice process when raising additional funds for a client. The assumption was that the industry would see a significant increase in mortgage brokers recommending a second charge mortgage to their clients however, the anticipated increase has not yet come to pass, and survey after survey suggests that mortgage advisors do not have full details of all the benefits. This guide has been put together to give the full picture with second charges and help brokers to make the best decisions for their clients. Second charge mortgages where they fit in In this guide we will explore when a second charge might be a better option for borrowers for example, for those who are currently benefiting from a very competitive fixed rate or tracker mortgage; to avoid paying ERCs if remortgaging; for borrowers seeking funds to pay a tax bill; or even someone with recent mortgage arrears or a CCJ against them check out our lending scenarios where we illustrate when a second charge mortgage option could help to get a better outcome for your clients. There is more flexibility around who can access second charge mortgage finance, especially from lenders who review individual cases on their merits, rather than using automated scoring systems like many High Street banks. As a Master Broker, our expertise lies in knowing the areas where our lenders will consider applications that may fall outside criteria but it can be clearly evidenced that the client is benefiting from the loan with good long term outcomes. Here to help! Mortgage brokers have a choice in how they undertake second charge business. If you have a good understanding of the market you may be able to go to one of the lenders that are prepared to accept business direct. The alternative is to work with a Master Broker that has access to a broader choice of lenders who may be able to source a more appropriate product. We have produced this guide to help brokers by providing key information about second charge mortgages to enable you to make informed decisions for your clients we hope you find it useful! Mark Fry (CeMAP) Managing Director, CSC Loans

6 Lending scenarios

7 HOME improvements Your client requires 75,000 to extend their home, worth 650,000 They have a very low interest only base rate tracker mortgage of 350,000. They started a new job three weeks ago and are in a six month probation period earning 73,000. FURTHER ADVANCE? Income multiples may be too high Is in a probation period and has only been working for current employer for 3 weeks REMORTGAGE? Income multiples may be too high Is in a probation period and has only been working for current employer for 3 weeks May incur ERCs if redeeming existing mortgage May only be offered a repayment option making it unaffordable SECOND CHARGE? Keep existing mortgage and avoid ERCs Keep existing competitive low rate mortgage Higher income multiples sometimes considered Keep interest only first charge Second charge lenders will consider clients who have been in their current positions for short periods of time (also in probation period) Conclusion Second charge lenders are more open to considering the clients individual circumstances rather than simply applying blanket rules and tick-box underwriting. They are prepared to consider applicants within a probationary period and some will consider sustainable commission, overtime and bonuses when assessing overall income and affordability.

8 PAYING A TAX BILL Your client wishes to borrow 60,000 to pay off a tax bill Their home is worth 475,000 and they have a low 5-year interest only fixed rate mortgage of 290,000. Their most recent SA302 shows income of 60,000. In March 2016 the client missed a mortgage repayment and had a CCJ registered against them for 7,000. FURTHER ADVANCE? Unacceptable purpose - to pay a tax bill Income multiples may be too high Credit history is problematic for existing lender REMORTGAGE? Most lenders consider purpose of loan as unacceptable Income multiples may be too high Unable to remortgage to a lender offering a lower or equivalent rate because of poor recent credit history May only be offered a repayment option, making it unaffordable May incur ERCs when redeeming existing 5-year fixed rate mortgage SECOND CHARGE? Avoid paying ERCs on the fixed rate mortgage if the client were to remortgage Avoid paying a higher interest rate because of the missed mortgage payment and CCJ Higher income multiples sometimes considered Most legal purposes accepted by second charge lenders Second charge lenders consider the clients individual circumstances, rather than simply applying blanket rules and tick-box underwriting Conclusion This scenario highlights a number of benefits in keeping the existing mortgage and taking out a second charge. In recent years, many clients have taken up fixed rate mortgages. Anyone requiring further funds during a tie-in period should consider a second charge to avoid paying ERCs. While some second charge lenders will consider advancing higher income multiples, they will carry out a full income and expenditure assessment, stress testing the first and proposed second charge repayments, ensuring that applicants will not only be able to afford the loan now, but in the future too when rates will inevitably rise.

9 BUSINESS PURPOSES Your client wishes to borrow 75,000 to buy another vehicle for their business Their home is worth 400,000 and they have a competitive 3-year fixed rate mortgage of 200,000. Their most recent SA302 shows income of 45,000. However their projected income for y/e 3/18 is 55,000. FURTHER ADVANCE? Income multiples may be too high Purpose likely to be unacceptable Will not work to projected income REMORTGAGE? Income multiples may be too high Purpose likely to be unacceptable Will not work to projected income May incur ERCs if redeeming existing 3-year fixed rate mortgage SECOND CHARGE? Second charge lenders accept most legal purposes, including business investment Keep existing mortgage and avoid ERCs Higher income multiples sometimes considered Some lenders are prepared to work to projected income figures. Conclusion Some second charge lenders are prepared to consider projected income for the self-employed where there has been a plausible increase. For this income to be considered, lenders would normally expect to see that a qualified accountant has confirmed the projected figure by examining management accounts/bank statements/current contracts etc.

10 adding a partner Your client wishes to borrow 100,000 to buy a property in Spain Your client has a property worth 600,000 and took out a 3-year discounted mortgage of 300,000 eighteen months ago. He earns 70,000 p.a. His partner moved into the property permanently 11 months ago. The partner earns 25,000 p.a. and had a CCJ of 2,500 registered 14 months ago. FURTHER ADVANCE? Income multiples may be too high Unacceptable purpose for some lenders If the partner were to become a party to the first mortgage the interest rate may be increased to take into account the CCJ of 2,500 REMORTGAGE? Income multiples may be too high Unacceptable purpose for some lenders If the partner were to become a party to the remortgage the interest rate is likely to be higher to take into account the recent CCJ of 2,500 May incur ERCs if redeeming discounted mortgage SECOND CHARGE? Second charge lenders will allow the partner to be a party to the second charge loan and take into account their income when assessing affordability. The property and first mortgage would remain in the name of the client only Keep existing mortgage and avoid potential ERCs Acceptable purpose of loan Lenders will consider adverse credit Conclusion Most second charge lenders will allow a partner to become a party to the loan and take into account their income when assessing affordability. By taking out a second charge your clients are able to keep their existing competitive first mortgage and avoid ERCs.

11

12 Second Charge Mortgage vs Remortgage

13 SECOND CHARGE V REMORTGAGE CLIENTS WITH LOW RATE, FIXED AND TRACKER MORTGAGES Keep current competitive first charge product and raise funds by second charge The first charge lender cannot match the competitive interest rate on their original loan ERCs ON FIRST MORTGAGE Keep current mortgage to avoid ERCs whilst raising funds through a second charge mortgage Client incurs penalties for redeeming within tie-in period Keep interest only first mortgage Raise funds by second charge whilst keeping current interest only mortgage High Street lenders reluctant to offer interest only mortgages LOAN PURPOSE Any legal purpose considered More restrictive use of funds criteria PROJECTED INCOME FOR SELF EMPLOYED Some lenders use the projected current year income for assessing overall affordability where plausible First mortgage lenders normally work to proven figures only LOAN TO INCOME Higher income multiples sometimes considered. Subject to a strict stress tested affordability calculation Normally restricted to 4.5 x income CREDIT HISTORY Adverse credit over 12 months may be considered - applications are considered on individual merit, with some lenders not credit scoring applications and applying a case-by-case approach Review all available credit history ADDING A PARTNER FOR INCOME PURPOSES Can add eligible occupiers to the application and use their income when assessing affordability Generally, mortgagors need to be on title deeds

14 ABOUT CSC LOANS

15 About CSC Loans CSC LOANS are specialists in the second charge market, operating fairly and responsibly to help get the best outcomes for your clients We offer two services: Packaged - If you are an independent advisor we can provide you with an ESIS and evidence of research for you to advise on a second charge - see example process below Advised - If your scope of service is restricted to first charges, we are able to take the client over and give the necessary advice. EXAMPLE JOURNEY WHERE BROKER ADVISES THEIR CLIENT Enquiry Broker makes enquiry via phone or Product Sourcing We use a combination of sourcing systems, market knowledge and product expertise to find the best solution Research ESIS and evidence of research ed to broker Decision Broker can make an informed decision for the client: further advance remortgage unsecured loan second charge Confirmation Broker confirms to CSC Loans that a second charge has been recommended Online enquiry form submitted by the broker References Consent Paperwork Property Research Searches CSC Loans apply for any required third party references which may include: Mortgage reference Accountant reference Service charge & ground rent Rent reference Employers reference Consent for a second charge is generally granted If not granted, CSC Loans will often challenge decision on the basis of TCF If consent is declined, CSC can approach lenders who may consider applications on an equitable charge basis Paperwork sent to the client in clearly marked folder, making requirements easy to understand Client returns paperwork to dedicated processor for underwriting CSC Loans: Check RightMove+ for AVM to support estimated value Contact two local estate agents for local market knowledge Leverage our long established relationships with surveyors who can give an indication of likely value CSC Loans: Complete a credit search Apply to Land Registry for office copies Complete an affordability assessment Undertake an analysis of title deeds to confirm names, lease details and any other restrictions / conditions Offer Issued Application sent for sign off and offer issued Client signs and returns mortgage deed Lender receives signed mortgage deed and funds dispatched Procuration Payment Procuration fee is usually paid to the broker within 2 hours of completion As winners of Shawbrook Bank s Best Converter of Business award, it s clear to see that not only are the CSC Loans team experts in the packaging of second charge loans, but they have an unrivalled knowledge of the market. Maeve Ward Shawbrook Bank Managing Director, Residential Mortgages

16 What our customers say about us Not able to remortgage so asked you guys to take over. All was done quickly considering the type of case and I was kept well informed. Will use you again for future second charge cases. Darren - Worcestershire I m always more than happy to recommend you to clients as I am confident that applications are handled in a timely manner with regular updates to myself and my clients. Helena - West Sussex I find your team to be both diligent and keen to get cases through - this helps both my clients and our business and I will continue to have you as a preferred option for all my second charge lending. Great job once again. Nigel - Surrey

17 Our split of business across our lending panel The chart below demonstrates our impartiality when it comes to placing business across our panel. With only a limited number of second charge lenders allowing brokers to apply direct, it may be more beneficial for your client to use a Master Broker who has access to a wider range of providers. Central Trust Masthaven Mercantile Optimum Paragon Precise Prestige Shawbrook Spring Step One Together Comm. Together Per. United Trust Bank West One

18 Sponsored by

19

20 We are seeing some very encouraging signs. In September 2017, 67% of the cases that we processed were from brokers that had completed at least one other second charge application in the previous quarter with us, suggesting that once a broker understands the benefits of a second charge they start considering the option as part of their sales process. Mark Fry Managing Director Questions? Don t hesitate to contact our award winning team TMA@cscloans.co.uk phone Tel: Web: cscloans.co.uk All Rights Reserved