Lending Criteria 25
Topic Page number Additional borrowing.. 28 Additional properties.. 28 Adverse credit.. 28 Affordability.. 28 Age requirements.. 28 Aggregated borrowing.. 29 Agricultural tie.. 29 Applicants (Number of).. 29 Bank statements.. 29 Bankruptcies/IVA.. 29 Benefit Income.. 29 Blocks of flats.. 30 Bonus, overtime and commission.. 30 BTL.. 30 CCJ.. 30 Chancel repair liability.. 30 Commercial.. 30 Construction types.. 31 Consumer BTL.. 31 Consent to let.. 31 Contractors.. 31 Credit History.. 31 Debt consolidation.. 32 Defaults.. 32 Discounted Purchases.. 32 EEA.. 32 Employment Criteria.. 32 Employment types.. 33 Ex-Local authority properties.. 33 Expenditure.. 33 Expired terms.. 33 Financial commitments.. 33 First time buyers.. 33 Flats.. 33 Flying freehold.. 34 Foreign currency.. 34 Foster care income.. 34 Geographic area.. 34 Help to buy.. 35 Higher lending charge (MIG).. 35 Holiday homes.. 35 HMO.. 35 Income Streams.. 35 Identity verification.. 37 26
Income verification.. 37 Interest only.. 38 Interest rate stress-testing.. 38 Intergenerational mortgages.. 38 Impaired credit.. 39 Japanese knotweed.. 39 Joint borrower sole proprietors.. 39 Live/work units.. 39 Loan amounts.. 39 Local operating area.. 39 London.. 40 LTVs.. 40 LTI.. 40 Maintenance income.. 40 Minimum leasehold terms.. 40 Mortgage term.. 40 New build.. 40 Non EEA.. 41 Non-traditional construction.. 41 Offers.. 41 Other income.. 41 Previous lender / landlord.. 41 Previous property repossession.. 42 Probationary period.. 42 Proof of deposit.. 42 Purpose of loan.. 42 Repayment types.. 42 Retirement.. 42 Residency.. 43 Right to buy.. 43 Security.. 43 Self-build.. 43 Self employed.. 44 staff loan.. 44 Student lets.. 44 Tenure.. 44 Toxic risks.. 45 Two mortgages.. 45 Valuations.. 45 Warranty.. 45 27
Every mortgage loan application is assessed against the 5 main risk pillars which are: Loan to value (LTV) Loan to income (LTI) Affordability (Surplus) Credit history Security Additional borrowing Max LTV 90% Acceptable reasons Home improvements Gifted deposit Debt consolidation (max 70% LTV) Capital raising (Underlying purpose must be explored and explained) Unacceptable reasons Tax bills Gambling Anything speculative Replenish savings Additional properties The Society has no appetite to lend to BTL applicants with 4 or more other mortgaged properties in the background with any lender Adverse Credit The Society has no appetite to lend to any applicants with adverse credit which is defined as: The applicant remains subject to an IVA at the time of application. The applicant is an un-discharged bankrupt at the time of application. The credit history is such that rather than simply being credit impaired (see below for definition) it is significant enough to pose a serious risk to the Society. Affordability All cases should have a positive surplus for affordability at stress tested rate, anything outside of this should be referred to UW Age requirements Type Minimum age Maximum age(at maturity) Residential 18 85 Repayment Under 80% LTV Residential 18 70 Repayment Over 80% LTV Residential Interest Only 18 State retirement age 70 28
Max 70% LTV BTL Repayment Max 70% LTV BTL Interest Only Max 70% LTV 18 85 18 85 Aggregated borrowing Aggregation of facilities all loans are assessed on an aggregation basis to take into account all existing and connected borrowing with the Society. Particular reference is to be given to the overall exposure and LTV together with the ability of the borrower to service the aggregated borrowing Maximum loan amount aggregated is 1.25 million Agricultural Tie Properties subject to an agricultural tie will be considered but should be referred to UW with the relevant Section 106 Applicants (Number of) Maximum number of applicants per application is 4 Bank statements Please see income verification Bankruptcies/IVA Discharge must have taken place at least 3 years ago Maximum 70% LTV Evidence of discharge should be provided Clear credit history since must be evidenced Joint sign off from HU and CEO The Society has no appetite for applications from applicants undischarged from bankruptcy or subject to an outstanding IVA Benefit income (Excluding state pension) Maximum LTV is 80% where 50% or more of the income is benefit based All cases where 50% or more of the income is benefit based must be referred to underwriting prior to proceeding. Careful consideration should be applied to cases with benefit income as to how the benefits would be replaced, this should be explored and not assumed. Blocks of flats 29
The Society is happy to take application for flats in blocks of up to 4 stories, anything above this should be referred to UW Bonus, overtime and commission Please see income streams as to how these income streams can be used BTL Maximum 4 applicants Minimum income of 25,000 for the application using a maximum of 2 applicants income Max LTV is 70% Repayment basis max age 85 Interest only basis max age 85 The Society has no appetite to lend to portfolio landlords (4 or more properties) Rental income for the property must be able to cover the interest only mortgage payment, which is the Income Cover Ratio (ICR) The Society has adopted a dual interest cover ratio test depending on whether the applicant is a higher rate tax payer or not. For a higher rate tax payer the minimum ICR is 145% If ICR =<145% but >130% then full affordability to be undertaken to insure surplus income can support 145% ICR Full affordability will cover all of the same levels as a residential affordability For basic rate tax payer the minimum ICR is 130% no other affordability can be used. Stress testing of the BTL mortgage should be as a minimum 2 percentage points in BTL mortgage interest pay rate subject to a minimum interest rate of 5.5%, whichever is the higher As of April 2018 all landlords will be required to hold an EPC The society will not provide further borrowing for debt consolidation on BTL properties CCJ Please see credit history Chancel repair liability The Society will consider properties subject to a Chancel Repair Liability these cases should be referred to UW with supporting documents Commercial The Society has no appetite to lend to any new commercial borrowers 30
We will provide further advances to existing commercial counterparties subject to full credit assessment.for further information please refer to commercial policy Construction types Modern methods of construction should be referred to UW, types considered include: Green Oak frame SIPS (Structurally insulated panels) ICF (Insulated concrete framework) Steel frames Traditional construction will be considered to have: Walls Outer walls of brick/reconstituted stone/block with inner walls of brick, block or timber frame(modern) Solid stone Roof Tile Slate Any other constructions types should be referred to UW Consumer BTL The Society has no appetite for consumer BTL properties The Society will deem any BTL mortgage where the objective is not to benefit from house price growth or rental income as consumer The Society will require a signed letter from the customer explaining their intention behind the purchase Consent to let Applications for consent to let will be reviewed on a case by case basis Contractors The Society will consider applications from contract workers, copy of existing contract must be provided to UW However for applications over 80% they will require MIG referral Credit History A credit check should be performed for all applicants The below table details the referral process for poor credit histories: Credit Issue Status Referral Process CCJ > 500 Unsatisfied Decline 31
CCJ > 500 Satisfied/Or genuine error Subject to HU/UM approval Must be satisfied for 3 years CCJ < 500 Unsatisfied Subject to HU/UM approval Must be satisfied prior to offer CCJ < 500 Satisfied Subject to HU/UM approval Must be satisfied for 1 year Default on credit commitment Satisfied Subject to HU/UM approval > 250 Default on credit commitment Satisfied < 250 Any default unsatisfied Unsatisfied Decline Payment plans/dmp Either Refer to UW Exceeded credit limits Either Refer to UW Payday Loans Outstanding Decline Payday Loans Repaid in last 3 years Refer to UW Must be satisfied for 3 years Subject to HU/UM approval Must be satisfied for 1 year For bankrupts and IVA please see the relevant sub headings. Debt consolidation The Society is prepared to consider mortgage applications where there is an element of capital raising for third party debt consolidation subject to the following criteria: In all cases details of the debts to be consolidated must be ascertained The maximum LTV should not exceed 70%. Any exceptions to this (up to an absolute maximum of 90%) must be approved by underwriting. In addition normal MIG referral criteria will apply Where the proposed LTV exceeds 80% and any of the debts are related to a business operated by the applicant then this is not acceptable to the MIG provider who will refuse to provide cover. In this situation the application must be declined Defaults Please see credit history Discounted Purchases The maximum amount to be consolidated should not exceed 30,000. Any exceptions must be approved by underwriting. Where the purchase prices is 75% or less of the valuation, 100% of the actual purchase price may be advanced.outside of this should be referred to UW (EEA)Nationals of European Economic Area Subject to normal affordability and other criteria in this Policy being satisfied, the Society would be willing to provide a mortgage to them providing they are residents in the UK Employment criteria All applicants should been employed for a minimum of 6 months, however if the applicant is out of probation this can be referred to underwriting. 32
The Society will not lend over 80% LTV for sole applicants who are: Unemployed Seasonally based employees/employers Commission only sales people Employments Types The society will consider applications from: Full/part/term time employed Contractors Self employed Directors Some benefit income Retired Stipends Ex-Local authority properties Minimum value of 60,000 and a maximum LTV of 80% The Society has no appetite to lend on ex Local Authority flats Expenditure The Society categorise expenditure into the categories: Committed expenditure Basic essential expenditure Basic quality expenditure Expired terms For existing customers who find themselves on expired terms we have a duty of care to assist those customers as much as possible. Therefore the MA/broker should provide the advice, following this the case should be referred to financial support to ensure they are happy with the case. Following this the full packaged case can be sent to underwriters for full approval. Financial Commitments All credit commitments should be taken into consideration for all applicants For outstanding credit card / mail order a minimum of 3% of the outstanding balance should be used for monthly affordability 3% of overdraft outstanding should also be included if bank charges aren t clear First time buyers The Society will considered FTB BTL landlord subject to BTL criteria see BTL Loans of up to 95% in area subject to product specific criteria and 90% out of area 33
Flats Converted flats should be referred to UW Blocks more than 4 stories high should be referred to UW The Society has no appetite for: Maisonettes/flats/apartments above a shop or commercial premises HMOs Studio flats Ex local authority flats will be considered within local operating area restricted to a maximum 70% LTV, subject to underwriter approval. Flying Freehold Approval is not required whereby the first floor of proposed security is over shared passage All other flying freehold should be referred to underwriting Foreign Currency The Society will accept applications from individuals who are UK residents and paid in the following foreign currencies up to a maximum 75% LTV: Euro US Dollars Australian Dollars Saudi Riyals UAE Dirhams Swiss Francs The income used for affordability purposes once converted into sterling will be reduced by 20% for the Euro, US Dollars, Australian Dollars, Swiss Francs and 30% for the remaining currencies. The Society will not support applications with self-employed income from companies incorporated outside the UK Foster care income All income should be verified and referred to UW Geographic area The Society currently only has appetite to lend in England and Wales excluding Northern Ireland, Eire, Scotland, Channel Islands and Isle of Man For local area information please see relevant sub heading London 34
LTV will be restricted within the London area, the London area will mean any property within the M25 boundary LTV on residential house purchase/remortgage will be limited to 80% LTV on residential flat purchase/remortgage will be limited to 60% LTV on all BTL will be limited 60% All applications outside of this should be referred to underwriting Help to Buy The Society will take applications supported by Help to buy, excluding London Help to buy Further borrowing will be consider subject to HCA approval Higher lending charge (MIG) Insurance cover is required in cases exceeding 80% LTV Cover is only available for residential properties Indemnities will need formal approval by the MIG provider in the following circumstances: other mortgages on other properties which will not be redeemed; previously held a mortgage under which the property was taken into possession by a lender following voluntary surrender by the applicant(s) previously had a property taken into possession by the lender previously been refused a mortgage by another lender; Max loan amount 400k Holiday homes The Society has no appetite to lend on holiday homes HMO The Society has no appetite to lend on houses of multiple occupancy Income Streams Income Type Max % Minimum requirements Basic gross guaranteed 100 3 months evidence Overtime guaranteed 100 1 years Bonus guaranteed 100 1 years 35
Shift allowance guaranteed 100 1 years Car allowance 100 1 year Overtime regular 100 1 year Bonus regular 100 1 year Shift allowance regular 100 1 year Commission regular 100 1 year Net profit 100 2 years Self-employed income 100 2 years Dividend for company directors 100 2 years State pension 100 3 months Occupational pension 100 3 months Private pension 100 3 months Maintenance 100 Refer to underwriting Benefits guaranteed 100 3 months DWP general guaranteed 100 3 months Child benefit 50 3 months Working families tax credit 50 3 months Savings dividends 50 1 year Trust/Investment income 50 1 year Rental income actual 100% of net profit from SA302 s 1 year Second employment 100 3 months Applicant 3 income 100 3 months Applicant 4 income 100 3 months Bursary 100 1 year 36
Zero hour contract 100 Refer to U/W Attendance Allowance 50 3 months Carers Allowance 50 3 months Other income 100 Refer to U/W Identity Verification For all loans the identity of the applicants must be verified in line with the Money Laundering Regulations. Impaired Credit The regulatory authorities have confirmed an application is defined as credit impaired if one or more of the following conditions are met: The customer has within the last 2 years owed overdue payments equivalent to 3 months payments on a mortgage or other loan (secured or unsecured), except where the amount overdue reached that level because of late payment caused by errors by a bank or other third party, There have been one or more CCJ s within the last three years with a total value greater than 500, The customer has been subject to an IVA bankruptcy order at any time within the last three years Any cases that fits this criteria that is >70% LTV must be declined Income Verification Type of mortgage Employed Self employed Residential >80% LTV Last 3 months payslips/ last 12 weekly payslips Evidence for self-employed income can be provided through two years accounts Last p60 and either : Employers reference 2 years SA302 s and If bonus/overtime is being considered last 3 years p60s 3 Months bank statements on all current accounts Residential <80% LTV Last 3 months payslips/ last 12 weekly payslips Last p60 37 the tax year overview 2 years Tax calculations and the tax year overviews 3 Months bank statements on all current accounts Evidence for self-employed income can be provided through two years accounts and either : 2 years SA302 s and the tax year overview
If bonus/overtime is being considered last 3 years p60s 3 Months bank statements on all current accounts BTL Last 3 months payslips/ last 12 weekly payslips Last p60 If bonus/overtime is being considered last 3 years p60s 3 Months bank statements on all current accounts 2 years Tax calculations and the tax year overviews 3 Months bank statements on all current accounts Evidence for self-employed income can be provided through two years accounts and either : 2 years SA302 s and the tax year overview 2 years Tax calculations and the tax year overviews 3 Months bank statements on all current accounts For applications over 80% in addition to the payslips an employer s reference should be obtained to confirm income and last 3 years gross income. Should the variation exceed 25%or there is a downward trend, approval of underwriting will be sought to assess income figures to be used. Where accounts are not available the case should be referred to underwriting, to assess the SA302 s/tax calculations. For self-employed income details please see self employed For retirement income please see retirement Interest Only Max LTV is 70% Age on maturity must not exceed normal state retirement age 70 Lending in/into retirement on IO is not permitted-unless a BTL application then age can be taken up to 85 For residential mortgages affordability should be based on capital and interest or including the cost of the repayment strategy in affordability Acceptable repayment strategies Strategy Regular savings into non tax advantaged products(e.g. Bonds and endowments) Regular savings into tax advantaged products (Pensions and ISAs) Comments To take a cautious approach the lowest projection should be used To take a cautious approach the lowest projection should be used. Care should also be taken to ensure the commutable amount in a pension is calculated in line with current pension regulation 38
guidelines and that the lump sum available is sufficient to repay the loan capital. Sale of other assets e.g. properties / land other than the mortgaged property Periodic repayments from irregular sources of income (e.g. bonuses) Assets must be situated in the UK Valuations would be provided and liabilities deducted Details of the source, size and timing of the periodic payments are required together with a critical assessment as to the reliability of their receipt Cannot be used if included for affordability A combination of the above can be used Anything plausible repayment strategy outside of this should be referred to underwriting Interest rate stress-testing In assessing affordability the likely future interest rate increases are assessed to ascertain whether the customer will be able to pay the mortgage at stressed levels. The Society under MCOB 11.6.5R (4), uses a stressed rate of 7.29%. This rate is subject to change at the discretion of the society. As of 2 nd of January the stress tested rate will be increased from 6.8% to 7.29% Japanese knotweed The Society will not look to lend on properties with where Japanese knotweed has been identified within the boundaries Joint Borrower sole proprietors For cases of this nature we require that the applicant who will not be party to the mortgage deed will receive independent legal advice prior to any mortgage offer Live/work units The Society has no appetite to lend on live/work units Loan amounts Minimum loan for new mortgages is 25k Minimum loan for existing mortgage customer is 1k Maximum loan product specific Local operating area As a local building Society we have deals and products that are suitable to our local operating area these are properties within the postcodes of: DL DH 39
TS SR YO HG London Please refer to geographic area LTVs Minimum property valuation For joint applicants where LTV is >80% and purchase/valuation price is < 60,000, approval from UW is needed. For sole applicants where LTV is >70% and purchase/valuation price is < 60,000, approval from UW is needed. The Society will limit the amount of loans over 80% LTV to 7.5% of loan book in one year All loans over 80% will be covered by MIG LTI (Income multiples) The maximum LTI should not exceed 4.5, anything in excess of this should be referred to UW. Financial commitments should be deducted from basic income before multiplier, commitments such as: 3% repayment on credit cards and mail orders Loan repayments and HP Maintenance payments Mortgages not to be repaid Maintenance income The Society will consider income from maintenance, all cases to be referred to underwriting and evidence provided Minimum leasehold terms Please refer to tenure Mortgage term Minimum term on SVR is 3 years Minimum term is product specific Max term is 35 years Anything outside of this should be referred to UW New build 40
The Society will lend on new builds: Up to 90% outside of our local operating area Up to 95% inside of our local operating area Non EEA The Society will only consider lending where the applicants can provide documentary evidence that supports their right to live and work in the UK. Cases of this profile should be referred to UW for approval Non-traditional construction Cases of this nature should be referred to UW for approval Offers Mortgage offers are valid for 6 months Underwriter approved assessments are valid for 6 months Underwriter referrals are valid for 3 months Other income Investment income Full assessment of the investment profile would be required, these cases would need to be referred to underwriting Pension Income Please see retirement subheading Pensions When assessing pension pots the underwriters will use their knowledge and discretion to determine how the pot should be used to support the application Previous lender / landlord Status Current DBS borrower Evidence required Repayment history must be checked and an explanation sought for any missed / late payments Existing mortgage 12 months payments history on Equifax and 3 months bank statements confirming payments have been made Should the mortgage history not be shown on Equifax latest annual mortgage statement should be supplied Renting 3 months bank statements confirming rental payments 41
In every case if there is evidence of missed / late payments, a satisfactory explanation must be sought and recorded on the file. Anything outside of this should be referred to UW Previous property repossession from the applicant Max LTV 70% Repossession must have taken place more than 5 years ago Clear credit since must be evidenced Full background details as to why it occurred Confirmation that no debt outstanding Joint approval from HU and CEO Probationary period The Society does not wish to lend to applicants who are still within a probationary period Proof of deposit Acceptable deposits: Builder gifted deposits - subject to confirmation by valuer Family gifted deposits subject to written confirmation Savings Purpose of loan The Society only has an appetite for residential and standalone BTL applications For further borrowing please see additional borrowing Repayment Types The following repayment methods are acceptable to the Society: Repayment Interest Only Part & part Retirement In Retirement Max LTV 70% Must be on repayment Age of either applicant must not exceed 85 years on maturity The Society does not undertake equity release Minimum age would be their state retirement age at the start of the term 42
Into Retirement If the applicant is unsure as to when their anticipated retirement date, state pension age of 70 Max LTV 80% Outside our risk appetite for interest only Capital and interest applications only The Society does not undertake Equity Release Applications can be taken up to age 85 If applicants intend to continue working past 75 this should be referred to UW to assess their ability to maintain level of income Retirement income must be documented and evidenced including 3 months bank statements on all current accounts Residency Applicants address must be evidenced for the last 3 years Currently all applicants from outside of the EU will need to evidence their legal right to remain. Right to buy The Society will consider applications for people wanting to buy their homes under Right-to-Buy legislation The Society will lend 100% of the total purchase price, LTV will be limited to 80% LTV Right to buy paperwork will be required for all applications Security No limits on age of property Home insurance must be in place for exchange of contracts Self-build The Society will only consider applications from Buildstore/Buildloan Up to 80% of the value of the land can be requested, unless specific product advises different For applications over 80% Buildstore/Buildloan will instruct MIG coverage In all cases, full NHBC, Premier, LABC, Build-Zone, Protek, Q Assure, AEDIS or Castle 10 cover (or similar scheme approved by the HU or a member of the Executive) or Architect / Chartered Building Surveyor / Building Project Manager supervision of the development is required. Under no circumstances will a borrower be allowed to supervise their own development. Where an inspector is to be used to carry out Building Control then they must be approved 43
Income requirements of applications received via BuildStore/Buildloan are no different to the Society s normal criteria as detailed elsewhere in this Policy. Please refer to Buildstore Lending policy for approved construction types and full policy details LTV max 60% throughout and end value for self-build borrowing over 500k all cases at this level should be referred Self employed For applications over 80% LTV and any of the applicants are self-employed these cases should be referred to UW. Sole trader/partnership Income will be assessed on the average of the drawings or net profit achieved in the last 2 years, where there is an improving trend. Where this is not the case, refer to UW If the drawings exceed the net profit, then net profit should be used. Please see income verification for acceptable evidence- Although 2 years will generally be accepted UW will reserve the right to request 3 years should the case warrant it. Company directors Shareholding should be confirmed Income can be supported by both directors salary and dividends, if accounts show improving trend, average of last 2 years to be used. Where this is not the case, refer to UW Projections only to be used at the request of UW and must be in the form of an accountants reference Staff Mortgages All staff loans must be mandated by the HU Any loans to members of the Executive (other than Executive Directors) must be mandated by the CEO Any loans to Executive Directors, their spouse / partner or child must be mandated by BRC All loans to a Non-Executive Director, their spouse / partner or child must be agreed by the Board Students lets The Society has no appetite for student lets Tenure Approved categories Freehold House Leasehold flats Leasehold House Restrictions See max LTVs Minimum unexpired lease should be 85 years from the inception of the mortgage. Minimum unexpired lease should be 85 years from the inception of the mortgage. 44
Tyneside flats Commonhold The minimum acceptable lease term on new build transactions will be 125 years for flats and 250 years for houses. The maximum acceptable starting ground rent on all new build leasehold properties will be limited to 0.1 per cent of the property s value The ground rent must be reasonable at all times during the lease term, with unreasonable multipliers such as doubling every five, ten or fifteen years not allowed. Escalation should instead be linked to a verified index, such as the Retail Price Index See max LTVs See Max LTVS Toxic Risks The regulator defines a high risk loan as: LTV > 90% Term > 30 years Joint income multiple > 3.75x and/or affordability < 0 All cases that fit this criteria must be referred to HU Two mortgages There are instants where the Society would support applicantions for applicants with 2 mortgages however full affordability would be required for both properties. Aggregated borrowing would also need to be taken into consideration Valuations Valuations are required for all purchases and remortgage For further borrowing, valuations will be required on all cases where the LTV exceeds 60% Warranty Properties must be covered by a warranty provided by NHBC, Premier, LABC, Build-Zone, Inspection, Protek, Q Assure, AEDIS or Castle 10 (or similar scheme approved by the CM or Executive) or Architect / Chartered Building Surveyor / Building Project Manager certificated, if constructed in the last 10 years. Anything outside of this should be referred to HU/UM 45