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P7
Exceptions
Introduction
This page covers people who do not fit into the normal category for
lenders. This means that you will probably pay a higher rate for your
mortgage if you are one of the exceptions listed here.
The Self-Employed Borrower
How short-term self-employed people can go about
arranging a mortgage.
The Divorced Borrower
How non-standard mortgages can help out if you have
become divorced.
The Borrower with A County Court Judgement
How to get a mortgage despite having a County Court Judgement.
The Borrower with Arrears History
Not all lenders will penalise you for having fallen into arrears in
the past. Some lenders will look at the reasons behind the problem
The Borrower with a Buy-to-Rent Property
Some lenders count a mortgages on a property that you
are renting out to someone else against the amount that they will
lend you - despite the income from the tenant (which generally has to
exceed 25% above your mortgage payments on the rented property).
Summary
What you should consider doing if you are not a normal borrower.
Introduction
There are many types of average mortgage borrower. Unfortunately the
mainstream lenders try to cater only for the main types. The rest are
left to specialists, who can then charge extra for their services.
There are all sorts of reasons for some people being considered non-standard.
One reason is not having a bank account - but it will be difficult
to arrange for the necessary direct debits in order to pay the
mortgage without one. If this is you, have you considered the
advantages of a bank account? But if you do so, please chose the
right bank carefully to make sure that the service you want from the
bank is one that they want to provide - otherwise you will find that
their charges are set to discourage you. Perhaps you would like an
account, but either there are no banks close enough or those that are
close are unwilling to open an account. This is the time to start
writing to your member of Parliament, or similar representative,
complaining about your effective exclusion from banking services.
There are other reasons for falling outside the mainstream which
should not necessarily invalidate a mortgage application. County
Court Judgements and mortgage arrears can mean rejection by a high
street lender, especially if the arrears have occurred in the last
two years.
But there are are types of mortgage lender who will consider non-standard
mortgage applicants. They are more concerned with whether applicants
can afford repayments, and if they have sufficient equity, than with
their credit record.
However, they are expensive. A non-standard lender may charge more
than two per cent extra interest on a home loan than a mainstream
provider. There will also be less choice of product. It is always
worth trying a normal lender first - or your existing lender - before
turning to the non-standard providers. But you will probably find
some lenders willing, if not keen, to lend you money.
Just try to avoid paying too much, and read the small-print
carefully. Take specialist advice if you do not understand the
meaning of parts of any agreement offered - after all, it will be
your money that repays the loan in the end. Home.
The Self-Employed Borrower
A self-employed consultant is looking for a £80,000 mortgage on
a £90,000 house. Last year, his first year in business, he
earned around £25,000 before tax. He is married, but his wife is
expecting their first child.
No mainstream lender will consider his mortgage application. The
problem is that he has only been self-employed for just 12 months.
Most mainstream mortgage lenders will only consider granting home
loans to self-employed people who can show them three years' worth of
properly audited business accounts. Less established self-employed
borrowers are often considered too great a risk.
The consultant's only likely course is to approach non-standard
lenders, although he will have to pay the price in terms of higher
interest rates, because he is more of a risk and they need to allow
for that. He will also be penalised for his small deposit and so the
range of loans available will be restricted probably to a variable
rate mortgage.
Some non-standard lenders link their variable mortgage interest rates
to LIBOR (London Inter-Bank Offer Rate) - the rate at which the banks
lend money to each other. The rate the borrower pays will fluctuate,
going up and down in line with wider economic factors, but in some
ways this is beneficial because there are financial products, such as
interest rate swaps, that can be used to change the LIBOR rate to a
fixed rate for a specific period - some lenders offer this facility
on larger loans.
This is probably a short term solution for the consultant and he
should look around in a couple of years' time, when his business is
more established, and apply again to a mainstream lender. He should
make sure that the lock-in period is not too long or that the early
repayment penalties are not too high. Home.
The Divorced Borrower
A woman has recently divorced and sold the marital home, having split
the equity of £50,000 equally. She is currently living in rented
accommodation, but wants to buy her own property for £70,000.
Unfortunately, unpaid debts on the old property, which were supposed
to have been cleared by her ex-husband, mean that the woman's own
credit record is not good.
The woman has a good deposit to put down on her own property, the
£25,000 equity from the marital home.
But her credit record, damaged without her knowledge, may well put
off a mainstream mortgage lender. She could approach the lender who
provided the mortgage for the marital home, having an established
relationship with them. But if they are not happy to offer her a new
£45,000 mortgage, she could approach a non-standard lender who
will look at her credit record, and take into account what happened
with her former partner.
With the reasonable cash deposit, she should be offered one of the
cheaper deals, although it will still be more expensive than the high
street lenders. This may still make sense rather than renting a
property, and having no chance of paying towards ownership of a
property, but that is a decision that needs to be taken with a long
term view in mind.
Later, when the woman has established a good track record of
payments, she will have the choice of going back to the high street
for a cheaper deal or negotiating a new deal with the non-standard
mortgage lender. Home.
The Borrower With A CCJ
A young male nurse has been renting in London for six years and is
considering buying his first house. During the poll tax political
problems he refused to pay the tax and so has a County Court
Judgement (CCJ) outstanding against his name. No mainstream mortgage
lender will consider his application, because the CCJ shows up on his
credit record and a non-standard mortgage lender may be the only
available solution.
Major national mortgage lenders may simply turn him away because of
the presence of the black mark on his credit record, without asking
any tough questions about it. However, a non-standard lender is more
likely to explore the reason for the CCJ.
There are varying degrees of seriousness of debts and since the
judgement does not, for example, relate to a substantial debt, or
sustained failure to pay utilities bills, a non-standard lender may
not see the CCJ as a problem. It may be possible that the lender will
not even insist on the CCJ being paid up via the courts before
lending the funds, but it is in the nurse's best interests to get
this blot erased from his credit record by paying up.
Once he has done this, he might consider trying a mainstream mortgage
lender, but only when there are no redemption penalties to pay to
switch lenders. Non-standard lenders do not tend to impose heavy
penalties, but this does represent an additional cost. Home.
The Borrower With Arrears History
A married couple fell into arrears on their mortgage payments when
the husband lost his job. Their mortgage lender took them to court
after three months of missed payments, and they have since come to an
agreement. However, they want to move from their one-bed flat, as the
wife is expecting their first child.
Their first move should be to approach their existing lender, who at
least knows them and has some shared history with them.
However, that history may negatively influence their case. If their
existing lender did turn them down they would find it difficult to
find another mainstream mortgage lender for their new home loan, as
none will consider new mortgage applicants who have been in arrears
during the last two years.
Since the problems, the husband has since found another job, and
received an inheritance, which the couple want to use as a deposit on
the new house. But because of their past record, mainstream lenders
will penalise them by refusing to consider a new mortgage application.
Instead of being able to wait and build up a good payment record,
their new arrival means that they cannot wait another year before
moving to a bigger place, so they really need to move home as soon as possible.
A non-standard lender may be their best chance. Non-standard lenders
tend to look to the future, but also look at the past to see why the
arrears happened. In this case, a lost job caused the initial
problems. Having found a new job, the couple sorted out a repayment
schedule to make up the difference with their existing lender. A
non-standard lender may well take this into account and lend the
couple the mortgage they need to purchase their new home.
Even their large deposit they will pay extra to the non-standard
lender, but they will be able to make the move. It is always better
to talk to your lender as soon as problems develop. The worst thing
you can do is to do nothing. Home.
The Borrower with a
Buy-to-Rent Property
An astute young banker earning a good salary purchased two buy-to-let
properties whilst he was owning a third, his main home. He sold his
main home and rented whilst looking for a new home.
However, on approaching a mainstream lender to help him buy the
property of his dreams, which he had found, he discovered that his
investments in the buy-to-let market counted against him. Mainstream
lenders will treat the mortgages on buy-to-let properties as existing
debt (if it is longer than one year) and will deduct this amount from
how much they will lend.
So for the banker, the calculation will be either that his maximum
mortgage would be, for example, 3 times his salary less the
buy-to-let mortgages or his gross income will be reduced by the
amount he is paying in repayments on his buy-to-let mortgages. All
this, despite the income from renting which would exceed the
repayment costs by at least 25% to have got the buy-to-let mortgages
in the first place.
The banker has an alternative, if he is set on buying that new house,
and that is the non-standard lender, who is prepared to take the
larger risk, but will charge more for it.
This is an example of an excellent credit risk borrower being treated
unfairly by a system that has not adjusted to changed circumstances.
More rented property is needed to allow people to be more mobile, and
the higher stamp duty goes, the less people will be prepared to pay
stamp duty each time they move, and the more rented property will be required.
It is very different to the position of the certain types of property
owning company, where interest that they pay on properties is
capitalised in their accounts - that is, the amount they pay in
interest is added to the value of the property and treated as an
asset. The complete opposite of the treatment for individuals, where
such payments are treated as debt, and the rental income they receive
is ignored. A trap for the unwary which will doubtless receive much
more news coverage in time. Home.
Summary
If you are like any of the borrowers described above there are a
number of options open to you.
Firstly, if you currently have a mortgage, your first point of
contact should be your existing mortgage lender. They will have all
your payment details and will know you best and you may not have to
pay for a new deal if you stay with them. Mortgage lenders do not
like to lose customers, so you may be able to negotiate with them.
If your existing lender will not help you, look at other mainstream
lenders. They all have mortgage advisers you can talk to, and they
each have different perspectives that may allow them to be
sympathetic to your case.
If a mainstream lender will not help, you could try an independent
financial adviser (IFA), or a mortgage broker. They will have access
to all the deals on the market, and should be able to point you in
the right direction - for a fee or commission.
Another alternative is to approach a non-standard mortgage lender
directly. They should be more helpful than mainstream lenders,
because they will charge you more to allow for the greater risk that
they feel they are taking. But you must tell them the whole story.
Although the price may be higher than mainstream lenders, if it
achieves what you want, to move into a home suitable and affordable
to you, then the price may be the right one. Home.
Copyright 2000 everythingexplained.com
for mortgagesexplained.com
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