• Home

Todays Mortgage Criteria in a Changing Market

As you are probably aware the mortgage market at present is currently in a state of panic driven restrictive lending with those lenders still left in the mortgage market (may have withdrawn from new lending all together) putting heavy restrictions on both their lending products and criteria.

Many believe that our current financial crisis stemmed from the sub prime lending market in America where a high proportion of those loans have been defaulted on by the borrowers bringing in an abundance of reprocessed properties, because of this house values have plummeted giving lenders properties that are virtually un saleable due to negative equity which is only adding to an already critical situation.

My aim however is not to start finger pointing at who is to blame or where this current crisis stemmed from but to have a look at the current situation facing borrowers who are either looking to purchase a new property or simply remortgage their own.

Bad Credit - those borrowers who took mortgages from sub prime lenders in the past are particularly at risk when it comes to getting a new mortgage as quite simply the majority of these type of lenders have stopped lending or have gone out of business, hence when a borrower comes to the end of their current deal they could have very little choice other than go on the lenders standard variable rate as this possibly nothing else they can do. It could be that when they took out their last mortgage they had possible about 20% equity in the property which enabled them to get the mortgage at the time but now with falling house prices they could find themselves with virtually no or even negative equity, no new lender in their right mind would contemplate such a deal in the current financial climate. If their credit has improved over the last few years and they do have some equity they may have a chance or remortgaging to a more traditional lender however those cases appear to be in the minority.

Self Certification Mortgages- In the past borrowers who were unable to prove their income could “self cert” their own income and to a degree lenders were happy to make their profit from them and took them (to a degree) at their word, however if what precisely this type of lending that started the current downfall of today’s mortgage market. Again lenders who offered this type of lending have either stopped lending or have tightened the criteria to such an extent that it is practically impossible to obtain a self cert mortgage, in the past even someone who was employed could self cert their income but now it is strictly for those who are “truly” self employed.

Buy to Let Mortgages – Buy to let mortgages have also been badly hit where as before it was possibly to get a buy to let mortgage with only 15% equity or deposit the main equity/deposit required now is 25% and that is before the borrower has to satisfy the new lending criteria that is now required for these products. There are many professional landlord who made a living out of purchasing properties (particularly new builds) at under market value and using the real market value as the deposit then obtaining a buy to let mortgage to fund the difference suffice to say no such deals can be had any more.

There are many landlords sitting on portfolios that are in negative equity (sometimes huge sums of money) who have no potion but to sit tight and hope the situation improves as selling is not an option unless they want to take a large loss in off loading their properties. In the past lenders were not overly interested in the borrowers income if applying for a buy to let mortgage as the main issue was the rent received (or would be received) for the property in question, however now not only is the borrowers income needed it needs to be (in many cases) verified which can be a problem. Lenders would also not be so concerned as to the amount of properties that a landlord owned and had mortgaged with other lenders however now this is also taken into consideration.

Different Properties- At one time there was a huge drive for more flats to be built to meet the huge demand for property with many local councils being “urged” to grant planning permission when at times it seemed unlikely to be granted, however now flats as far as lenders are concerned are a “hot potato” with many lenders only considering them with massive deposits or equity as there are huge volumes of newly built flats unable to find buyers which is driving down prices on flats much more than houses. OK if you are a cash buyer and are looking for a bargain to rent out but not so good if you need a mortgage for one.

Quite simply to be able to obtain a mortgage in today’s market you need to have a fair sized deposit or equity in your property to even stand a chance of getting a half decent mortgage, and don’t think because the base rate has come down that it will force the lenders to reduce their rates as they are not always following suit much to the governments frustration.

As with something as costly and as important as a mortgage you should always seek the advice of a mortgage broker who has access to the while of market so you can assure the advice will suit your circumstances.

Comments

copyright Clevel Inc 2008 Production

Finance Edition