Call a specialist | Mortgage strategy


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The Covid-19 pandemic has wreaked havoc not only on our way of life but, for many people, on their finances as well.

Companies that were strong one day fell apart the next, while others had to find innovative ways of working. Vacations, reduced hours and increased debt have become a feature of many people’s lives.

At the same time, some have seen their incomes increase during the lockdown, either by taking on additional employment, experiencing an increase in demand for their services, or starting a new business.

Many of our new broker relationships are regularly surprised with product availability

All of these circumstances, negative and positive, can complicate the mortgage application process for borrowers, whether they are first-time buyers (FTB) or homeowners looking to remortgage.

Added to this are the current challenges on the global stage and the rising cost of living, both of which seem likely to put further pressure on borrowers’ finances.

Borrower awareness

The specialty mortgage industry, in particular, has been quick to respond to borrowers’ needs. Yet sometimes one of the biggest challenges the industry faces is letting borrowers know that the market is open to them and that solutions are available.

In a recent survey by specialist lender Together, almost a third of self-employed and almost half of FTBs were completely unaware of the specialist loan options available to them. Meanwhile, more than 45% of FTBs and 50% of independent participants doubted they would be able to get a mortgage or were sure it would be turned down.

Depending on the circumstances, a mortgage may not be the only option to consider

These numbers may come as a surprise, but they underscore the key role brokerages can play in what could be a tough year for borrowers.

“The pandemic has affected borrower incomes in different ways,” says James Briggs, specialist account manager at Together.

“A borrower may not necessarily have seen a drop in income, but income may now be structured differently or fluctuate from month to month. They may have become self-employed, for example, or are now self-employed or on a zero-hours contract,” he says.

Training effect

Another ripple effect of the pandemic has been the increased debt levels of some borrowers.

“The accumulation of unsecured debt has been a feature,” says Matthew Arena, managing director of Brilliant Solutions.

“Borrowers with job shortages or fluctuating income due to the pandemic, particularly in the first year, often took on additional unsecured debt, which then weighed on affordability. This has led to an increase in secured lending as well as more challenges for remortgaging,” he observes.

Just because a person is turned down by a lender doesn’t mean there aren’t other options.

Nevertheless, many want to pursue their real estate aspirations in 2022.

When the entire population was asked by Together about their wishes for the coming year, 17% wanted to extend or renovate their existing home, 14% wanted to move and 7% hoped to buy their first home.

Among those who have real estate ambitions this year, 61% feel “motivated” to achieve their goals and 34% “very motivated”.

The pandemic, however, appears to have shaken the confidence of many other borrowers.

A borrower may not necessarily have seen a drop in income, but income may now be structured differently or fluctuate from month to month

Research from Together reveals that 28% believe the pandemic has made their ambitions more difficult to achieve, with the same percentage citing access to finance as the main obstacle to achieving their real estate ambitions, even more so than high housing prices. ‘real estate.

second charge

Although, realistically, a conventional mortgage may be out of reach for some borrowers, unbeknownst to others, there could be specialist industry options, such as bridging or a second charge, that could be used to help them access the property ladder.

“Depending on the circumstances, a mortgage may not be the only option to consider,” Briggs says.

“A parent, for example, may not have thought of taking out a second loan on their own home to offer as a deposit to help their child get on the property ladder. Or it may be that a borrower can afford a property that needs updating, and a bridge loan may be worth exploring.

Nearly a third of freelancers and nearly half of FTBs were completely unaware of specialist lending options

Indeed, 19% of FTBs surveyed by Together were looking for a renovation project, while 31% wanted a doer-upper and 33% said they were happy to do cosmetic work.

Unsurprisingly, there remains a strong desire among FTBs to move up the ownership ladder. Together surveyed 1,000 people who did not own their homes and 78% said they wanted to buy their first property this year. Of those who had no real estate ambitions in 2022, 36% said it was because they couldn’t afford them. Additionally, 26% of respondents said they had been unable to save for a deposit during the pandemic.

Self employed

Alongside the FTBs, the independents also feel that the doors are closed to them. Together surveyed 1,000 self-employed people in the UK. When asked why they thought a lender might say no to their request, more than half – 55% – said it would be because they were self-employed and 35% thought it would be. because they did not have a stable income. Some 29% of respondents say they started their business in the past two years.

“To some degree the self-employed have always felt like they will struggle to get a mortgage or have to pay more,” says David Hollingworth, associate director of communications at London & Country Mortgages.

Accumulation of unsecured debt has been a feature of the pandemic

“This perception may have multiplied during the pandemic due to a change in a borrower’s circumstances. Maybe they have decided to strike out on their own and their business record is limited,” he says.

“If they have a trading record of at least 12 months, however, there will be options available.”

Added to this is a tendency for older people to become self-employed. The age group most concerned about the impact of self-employment on their mortgage application is those aged 55 to 64, according to the Together study, with 95% of this group believing a lender will tell them no to because of their employment. status.

To some extent, the self-employed have always felt like they will have a hard time getting a mortgage

But Hollingworth thinks lenders will consider an independent candidate approaching retirement age the same way they would consider any other candidate.

“They’ll want to know how the borrower is going to maintain the mortgage payments and what income after retirement they might have,” he says.

Train brokers

Such a lack of awareness may deter some borrowers from taking the first step and seeking advice from a broker. Similarly, some advisors ignore all options.

Arena says it’s not uncommon for more complex borrowers to have already spoken to multiple advisers — and been turned down — before the mortgage is over. While he’s not often surprised by what’s possible, some of his dealings with brokers are.

“A lot of our new broker relationships are regularly surprised with product availability, but it really depends on what market share the advisor has,” he says.

“Many advisors don’t see a lot of complex cases and may be surprised by the financing solutions available. There are also those who see these more interesting cases for whom each scenario is an opportunity.

A parent may not have thought of taking out a second loan on their own home to give as a down payment

When a borrower’s application is finally accepted, it can be a huge discharge, Arena says.

“That surprise, along with their relief, is one of the reasons why this market is so important,” he adds.

Hollingworth agrees.

“Just because a lender turns someone down doesn’t mean there aren’t other options,” he says. “It’s about understanding the challenges the borrower is facing, targeting the right lender and presenting the case in the right way.”

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