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I have received an increasing number of enquiries recently from individuals and solicitors in need of what I have come to call a ‘Reverse Mortgage Capacity Assessment’. This is where the amount of mortgage lending required is already known and what I am instructed to explore is how much income will be required to achieve the required level of borrowing.

The ‘income’ in most cases refers to maintenance payable by the ex-spouse. However, it could also refer to the amount of earned income required to achieve a certain level borrowing. This could relate to an individual who is looking to increase or decrease working hours; switch roles or seek new employment.

With regards to maintenance income, whether spousal or child, I am often instructed to explore how much maintenance is required to achieve varying borrowing amounts, which, for example, could range from £100,000.00 - £500,000.00 in intervals of £100,000.00. This can help highlight how much additional income is required to ensure suitable housing is achievable.

The results of these reports often vary drastically due to mortgage lenders varying criteria regarding maintenance income. Some mortgage lenders are happy to use 100% of maintenance income if there is a Child Maintenance Service Agreement or Court Order in place. The payment of maintenance will usually need to have been in place for several months, typically 3-6 although some lenders require 12 months history of this income with Bank Statements as proof. Many mortgage lenders will only take a percentage of this income and some will not use this income whatsoever. What is interesting and important to know for the negotiation of maintenance, is that large amounts of spousal or child maintenance may not always have the desired effect where mortgage borrowing is concerned. This is because many mortgage lenders are uncomfortable lending to those who rely heavily on maintenance income. Therefore, it is important to be sure that the amounts agreed will help and not hinder any mortgage related plans.

Image result for mortgage arrearsDuring the emotional upheaval of divorce it can be easy to let things slip, but forgetting or refusing to deal with debts and liabilities can have long lasting effects and should never be ignored.

'But I’m not living in the property anymore’ I often deal with clients who have moved out of the family home and either due to ill feeling or because they simple cannot afford to, have stopped meeting the mortgage payments on the family home. Whilst this may satisfy a short term financial need, it is likely to have long term effects. When applying for a new mortgage many lenders are only willing to accept applicants who have a clear and up-to-date credit history with no missed or late payments on any financial commitment for the previous 6-12 months. Furthermore, of the mortgage lenders who are happy to tolerate some adverse credit a maximum number of missed mortgage payments or arrears, often 3 consecutive months, are usually allowed. This means that if the applicant has missed 3 or more mortgage payments lenders may not consider them for mortgage borrowing for some time.

Arrangements to Pay or Debt Management Plans are usually offered to individuals by their mortgage lenders or other creditors following financial difficulty. Although these arrangements are great for allowing clients to continue paying their mortgage and other debts or repay any arrears at a reduced rate, it is important to understand that the vast majority of mortgage lenders have no appetite for applicants with a DMP/IVA. Anyone who has one of these arrangements in place are likely to experience great difficulty securing new mortgage lending until the agreement has ended.

Defaults, once accrued against a mortgage or other debt, are likely to render the bearer unable to secure mortgage lending for some time. Any default will need to be repaid and show as 'satisfied' on the individuals credit record before being able to apply for lending. Furthermore, a waiting time of at least 12 months from the date the default is satisfied, ensuring all credit commitments are kept up-to-date and paid on time, is likely to be in order before applying for lending. The amount of the default will also be considered and many mortgage lenders will not tolerate large default amounts.

Adverse Specialist Mortgage lenders are mortgage providers who offer lending to individuals with adverse credit such as the issues mentioned above. These lenders are likely to charge higher fees and offer higher interest rates. These lenders will not be found on the High-street.

Ensuring all debts and liabilities are paid on time should be a priority especially for those who are looking to separate. Being unable to obtain mortgage lending could stop a couple from separating financially and the repercussions of these actions should not be overlooked.

Image result for divorce and mortgageI have seen an increasing number of enquiries for Mortgage Capacity Assessments from clients going through Divorce who are aged 60 and over in recent months. Whilst Divorce at any time in life is difficult it presents a number of additional and unique challenges for those approaching, or already in retirement.

Traditional Mortgage Lending Is Not Always the Answer

Traditional mortgage lending can be very restrictive for those aged 60 or over. Especially those who are still working but within 5-10 years of retirement because many lenders will calculate borrowing based on retirement income, completely disregarding current earned income. Whilst some lucky individual’s may be in a position to enjoy a retirement with income equal to that of their previous working salary, most of us will see a drop, often substantial, in our income once we retire. This leaves less money available for mortgage lending.

Problems associated with calculating mortgage lending based on estimated retirement income may be further compounded by any pension share which may be under negotiation between divorcees. Any share of pension funds could deplete an individual’s eventual pension income reducing the amount which they are able to borrow further. Although a pension may have been able to support one household comfortably, when split and stretched across two households divorcees may well find themselves in need for more income at a time when it is very difficult to obtain it.

Furthermore, although some lenders may consider providing an individual with a mortgage up to their 80th Birthday many will only offer lending up to the applicants 70th or 75th Birthday. With such a short mortgage term there is very little time to repay a mortgage which may further reduce the amount available to borrow.

In many cases traditional mortgage lending is not the answer to their needs.

Lifetime Mortgages Could Help……

Upon divorce it is often a desire for one of the divorcees to stay in the family home. The emotional upheaval of a divorce is often too much to bare without the additional strain of moving home, not to mention added costs involved in moving such as stamp duty, estate agent fees and legal costs. However, as discussed above, the divorcee wishing to remain in the family home may not have the capabilities to secure lending in order to ‘buy out’ their ex-spouse. Without this it is highly likely that the family home will need to be sold.

Equity Release could provide a way for divorcees to separate whilst easing the financial burden it causes. The divorcee granted to remain at the family home could take out a lifetime mortgage in order to release equity, which in turn could be used by their ex-spouse to fund or part fund the purchase of a new home. Unlike a regular mortgage many lifetime mortgages do not require the borrower to make any repayments, instead the interest is ‘rolled up’ and becomes payable only when the property is sold, reducing month to month expenditure.

It is important to remember, however, that a lifetime mortgage will reduce the value of the estate, therefore, reducing the level of inheritance, and it could affect the tax they pay and any welfare benefits received therefore financial advice should be sought.

Although the amount that could be available to borrow depends on the age of the divorcee and the value of their property, for those at retirement age and going through a Divorce lifetime mortgages could be a feasible, cost effective option.

Personal Finance Society Awards Dinner 2017

On Wednesday 22nd November 2017 I had the pleasure of attending this year’s Personal Financial Societies awards dinner at the iconic Roundhouse in Camden.  Celebrating the best in the business the PFS did a brilliant job in showcasing the elite in professional financial planning and journalism.

It was an absolute honour to have been chosen as a finalist in the Mortgage and Protection Advice Specialist award. Unfortunately I did not win the award, however, I remain a proud runner-up and a dazzling, glitzy and entertaining night was enjoyed by all.

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The Bank of England (BOE) monetary policy committee is due to meet tomorrow to discuss interest rates and implement any changes. Predictions of a rate hike are widespread especially since the Governor of the Bank of England, Mark Carney, stated that he expects an interest rate rise in the ‘relatively near term’.

But what impact will an interest rate rise have?

An interest rate rise of 0.25% will increase the Bank of England base rate to 0.5%. Although this is still a historically low figure existing borrowers whose mortgages are directly linked to the BOE base rate will see an instant increase in monthly repayments. For example:

  • A £200,000.00 repayment mortgage on a 1.25% tracker mortgage linked directly to the Bank of England base rate would currently pay £942.27 per month over 20 years. Should the base rate increase by 0.25% the interest rate payable on this mortgage would instantly rise to 1.50%, increasing the mortgage payments to £965.09 per month over 20 years. That is £273.84 per year extra mortgage borrowers would need to pay.

Many mortgage lenders have withdrew some of their lowest rates on the market which could be due to the above predictions and a rate rise could have a further impact on product availability. If you are currently on a standard variable rate or your current deal is about to come to an end, it may be worth reviewing your mortgage needs with an adviser.

 

The Personal Finance Awards are being held next month and I am excited to announce that I have been chosen as a finalist for the Mortgage & Protection Advice Specialist of the Year Award.

It has been a busy journey from entry to finalist. For Stage 1 I was required to write a personal statement describing myself, my expertise, qualifications and continued professional development.

Following on from this preliminary stage I was then invited to answer a 5 question case study. The case study for Stage 2 was actually quite complex and enjoyable to answer. Giving me the opportunity to showcase all I had learnt from studying for the Advanced Mortgage Advice qualification which I achieved in May this year.

I am especially pleased to have been chosen as a finalist and to have my skills and experience recognised. I hope this will give me the opportunity to demonstrate the importance of Mortgage Capacity Assessments and show the level of knowledge and proficiency that goes into producing the reports.

My colleagues at Simpson Financial Services will be joining me at the event which is being held at the historical Roundhouse in Camden on 22nd November, I am sure we will have a great time and hopefully win the award.

Wish me luck!

 Mortgage Capacity Expert Changes her Name.....

  It is with great pleasure to announcement that our Mortgage Capacity Expert has recently married and has changed her name from Natasha Phillips to Natasha Palmer. I am sure you will join us in wishing her all the best for the future.

Natasha will continue to offer the same great service and any new Mortgage Capacity Assessment enquiries can be sent directly to her at: This email address is being protected from spambots. You need JavaScript enabled to view it. or feel free to call the office on: 0845 0179 578.

 

In recent weeks I have noticed a significant increase in the number of enquiries for Mortgage Capacity Assessments by individuals who are in no position to obtain mortgage lending. Whilst many of these individuals were already aware of their situation and were simply carrying out an exercise to pacify Court proceedings, it did come as a surprise for some.

There are many tell-tale signs of having the kind of financial circumstances which may not allow you to borrow from a mortgage lender and I will highlight some examples of these below:

Bankruptcy – Many lenders will not consider an application for mortgage lending from an individual who has ever been declared bankrupt and it may not matter how much time has passed since the bankruptcy. Many lenders are happy to consider an application once the individual has been discharged from bankruptcy for more than 6 years but even then obtaining lending may not be a straight forward process.

High Outgoings – Often confused with high debt, most of us are aware that a lot of debt; including credit cards, loans and hire purchase, will have an effect on an individual’s ability to obtain a mortgage, however, general outgoings are also a defining factor. These may include hefty travel costs, child care, maintenance costs and tuition/school fees.  For example, an individual earning £30,000.00 per year with childcare costs of £9,000.00 and a credit card balance of £10,000.00 is not in a healthy position to obtain mortgage lending. Since the Mortgage Market Review in 2014 mortgage lenders focus on month to month affordability rather than overall indebtedness and if general outgoings are high this is going to impact capacity to mortgage.

Deductions from Salary – Often overlooked, deductions from salary, including pension contributions, share save and employee benefits, are not always considered as a potential issue regarding mortgage borrowing. However, any reduction in salary is going to affect monthly income and therefore reduce the amount an individual can borrow.

Pension Share – Obtaining mortgage lending that will continue into retirement is not always an easy task. Depending on the proximity to retirement age, many lenders may calculate maximum borrowing taking into account pension income only, therefore, the effects of pension sharing should never be overlooked. Not only will it reduce the amount available as a Tax Free Lump Sum but it will reduce the amount of pension paid monthly/annually further diminishing the affordability of any potential mortgage lending.

There are many factors involved when calculating and considering how much an individual is able to borrow. Where divorce is an issue Mortgage Capacity Assessments can help provide in-depth information regarding an individual’s likely borrowing capabilities and details of specific lending criteria. For more information visit our website – www.mortgagecapacityassessment.co.uk

When calculating mortgage capacity for potential mortgage borrowers, those with low deposits (usually 5%) have, in the past, had very few options where mortgages were concerned. Following the financial crisis in 2008 few mortgage lenders would consider such high Loan to Value mortgages (95% loan with a 5% deposit) and for those who would consider this type of lending and in order to compensate for the increased risk to the lender, higher Interest Rates were charged.

In order to increase mortgage providers appetite for such lending the Government launched the Help to Buy Mortgage Guarantee Scheme on 1st January 2014.  The Help to Buy Mortgage Guarantee Scheme works in exactly the same way as any other mortgage except lenders are able to purchase a guarantee from the Government to support high Loan to Value lending. The Government charges the lenders a fee for this guarantee. The scheme was designed to increase the lenders appetite for such lending and we have seen an increase in the number of mortgage applications being agreed based on low deposits/high Loan to Values. However, this scheme is only available for a few more months as it is due to end on 31st December 2016.

Could this spell the end of high LTV lending?

Mortgage Lenders have exposed themselves to more lending based on 5% deposits over recent years but it is hard to say whether access to the Mortgage Guarantee Scheme has been the reason for it. However, despite the availability of the Help to Buy Mortgage Guarantee lenders are starting to venture into the world subprime lending again. This should increase competition between lenders and make available more products for non-standard borrowers. As mortgage lenders appear to be more receptive to higher risk lending, borrowers with lower deposits should continue to see the availability of competitive mortgage products.

If you would like to find out more information about this scheme or any other Help to Buy scheme please visit: www.helptobuy.org.uk

Mortgage Capacity Assessments can be used to explore a range of financial scenarios and provide an accurate, realistic and educated outlook of future mortgage capacity. There are many different ways in which changes to financial circumstances can affect an individual’s ability to obtain a mortgage. The following scenario considers the effect the location of employment may have on mortgage borrowing:

In this scenario my client wanted to explore how the following changes to their circumstances may affect their future borrowing capacity:

  1. Buying a property close to their family and commuting to their place of work, 100 miles each week. In this case the client would require rental accommodation during the working week.                                            
  2. Buying a property close to family and seeking new employment closer to home which would result in a substantial reduction in salary.

I was surprised to learn that mortgage lenders were highly concerned with the clients outgoings based on the commute scenario and mortgage capacity was actually higher should the client seek new employment and suffer reduced pay, despite a significant drop in income of approximately £20,000.00 per annum. The costs related to the commute scenario, which included travel expenses, rent, utilities and food were approximately £1,000.00 per month. Compare this to a reduction in income of £1,666.00 per month gross (based on a £20,000.00 reduction in pay) and it could be argued that the client may actually be better off commuting and taking the higher paid job. However, from a mortgage lenders perspective the commute scenario resulted in higher outgoings and higher outgoings present a greater chance for the applicant falling into financial difficulty.

There is a lot more to consider then just income when calculating mortgage borrowing and research is important. Haven’t got time to do your own research? Are you divorcing and require details of your mortgage capacity? Then please contact us for further guidance.