Good borrowers rejected by ultra-strict credit rating on 95% collateral system
95 percent loan-to-value (LTV) mortgage lenders’ credit cards are too stringent, leading to lower demands from “perfectly clean” borrowers, critics say.
By order of the Treasury, mortgage lenders using the 95% mortgage guarantee system can only lend to “solvent” borrowers.
Lenders who use the system get protection from the government against some of the losses they might incur in the event of loan default.
Mortgage brokers say, however, that banks with government backing have set the credit score bar too high. They reported that even borrowers with an A credit rating were turned down.
Underwriting is so restrictive that brokers believe that a higher than usual credit score is applied to borrowers who have a five percent deposit.
Simon Butler, Head of Mortgages, CMME, said: “Lender scorecards appear to be much stricter for higher LTVs than was the case before the pandemic, although the government bears some of the risk. via the mortgage guarantee system.
“The summer months are a peak time for buying and selling homes, so the hope is that lenders relax their approach to further support the markets for new buyers and self-employed people.”
When launching its 95% mortgage contracts, Halifax made it clear to brokers that its credit rating would be more difficult than it used in the past.
In an email to intermediaries, he wrote: “An enhanced credit score requirement will be applied to all applications for this program.”
NatWest does not accept 95 percent of LTV requests through brokers.
However, Barclays said its 95% credit rating was set according to its current policy, no more. Nationwide said its credit score approach was aligned with its 90% lending. Santander did not comment on its credit level, but said its 95% loan volumes had returned to pre-pandemic levels. Santander will not offer any independent borrower an LTV greater than 75 percent.
HSBC said it was working hard to ensure its credit rating policy was fair and appropriate to support its customers and that acceptance levels had been in line with the bank’s expectations since it started using the mortgage guarantee system.
Still, getting a deal through to the underwriting team when the borrower only has a five percent deposit is no small feat, brokers say.
Simon Cutler, Director of Blackdown Financial, said: “Even after entering into an Agreement in Principle (AIP), underwriting is still very restrictive.
“To qualify for a 95% mortgage, your client must have a 100% clean record and a perfect credit score. Lenders like to argue that they are offering these high LTV deals, but when it comes to underwriting they are trying to trip you up. “
Richard Campo, managing director of Rose Capital Partners, says he hasn’t had a lot of problems not processing 95% loan-to-value cases. His team orders the credit report before submitting an AIP and they will not submit the case if there are any missed or late payments as they know it will not be approved.
But even Campo’s strict approach to prequalified borrowers doesn’t have a 100% success rate.
“We recently had a case that was turned down. It was completely clean, we don’t know why it was rejected. Lenders use tight scorecards and any wrinkles will make it go away. “
Campo said the problem may have been that the borrower worked in the hospitality industry, although his job was not affected by the coronavirus.
“Maybe banks look to a specific industry when deciding who to lend 95% to,” he added. “If I were a lender, this is what I would do.”
The brokers agreed that in order to have the best chance of getting your 95% LTV trade approved, extra work was required. The support of business development managers has also been invaluable.
Jane King, Mortgage and Equity Advisor, Ash-Ridge Private Finance said that due to high house prices in London, Surrey, Hampshire, Berkshire and Middlesex, where she advises, she is dealing with many borrower applications. who need 95%. offers.
King says his first piece of advice to buyers is to “prepare to cut your laundry” because they won’t get an income multiple of five times their pay. After that, King insists on seeing her clients’ payslips so that she knows exactly how much they are making instead of using their estimated earnings.
“You would be amazed at how many borrowers are content to just know how much they earn or to stack a car allowance with their base salary,” she said.
“Lenders aren’t here to cheat on you. The surprises come from the fact that customers don’t tell you the whole story. “
King says lenders offering 95% LTV have never liked adverse credit, so their tight stance on clean credit is to be expected. She admits, however, that some of their political decisions escape many good buyers.
“Most won’t look at apartments and most want PAYE borrowers and no time off,” she says.
King praised Accord, a lender offering 95% transactions outside the government program, for its approach to reviewing independent candidates with a 5% down payment.
She said Accord was happy to review cases of independent borrowers seeking a 95% mortgage, and the outcome depended on the industry they worked in and the state of accounts.
Cutler chose Skipton Building Society, another loan offering mortgages outside of the mortgage guarantee system.
He said, “The broker has to do a good job from the start, and then with the help of a BDM, who knows exactly the appetite of the underwriters, you have a chance to succeed.”
Butler said the CMME team recently decided to complete the policy decision much earlier in the home buying process because of the volume of drops the company has received at high LTVs.
CMME specializes in mortgages for entrepreneurs and independent borrowers. “It is not based on any adverse credit problem,” he added. “We regularly receive denials or alternative loan decisions for clients with clear records and low unsecured debt.”
Samantha Partington is a freelance commerce and consumer journalist who writes on real estate and personal finance. Previously, she worked for the Daily Mail and Property Week. She is the former Associate Editor of Mortgage Solutions and Editor-in-Chief of Specialist Lending Solutions. Prior to becoming a journalist, Samantha worked as a mortgage broker and most recently for a mortgage, bridge and secured lender. Samantha is CeMAP qualified. Follow her on Twitter @ SamJPartington1.