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Non-status developer finance set to boost market damaged by MMR “mortgage police”
May 27, 2014Article by Ray Withers
New rules imposed by The Financial Conduct Authority (FCA) UK Mortgage Market Review (MMR) last month (26 April 2014) are feared to damage an otherwise healthy-looking market. Rates are at an all time low and upper age limits are being lifted, but these stricter impositions look likely to undo all the good work.
Interest rate “stress tests”
The MMR states mortgage applicants must now provide extensive and detailed information about their income and outgoings and that a mortgage lender must now “check that you can afford your repayments now and in the future. To do this they will need information about your income and outgoings. They will also look at how a rise in interest rates might affect your ability to keep up with your monthly payments.”
The “mortgage police” are here
The level of financial scrutiny has already earned the title of “mortgage police” and goes into detail and personal questions about applicants’ spending habits and life plans. These will include areas such as childcare, food, bills, loans and credit cards; through to personal grooming, hobbies and leisure activities. Lenders will also look for any impact future life changes might cause, such as starting a family and retirement plans. With couples wishing to start a family, enquiries will be made into salaries, maternity / paternity leave and plans to return to work.
Applicants will have to sit through longer interviews and provide more paperwork to back up their personal information. These industry-wide changes will also affect remortgages.
If lenders discover their applicants have lied, they face being reported to the police for mortgage fraud. Brokers have expressed concern that people might find it difficult to answer some of the more open-ended questions and it could put them in a “difficult position” when asked about their future.
MMR set to slow market recovery
The FCA has tried to calm industry fears. Martin Wheatley, chief executive of the FCA, told the BBC: “The core principle is a very sensible one – lend to people what they can afford to repay. We’ve come out of a period, particularly in 2008-09, when there was no attempt to verify people’s ability to pay and we’ve ended up with lots of payment problems, lots of people in mortgages that are problematic for them and if we had a different interest rate environment we’d see a lot of foreclosures.”
However, this is the biggest change to the mortgage market in a decade and could easily derail nationwide recovery of the housing market. While London and the South East, which are driving the recovery, might not be so badly affected, the rest of the UK is likely to see house price growth falter over the next three to six months. This won’t necessarily damage the market long term, but will definitely slow the pace of recovery short term.
Alternative finance on the up
Ray Withers, CEO of Property Frontiers, comments: “The full impact of the MMR remains to be seen, but in the meantime many property investors are turning to alternative finance options. Non-status developer finance, for example, is a long-term favourite of international investors who were unable to achieve traditional mortgage finances for their UK property portfolios. Recently we’ve seen an upturn in UK investors also selecting developer finance and that’s as an active choice – not only by those who were turned down elsewhere.”
Non-status developer finance number one choice
So what is non-status developer finance and how does it work?
In essence it is finance provided by the developer of the investment project, which ignores adverse credit history and is based on valuation only. The loan-to-value cannot exceed 65% of valuation or purchase price, whichever is the lowest. Repayment can be any period from 5 to 30 years and interest rates typically range from UK Bank Base +2.5% to UK Bank Base +8%.
Ray Withers continues: “We are able to offer up to 50% loan-to-value an interest rate fixed at 3.25% for 4 years, along with a deferred payment scheme option. This would be a great deal even if it wasn’t non-status! With our Bradford city centre development, our investors can have all this and also enjoy the security of having a fixed income with an insured deposit and 9% return.”
Get in touch on +44 1865 202 700 to find out more about non-status developer finance options available and how to invest in the off-plan Bradford city living development, from £50,000 to £90,000, with 25% discounts below market value from RICS and delivering a fixed rental income and a 9% return on capital.