Category: Mortgage
Head of Compliance Steve Adams reveals his highlights of one of our latest MI Online webinars. The event saw Paul Kane, NatWest Corporate Account Manager, explore not just the link between a rising BTL market and the potential for fraud, but what you as an adviser can do to protect yourself
Advisers love our MI Online series, delivering great ideas and useful insights into many areas of the industry. One recent webinar, hosted by NatWest Corporate Account Manager Paul Kane, explored the relationship between a rising BTL market and the potential for fraud. Paul also highlighted exactly what you as an adviser can do to protect yourself. In case you missed it, here are my key highlights from the session:
Potential business means potential fraud
Most of the recent industry debate has been focussed on the future of BTL after the 2016 stamp duty changes and the upcoming changes in tax relief. This is understandable, considering the potential impact and controversy on its benefits.
BTL is also the fastest growing sector, supported by low interest rates and population growth during a shortage of housing that has put increasing demand onto the sector. BTL applications have increased dramatically since 2011, but it is still predominately an amateur sector, with 63% of landlords owning only one property, despite what some media outlets suggest.
But it is exactly this increase in business levels and public focus that both distracts from potential fraud and attracts certain dangers, which is why ensuring that a strong fraud focus is maintained within the industry has never been more important. Potential business can often mean potential for fraudsters as well.
How does fraud tie in to the BTL sector?
It is important to know some key BTL fraud definitions beyond the broad meanings of Mortgage Fraud and Money Laundering. Mortgage Fraud is defined as “a crime in which the intent is to materially misrepresent of omit information on a mortgage application to obtain a (larger) loan than would have otherwise been obtained had the lender or borrower known the truth.” This can be split further into two categories: Fraud for property and Fraud for profit.
Differences in criteria means that BTL fraud is typically classed as Fraud for Property rather than Fraud for Profit, as it is quite normal for interest-only mortgages to be taken out on BTL. Attempting to get a mortgage on an interest-only basis may be a reason why people might be intending to misrepresent themselves and conceal their intentions.
This situation can attract fraud because interest-only is more common and affordability is not as strict on BTL, which may attract those wishing to not pay back capital on their mortgage. This can also attract organised criminals who are not interested in the property itself and simply want access to the lender’s funds.
There are also instances of Fraud for Profit, where professional, organised criminals engage in mortgage fraud simply to abscond with the mortgage proceeds and do not have a preference for a particular mortgage product. In any case, they do not have any intention of making repayments and will typically use false identities, sources of deposit correspondence and bank statements to support the application.
How can advisers protect themselves against fraud?
There are many ways in which advisers can protect themselves against potentially fraudulent activity. Undertaking due diligence is key to this, such as checking documentation and payslips from the applicant. Now that the days of poor quality photos and easily-identifiable obscurities have passed, advisers need to be even more vigilant to ensure they are able to clearly spot potential fraud. Knowing how license numbers are structured can be an example of this, as well as ensuring it matches with the other client details.
Checking the details on bank statements and knowing the expected format can also help confirm validity. There should always be a professional appearance to the statement, with no spelling errors, anomalies or suspect details, as well as showing the correct address as the expected residence.
Ask yourself: Do the credits match those on the payslip? Are they from the correct employer? Are they the right type of payments such as BACS etc? Does the activity on the statement match the current customer profile? Are they recent documents, and if not why can the applicant not provide a more up to date one?
What more can advisers do about fraud?
Working with lenders, networks and each other is a really important step in protecting yourself against fraud. Also, if you have had business introduced to you, ensure that you know as much as you can about them and have asked the right questions to protect yourself. Have you visited their premises? How long have they been in business and what is their reputation? Does anything appear suspicious? In other words, fact find your introducer in the way you would your clients.
If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.
Head of Mortgages and Insurance Stephanie Charman takes a look at clients with adverse history and what advisers can do to help them
There are many reasons why a client may have an adverse credit history and may need to consider a more complicated borrowing scenario. Knowing who you can turn to help your client in these circumstances is very important and we want to help you find the right solutions for your client wherever we can.
Why might clients with adverse credit need helping?
Someone with adverse credit will most likely have something on their credit history that could mean a regular high street lender will not want to lend to them. A low credit score can be detrimental when looking to borrow. This can be caused by something as simple as not being on the electoral roll, missing a bill payment or not having an established credit history, which is why helping your clients get ‘mortgage ready’ is really important.
Recent adverse is much more damaging to the client’s credit score as most lenders consider any adverse which is over six years old. Your client may also need to remortgage to consolidate existing credit, which may help them with their credit score in the long term but should be considered alongside other potential options. Bad credit also affects both parties if your client was named on an agreement that has caused adverse credit history, regardless of which party has caused the issue.
Who and what can help clients with an adverse credit history?
As we all know, bad credit can be repaired. This can normally take two or three years, depending on the severity of the adverse credit, and some clients may have already attempted to repair their credit using credit cards, small loan, or a finance arrangement.
Some specialist lenders do not even use credit scoring on prospective borrowers, although they will still examine a client’s file. Some lenders that do this are Magellan Homeloans, Precise Mortgages, Kensington Mortgages and Aldermore. Some other main lenders will also look at mild adverse but still credit score. Positive Lending can also be used for second charges and on some adverse borrowing needs.
BTL lending is really tough on those with adverse credit, especially when the credit is caused through previous arrears, defaults, missed payments or CCJs. In this case, Precise Mortgages may consider the client under some circumstances.
If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.
Stephanie Charman takes a look at the latest developments on the government’s Lifetime ISA: A new savings account to help young people save for a house, or retirement.
How does it work?
As of April 2017, anyone between the ages of 18 and 40 will be able to open a Lifetime ISA, or “LISA”. Any savings put into the account before the account holder’s 50th birthday will also receive an added 25% bonus. There is no maximum monthly contribution, they can save as little or as much as they like, up to £4,000 per year. The total amount someone can save each year into all ISAs will also be increased to £20,000 as of April 2017.
What can it be used for?
The savings and the bonus can be used to either pay towards a deposit for a first home worth up to £450,000, or to help fund retirement. As with the Help to Buy ISA, the accounts are limited to one per person, as opposed to one per home, which means a couple can save twice as quickly if buying together. This has made it a popular move for young couples hoping to plan for not just their first home, but their future as well.
What if they already have a Help to Buy ISA?
If they already have a Help to Buy ISA, the funds can be transferred over to the Lifetime ISA in 2017, or they can continue to save in both. But only one account will receive the bonus for a first home. So if they have both and intend to use the bonus on the Help to Buy ISA to go towards their deposit for a home, the Lifetime ISA must be used for retirement in order to receive the bonus on that account.
Can they also have a pension?
The treasury is keen to remind savers that the account is not a pension and therefore can exist and run alongside other long-term savings such as private pensions. Savers can still pay into a pension and get tax relief on their contributions.
Who will offer the Lifetime ISA?
The details surrounding who will offer the LISA is still being worked out. But as with the Help to Buy ISA, it will likely generally be offered by banks and building societies. The treasury says that the new LISA will be like other ISAs, in that the funds will contain a mixture of stocks, shares and cash. When the funds are eventually withdrawn, the returns will be free of tax.
When will they receive their LISA bonus?
If using the account for retirement, all the savings can be withdrawn tax free, including the 25% bonus, once they have reached their 60th birthday. It is possible to withdraw the funds before this time, but the governmental bonus will be lost, including any interest or growth gained. There will also be a 5% charge added if the funds are withdrawn before their 60th birthday.
If any or all of the savings are being used to go towards a residential property, the funds can be withdrawn at any time, as long as the account has been held for over 12 months, and will retain the full bonus. In this case, they will need to claim their bonus through their solicitor or conveyancer, which may be subject to additional fees.
If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.
Stephanie Charman takes a quick look at five of the most important tax and savings announcements to come out of George Osborne’s 2016 March budget.
The 2016 budget may have passed by without turning too many heads, but there were fact in some key changes worth noting:
Capital Gains Tax
The headline rate of Capital Gains Tax (CGT) is to be cut from 28% to 20%. CGT is an annual tax on the gain made from selling an asset (such as a person possession, second home or shares), which has gone up in value. It was also announced that the basic rate of CGT will be cut from the current 18% to 10% at the beginning of the new tax year. The reduction in CGT will not apply to residential property, which means the previous higher rates will still apply to gains from additional property.
Lifetime ISA
George Osborne announced the introduction of a new Lifetime ISA, to be launched in April 2017. This is to go alongside the Help to Buy ISA, which is available to help those saving for a deposit for a home. But the new Lifetime ISA, or “LISA”, can be used to save for retirement as well as a property, without paying tax on the interest earned. The new account is available to those aged 18 to 40 and offers a bonus of 25% on any savings, up to £4,000 a year, deposited before the account holder turns 50.
Tax Threshold Increase
One of the biggest announcements from the Chancellor was that the higher rate of tax threshold is to be raised to £45,000. This is a move surrounded by political controversy, especially in conjunction with the planned cuts in disability benefits. These changes are expected to save half a million people money, and are to be phased in to increase from £42,385 to £43,000 in 2016 and finally to £45,000 by this time next year.
Stamp Duty
As well as confirming the planned 3% stamp duty land tax (SDLT) surcharge on all purchases of additional homes, the government also withdrew the originally planned exemption for those with 15 properties or more. Osborne also announced that purchasers who move before they sell their main residence now have 36 months to sell and reclaim the extra stamp duty paid.
Personal Allowance
As well as the increase in the higher rate tax threshold, George Osborne announced that the Personal Allowance will increase to £11,500, from £10,600. This is the amount of money you must earn before you start paying income tax. The threshold will rise to £11,000 in 2016, eventually climbing to the new figure by April 2017.
If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.
Head of Mortgages and Insurance Stephanie Charman takes a look at the upcoming stamp duty tax changes on buy-to-let and second homes.
As of 1 April 2016 the stamp duty land tax (SDLT) on second homes and buy-to-let purchases will be increased by 3%. If that was not enough for landlords, the government has also announced that as of April 2017 the tax relief claimed by landlords on their financial costs will be capped at 20%, instead of the higher rate of 45%, which will be phased out over the following years.
Chancellor George Osborne also added that the current ‘wear and tear’ allowance afforded to those letting out furnished property would be scrapped and replaced with tax relief against the cost of replacing furnishings. With so many changes on tax all within a small time frame, it has created a complicated scenario for many landlords, who may be seeking the financial guidance of an adviser to ensure they make the right decisions.
In an effort to curb incentives for housing investment, the government has introduced the tax changes to “level the playing field” between landlords and first-time buyers. This has caused some controversy within the industry as some feel the changes are unfairly targeting landlords when the housing crisis is also affected by many other factors.
Some landlords are even considering incorporation and setting up a limited company to apply for their mortgages, to ensure their portfolio remains as tax efficient as possible. But this is a complicated area and these changes will affect each landlord differently.
If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.
Stephanie Charman highlights some useful ways to help landlords check their tenants’ ‘right to rent’.
From 1 February 2016 (December 1st 2014 in the West Midlands), landlords that let private rented accommodation must ensure they have completed a ‘right to rent check’ for all new tenants that began their tenancy on or after 1 February 2016. This is to ensure that the landlord’s tenants have the right to live in the UK before letting the property to them.
The government has designed the scheme with the help of a panel of industry experts, which included trade bodies, charities and local authorities. The government wants to update the landlord code of practice to include changes to the acceptable document list tenants can provide, whilst also making it as user friendly as possible. This is all part of the wider, stronger but fairer reform on immigration that the government wish to make.
Who is responsible?
Currently, any landlord that is found letting property to someone who isn’t a relevant national or in the country lawfully, could receive a penalty of up to £3,000 per tenant. For those using agents to rent out their property, they must ensure that the letting agents carry out the checks if they’re acting on a landlord’s behalf and have agreed to do them. These checks also apply when renting out a part or all of their home when taking in a lodger or subletting.
Someone who isn’t a relevant national but has permission to enter or remain in the UK also has a right to rent, but follow-up checks must be made by the landlord or agent. A relevant national can be either a British citizen, EEA national or a Swiss national. All of these can rent accommodation, but evidence that they are a relevant national must still be provided.
What is the right to rent tool?
When talking to your clients about their buy to let property, it is good for them to know that there is currently an online tool which can help them. The tool guides landlords through the process of checking if their tenants have the right to rent residential property in the UK, which will be mandatory procedure from 1 February. If they find that a tenant can no longer legally rent the property, they are asked to contact the Home Office, or face a fine for non-disclosure.
The government have released an online tool and a checklist . Both these tools will help landlords prepare for any checks imposed and ensure they have all the necessary documents and have asked all the questions of their tenants. There is also a full list of acceptable documents for proving relevant nationality available.
If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.
Head of Sales and Marketing Sharon Mawby takes a look at some recent industry announcements regarding army personnel
What is changing?
After recent announcements, our Broker Support Desk has received several enquiries concerning army personnel purchasing a new home. Research has shown that 55% of personnel have been underpaid on their Married Quarters following the new CAAS (Combined Accommodation Assessment System). Instead of being based on proximity to local amenities e.g. post box or phone box, it will now be based on other criteria such as internet access and energy efficiency. This assessment change has resulted in many personnel being advised their accommodation costs have increased.
This has also led to military personnel enquiring into the availability of the Forces Help to Buy. This is a scheme where they are able to apply for an equity loan equivalent of 50% of the personnel’s annual salary, up to £25k. The loan is interest free and repayable over 10 years and must be input as a financial commitment. The funds can be used toward a deposit as well as assisting in the costs involved with the purchase.
What if they are purchasing and get orders to be posted overseas?
Until recently, if the service personnel was being posted overseas for more than six months without family residing in the property, they could only purchase as a buy-to-let. But many lenders have now changed their stance on this following an agreement with the British Bankers Association (BBA) and the Armed Forces Covenant Financial Services. Concerns were raised about the increase in costs of having to have the property as a buy-to-let, despite the intention to live in the property. Barclays Mortgages believe this results in £100 a month of additional costs.
Now the position among many of the big lenders, with more joining all the time, is that the property can be purchased on a residential mortgage and then given consent-to-let. This removes the need for the additional costs on a property the personnel are going to live in once their orders have come to an end.
If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.
Stephanie Charman takes a look at the upcoming changes on shared ownership, which means good news for first time buyers.
To further bolster the dreams of home ownership in the UK, the government has revealed plans to loosen the rules around shared ownership. As of April 2016, the changes will open the previously limited scheme to 175,000 more households in the UK, with a deposit as small as £1,400 enough to start owning a home.
The restrictions imposed by councils on who is eligible to apply for the shared ownership scheme will be relaxed, opening up the way for many more people. Up to now, only those in certain public sector professions, such as key workers, were able to apply for the shared ownership scheme. But after the changes, the only restriction in place will be a maximum household income of £80,000 (£90,000 in London).
All part of Mr Cameron’s promise to build a “nation of homeowners”, the relaxed shared ownership rules will mean more people will be able to part-rent, part-buy a home. Currently, the rates of home ownership have fallen steadily over more than a decade, from 71% in 2003 to only 63% in 2013-14. Some experts believe that this move may see many social landlords actively developing their tenure, based on the knowledge that demand will increase.
These changes were originally planned to be part of the Help to Buy: Shared Ownership Scheme in 2018, but in the face of increasing house prices Cameron has pushed it forward to encompass existing homes as well as those built under other governmental programmes. In an effort to create a more stable and promising environment in which developers can build, the government continues to spur demand across the housing sector in 2016.
If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.
Head of Mortgages and Insurance Stephanie Charman explores the key highlights from the upcoming Stamp Duty changes from the government.
Plans to raise the Stamp Duty Land Tax (SDLT) on second homes were initially announced in 2015’s autumn statement from Chancellor George Osborne. Now the changes are approaching fast, and as of 1 April an extra 3 per cent stamp duty levy will be weighed on buy-to-let purchases and second homes (over £40,000). This could initially cause an increase in applications as people rush to complete purchases before the increase comes into effect.
Since the announcement on stamp duty in November, more details have emerged over the festive period. Although the specifics surrounding married couples, joint ownership, businesses, foreign ownership, multiple holdings and low value transactions are still being consulted over by the government, experts have already suggested that the stamp duty rules surrounding most areas affected are tighter than expected.
One of the more controversial specifics is that the additional stamp duty levy will be applied on all purchases, even those up to the value of £125,000, that fall under the criteria of a second home. This is a surprising move as even a main residential purchase on the first value band is not subject to any stamp duty land tax at all. Now as of 1 April, rates of stamp duty will be as high as 15 per cent for certain high value homes, which could indeed cause many investors to pull out of the industry altogether.
If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.
Stephen Adams, Head of Compliance at Mortgage Intelligence, explores some of the potential ways the Mortgage Credit Directive could impact your clients.
After the Mortgage Market Review (MMR) in 2014, few expected such a similar piece of legislation to be hot on its heels, let alone affecting the whole European region. But on 21st March 2016 the Mortgage Credit Directive (MCD) will come into effect, in an effort to further protect consumers and create a sole mortgage market in Europe.
Although there is some debate as to whether this further legislation will actually add additional benefits to consumers, it will impact both residential mortgage lending and lending for buy to let. The UK’s regulatory body, the Financial Conduct Authority, with implement the changes here, but what specific areas will be affected?
Buy to Let and Foreign Currency
More specifically consumer buy to let (CBTL), the MCD will cover the minority of buy to lets where the borrower has not taken out the mortgage for business or investment purposes, or as an Investment Property Loan (IPL). From March, certain consumers, or “accidental landlords”, that have had to take out a BTL as a solution to circumstances, such as an inherited home or Let to Buy transaction, will find they fall under the new regulation.
Foreign currency loans will now be subject to further regulation, in some cases restricting the loan size and requiring a warning around possible rate changes. The MCD defines a foreign currency loan as “a mortgage denominated in a currency other than that in which the consumer receives the income”, or if they hold the asset from which the credit is to be repaid”. Because of these changes, there are some lenders that are already withdrawing their lending on foreign currencies.
The Sales Process and the “ESIS“
The European Standardised Information Sheet (ESIS) has been one of the more contentious announcements as part of the MCD. Having to abandon our own Key Facts Illustration (KFI), the UK must now adhere to the new ESIS sheet, or in some cases a KFI Plus prior to application. Many lenders are already adjusting to the new rules, choosing whether to move to the ESIS immediately in March or temporarily to the KFI Plus.
Although the UK’s MMR in 2014 put us in good stead ahead of MCD, the changes are nevertheless conflicting with some of our own regulation that has been tailored towards the UK market. The general sales process, which in each country can vary markedly due to certain differences in mortgage systems and languages, will now be restricted to a standardised, continent-wide law that requires certain steps to be taken before a mortgage is completed.
Protecting the Consumer?
Some experts have criticised the MCD as potentially confusing for consumers, rather than protecting against financial detriment as was the goal of the changes. But either way the MCD is tightening further the rules around financial promotions to be clear and not misleading, which can only help further protect consumers.
The MCD also ensures that lenders are required to now issue binding offers to consumers as well as a seven day reflection period which will start on the issue of the binding mortgage offer. This is designed to deliver peace of mind and further security to consumers.
If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.