Mortgage brokers joined H&R for Intermediaries’ senior decision makers around the table for the first ‘on tour’ meeting of the Building Society’s daily Mortgage Referrals Committee as it discussed and decided on their niche lending cases.
Introducers from L&G Mortgage Club, Savills Private Finance, largemortgageloans.com and Alexander Hall got front row seats at the first hosting of the MRC away from H&R’s HQ.
The MRC tour kicked off at L&G’s offices at London Wall and considered a dozen potential mortgage applications harvested from a morning of one-to-one meetings Hinckley & Rugby staff held with the brokers attending and also including John Charcol, Capital Fortune and Mantra Capital.
In all, nine cases were given the green light to proceed, two were sent back with a question and one was declined. Hinckley & Rugby’s MRC meets every working day at 3pm in Hinckley but will now schedule additional ‘on the road’ dates around the country.
The Society is also to invite brokers to join in the MRC meetings via video conferencing such as Skype. They will also be welcomed to Hinckley to sit in on an MRC meeting at the Society’s new head office after its move later this year.
Joining the MRC in London were: SPF Private Clients associate director Gareth Lowman and associate Lisa Weavers; L&G Mortgage Club key relationship manager Adam Sheldon and development & relationship assistant Sarah Persad; Alexander Hall’s director of lender relationships and new homes Greg Cunnington; and largemortgageloans.com managing director Richard Merrett.
They sat amongst the Hinckley & Rugby team of chief executive Colin Fyfe, chief financial officer Andrew Payton, chief customer officer Dean Waddingham, head of sales and marketing Carolyn Thornley-Yates, head of mortgages Julie Chapman and her deputy Jaime Taylor and, from H&R for Intermediaries, Emily Smith and Evan Crosskey.
The 12 cases considered included: an interest-only remortgage; RIO; capital raising to buy the family firm’s commercial premises; later life lending taking the applicants to 87 and 93 years of age; an applicant’s business being hit by a one-off big loss on a contract; the conversion of a former care home; and parent and child Joint Borrower Sole Proprietor.
Gareth Lowman said: “It’s really great to see a credit committee live and hopefully giving the right results for us as brokers. It is interesting to hear the dialogue, the challenges and how the committee strives to deliver a workable solution.”
And Greg Cunnington said:
“Manual underwriting is really needed, and is becoming more so to intermediaries as more complex client scenarios and requirements are increasing. To see this in action is truly valuable.”
Lisa Weavers said: “As a broker I see the beginning of the process and I see the end, but not the bit in the middle. So it is very helpful to know what you, as a lender, are looking for.”
Richard Merrett said: “It was great to be involved with H&R’s Mortgage Referrals Committee meeting; a valuable insight into how lending decisions are made in a building society operating in the specialist market.
“It was extremely positive to see such a genuine level of flexibility and desire to deliver good customer outcomes.”
The MRC approved the case Lisa brought to it. She said: “This will be your first case with Savills Private Finance after joining our panel. From this meeting I can now go and tell everyone else that I’ve seen you do it.”
Colin Fyfe said:
“We all got so much out of our first MRC on the road. Visiting half a dozen brokerages and then inviting brokers to join in the MRC meeting was a great opportunity to connect everyone involved in the cases and the decision making.
“We all play a role in the process, we all depend on each other providing the information and the experience to see each case in the round, to understand the nuances that manual underwriting can take in its stride. We want to do more of this and invite more brokers to get involved.”
The cases considered were:
Case 1: £75,000 interest only loan at 30 per cent LTV with a 15 year term, to gift to the applicant’s daughter for a property purchase.
The applicant is 60 and jointly with her husband owns an unencumbered BTL worth £600,000 that is currently for sale. She is happy for there to be ERCs but does not intend to pay off the mortgage if the BTL sale goes through. The MRC considers her age, income, LTI of 3.4 and it’s a ‘yes’.
Case 2: £410,000 repayment remortgage with capital raising to purchase the family firm’s commercial premises. LTV is 51 per cent and the term is 15 years.
The 58-year-old applicants own a business facing a significant rent rise, so they want to buy the premises using £250,000 of the advance. The MRC looks at average incomes over the past two years and factor in that if the business is not paying £70,000 in rent it will increase the capacity of the couple to take more money out of its profits. If the business accounts can be inspected, it should be a ‘yes’.
Case 3: A couple aged 67 and 73 want to capital rise £100,000 for home improvements. One is a company director, the other a retired teacher. The term is 20 years and the LTV is 31 per cent.
The MRC looks closely at the two applicants’ incomes which create an LTI of 2.5. They both have life insurance and savings. What happens if one dies is considered, plus what happens to the director’s shareholding. They and the brokers discuss RIO mortgages and the appropriate level of experience and knowledge intermediaries should have in this sector. After further discussion, the MRC verdict is ‘yes’, pending further information about the shares in the company.
Case 4: A JBSP application by a mother and her daughter who is training to be a doctor. They want to borrow £327,000 at 85 per cent LTV on a 28 year term.
The mother has a sizeable income from her business, but the company suffered a loss in 2017 due to an unpaid contract and she only took a small amount of money from it that year. The business recovered and the MRC considers if it can consider her retained profits as income. The company’s accountant has confirmed the improved outlook and the daughter qualifies in a year when she can expect to start sustained rises in income. The MRC resolves to ask the broker to see if the applicants can bring in the husband/father or would be happy to look at a maximum LTV of 75 per cent. Either scenario would be a ‘yes’.
Case 5: A barrister who has switched specialism and location wants £430,000 at 54 per cent LTV.
The major change in where the barrister lives and what area of the law he specialises in led to a dip in his newly self-employed earnings which have since recovered. His joint applicant is a junior doctor. There is also a BTL with a mortgage balance of £440,000 on a value of £750,000. The MRC says ‘yes’.
Case 6: An 80 per cent LTV loan wanted for £528,000 to buy a 10 bedroom former care home for conversion to a five bedroom house.
One of the brokers talks about the market interest in former HMOs being converted to family homes, but it being underserved by lenders. The MRC looks at the high LTV, high LTI and wonder if the applicants could use some savings to lower the LTV as there is a level of development risk. The MRC says ‘maybe’.
Case 7: A 62 year old wants £420,000 at 90 per cent LTV on a 13 year term.
The manufacturer has been taking increasing dividends from his business, which are needed along with proposed pension income to achieve affordability. A shared background property is on the market, so the MRC is happy to be told an ERC product has been identified. They are keen to have sight of the business accounts to check the dividends have not impacted its future. The pension won’t last the term if there is significant annual drawdown. It’s the first ‘no’.
Case 8: A later life application by a couple aged 79 and 80 who want £250,000 on a £2m property – an LTV of 13 per cent – for a five year term.
The MRC considers the transferability of the significant pension incomes of each applicant. Downsizing has been identified as the repayment vehicle. Plus there are four BTLs in the background. It’s a ‘yes’.
Case 9: A father and son JBSP, for a 90 per cent LTV loan of £200,000 on a 29 year term.
The son is an engineering student and his dad earns a six figure annual combination of salary and dividends. The LTI is just 1.65 per cent. Dad’s income boomed in 2016-18 but the MRC looks at 2015-16 to be a more accurate representation for its affordability check. The LTV is high but the other pillars of the lending proposition are strong. It’s a ‘yes’.
Case 10: The applicant has taken over running the family firm so only has one year of income in his new role. He wants £550,000 at 69 per cent LTV.
Although only his 2018 income is six figures, the applicant has worked for the firm for more than a decade. He owns a third share too. An MRC member has seen the accounts. Other lenders have been uncomfortable with the relationship between this and a sister company. The borrower was ready to exchange last Friday but was told that same day that the lending bank was pulling out. The LTI is relatively high at 4.45 but the net free pay is considerable. It’s a ‘yes’.
Case 11: One applicant is a professional sportsman married to a pilot, both on six figure salaries, wanting to borrow £400,000 at 80 per cent LTV with an LTI ratio of 4.49.
The pilot is a foreign national paid in a foreign currency. The MRC mulls over that the sportsman can afford the mortgage by himself but it is a stretch. They want part-repayment, part-interest only, so after 10 years the LTV would be down to 60 per cent. His playing career should last for that kind of time. Hinckley & Rugby can’t build in the pilot’s foreign earnings but would be more comfortable if she was party to the mortgage. It’s a ‘yes’.
Case 12: A like for like remortgage to remove a former partner from the deeds. A low LTV of 25 per cent on a home worth £2.4m.
The applicant wants to put £400,000 into an offset account and live on this as well as pay the mortgage interest. She has a US$ SIPP. The MRC looks at how the deal can be formulated to make it work for the lender and borrower. Could there be less offset, could a bond be used? The broker will be asked to discuss the options.