Promise: Tunnel vision

For mortgage brokers, the alignment of the first and second charge market has, in many ways, highlighted the similarities between the two markets, but still tunnel vision persists with some brokers only considering a second after the first charge has failed. However, that same tunnel vision can also hamper those operating in the commercial or bridging sector and this really highlights the value of dealing with a specialist which can look at all the options. The old adage “stick to your knitting” just doesn’t apply to financial services.

At Promise we are trying to help brokers to explore and learn about multiple products to better serve their clients, especially with the more complex cases. What may start life as a commercial enquiry can utilise residential products and a regulated second charge enquiry might ultimately end up with a commercial element. We call them “blended solutions” and it’s something that brokers should consider regardless of the security type or circumstances involved. Particularly with commercial or bridging enquiries we encourage brokers to look at all the options available to them and to join us in looking outside the box to find a solution. Often this can mean taking a step or two backwards in the process to re-establish what the client wants to achieve and what options are at their disposal. A £100,000 second charge to prop up a commercial deal may intimately be swallowed up in a commercial remortgage with a different lender for the full amount. Getting the lowest rates on a bridging loan may be irrelevant if it doesn’t complete on time. Tunnel vision can simply result in focusing on the wrong thing.

Let’s look at some examples.

We were recently approached by a broker who was arranging a BTL mortgage, but needed a faster solution and wanted the best bridging rates for his customer. However, the bigger challenge was he wanted to complete on a purchase before the new stamp duty deadline kicked in. We picked the case up on Tuesday 29^th March, just after the Easter bank holiday and the case needed to be funded by close of business on Thursday 31^st allowing just three working days. Having established there was sufficient equity in the portfolio to allow a cross charge, the broker threw in to the mix the fact that the client resides in Cyprus. Interest rates were the least of the problem.

The need for a three-day turnaround from initial enquiry really focuses the mind and after in-depth conversations we identified the lender which would be able to work on its own assessment of valuation and have the resource of in-house legals that would rapidly increase the speed of these important stages. When speed is the main driver, every party involved must be on the same page, including the client who arranged to fly into Manchester, meet with the lender and provide the necessary signatures, allowing the lenders in-house legals time to get the charge registered. This case was funded at 10am on Thursday 31^st with the exit being the original buy-to-let mortgage, but saving the client a significant increase in stamp duty liability and the interest rate was not significantly higher than the mainstream lenders.

As another example, we had two applicants. One, aged 79, was an experienced investor with three commercial shops, a squash club, five buy-to-let properties and 20 acres of lands. The second, aged 37, had no experience in property and had never held a mortgage. The broker was looking for a traditional mortgage to purchase a buy-to-let worth £255,000 with a 40% deposit.

The applications were declined for a standard buy-to-let first charge due to applicant one’s age and applicant two’s lack of mortgage experience. However, by taking a step back, forgetting BTL mortgages for a moment, it became clear there was a lender who was willing to do the deal on a commercial basis without the need to create a limited company, utilising applicant one’s experience, but applicant two’s acceptable age. We were able to secure a 60% LTV commercial investment mortgage on a five-year review basis amortised over 20 years to maintain affordability at a rate of 3.47% above Libor.

If brokers are faced with a complex scenario, letting someone else look at it through a different set of eyes can make the difference. But take care not to prejudge the solution by asking for a second charge or a BTL first. Tunnel vision can also be infectious. Paint the picture, explain the problems and ask for help – whatever that might look like.

Attributed to Marc Biddle, Commercial Manager at Promise Solutions.