Despite the increase in the Base Rate to 5% by the Bank of England in June, speculation remains as to when the next rate rise will come and where rates will peak. With the expectation that UK inflation will remain stubbornly high for longer, some experts are forecasting rates to reach as high as 7% and remain higher for longer than was anticipated earlier this year. In this uncertain climate, mortgage lenders continue to withdraw and re-issue mortgage products at short notice.
What can borrowers do to secure the mortgage they need?
Mortgage lenders with the most competitive rates are understandably extremely busy. They are also susceptible to withdrawing their products at very short notice (sometimes even hours) to restrict demand and re-issue products at either higher interest rates, with stricter criteria or even both. If borrowers want to secure these mortgages, they need to be well prepared with information, documentary evidence to prove they meet the lenders’ specific criteria and be ready to respond to follow up questions. If a borrower is unable to successfully submit their application and attain an ‘agreement in principle’ (AIP) they may find themselves unable to secure the mortgage they initially applied for.
What is an AIP?
Attaining an AIP is an early step in the mortgage application process. It is an indication from a mortgage lender about the amount that lender could potentially lend to you based on the initial information provided. An AIP is not a formal mortgage offer and the final amount and mortgage terms the lender is willing to offer you may differ from the amount stated in an AIP.
Understanding the underwriting process
The mortgage underwriting process involves the verification of the borrower’s identification, age and essential financial information such as employment status, level of income, assets and liabilities, credit history, property valuation etc. If a borrower meets the lender’s underwriting criteria, then an AIP will be issued. Every mortgage lender has their own criteria and there is no consistency across High Street Banks, Building Societies, Private Banks and Specialist Lenders. Therefore, before making a mortgage application, the borrower must ensure they have the necessary information to meet that particular lender’s underwriting process, otherwise crucial time may have been wasted by applying to a lender that does not fit the borrower’s personal circumstances.
What can a borrower do if the mortgage underwriter rejects an application?
There can be a number of reasons why the mortgage underwriter has rejected a mortgage application, such as:
- Inconsistences in the paperwork eg payslips are not consistent with mortgage application or bank statements;
- Discrepancies on the borrower credit reports;
- Excessive ‘other debts’ eg car loans, outstanding credit card balances;
- Misunderstanding of non-regular income.
Whether the decision can be overturned will be dependent on the borrower’s ability to rectify/explain the issues. However, if this cannot be carried out swiftly, then the particular mortgage product applied for may no longer be available and the whole process may need to be repeated, sometimes with a different lender.
Benefits of using a Mortgage Adviser
The role of a mortgage adviser is to carry out detailed research of the mortgage market, and provide advice and recommendations on the appropriate lender and mortgage product suitable for the borrower’s personal circumstances. Benefits of using a mortgage adviser are:
- Ensuring a borrower provides all the appropriate documentation when submitting the mortgage application;
- Advice on whether there might be any concerns with the application and recommendations on how to rectify potential issues prior to submission;
- When questions/issues are raised by the underwriter, the mortgage adviser can respond quickly, thereby ensuring time is not wasted. Often the mortgage adviser will be able to have a discussion with the underwriter to ensure discrepancies are rectified speedily.
In times of interest rate volatility, mortgage advisers who have comprehensive market access play a crucial role in securing a mortgage for their clients. When lenders are constantly re-pricing their fixed-rate products with little notice, it’s crucial that the application is submitted, and the mortgage product is booked, with the lender that can support the borrower with a final approval on offer. If a mortgage application is rejected, the mortgage adviser can find an alternative lender/mortgage product and resubmit the mortgage application, saving crucial time.
Next Steps?
Whilst comparison websites may be useful tools to assist with a borrower’s initial research, they do not necessarily provide detailed information on the lender’s underwriting process. To fully understand a lender’s criteria, the borrower can either submit a mortgage application directly to a lender or seek the advice of a mortgage adviser who can assist with the application and underwriting process.
Get in touch
If you wish to discuss your/your client’s personal circumstances with a member of our team, please call us at +44 (0)20 3871 2823 or email at [email protected]