Big Problem With Mortgage Applications

[jplevene]

I have a friend who in the last 4 years has saved over £300,000.00, bought 2 properties in cash for £400,000, new cars, etc, all in cash. He has tried to get a mortgage for £550,000 using a large deposit and has been turned down as they say his earnings aren't enough because of how his tax was structured and that his credit score was low because he had no debts.

Yet another friend who is in debt upto his eyeballs, doen't earn half as much, has no other properties, cars on HP got the same mortgage easily.

The banks have been told to toughen up, infact the system they are using is just going to make even more trouble and leaves them just as vulnerable.

Instead of credit scoring and 5x wages they should do as follows:

Prospective buyers who are self employed or even sometimes employed and had a recent large raise should be allowed to get accountants to do an "Affordability Report" for their mortgage application. This would be fairer as well as being cheaper, more accurate and easier for the banks and the client. The test should include:

1) An assessment of all money earned in the past 3 years and due to earn over the forthcomming year.

2) A breakdown of current assets and debts (thus a measure of the client's wealth).

3) A breakdown of expenses in two lists, one list of expenses that they would still have with the new house and the other list of expenses they wouldn't have such as rent, etc.

4) The accountant should asses if the client had the mortgage over the previous year, could they afford the repayments as well as having at least 25% surplus cash left over that could be put towards savings/emergencies/investments. They would also be allowed to do a prediction for the upcomming year using the same figures if the client has had a wage increase, etc.

5) Should the client subsequently default on mortgage payments or not be able to afford the payments, the accountant would have to pay towards a subsequent affordability test by another accountant, and if it was found that the client could not afford the mortgage due to an inacurate "Affordability Report", the accountant would be responsible for any bank losses (insurance would cover this). However if it was found that it was due to unforseen circumstances, then it would be the bank that would have to bare responsibility and repay the accountant for the subsequent affordability test.

[Bloo Loo]

computer says no.

You dont actually think banks want to EARN the right to give mortgages.

They everything in their power to reduce the cost of lending....for themselves.

[noodle doodle]

his credit score was low because he had no debts.

You just rate higher if you've had a loan of any kind and paid it off without defaulting, as what they're looking for is evidence you can handle a debt, not evidence you've got loadsa money. Apparently never having had a credit card counts against me on some level then again I might go completely bonko if I got one and lose some of the banks money

[jplevene]

computer says no.

You dont actually think banks want to EARN the right to give mortgages.

They everything in their power to reduce the cost of lending....for themselves.

Thing is this reduces the cost of lending and reduces the risk for the bank, as at the moment they have to do the tests by letting computer say yes or no. If they allowed one mortgage through due to lies or inacurate information, then they would be responsible.

It is a win win situation for all, especially the banks.

[Bloo Loo]

Thing is this reduces the cost of lending and reduces the risk for the bank, as at the moment they have to do the tests by letting computer say yes or no. If they allowed one mortgage through due to lies or inacurate information, then they would be responsible.

It is a win win situation for all, especially the banks.

I agree, sadly, professional bank "managers" would be needed.

21 year old bank managers that infest the system are not really up to the job of judging people....I mean...personal responsibility in a bank??

[gf3]

It's a shame they don't calculate it on how much tax the person pays over 3 years. so the self employed that fiddle ends up with out the mortgage.

[Riedquat]

You just rate higher if you've had a loan of any kind and paid it off without defaulting, as what they're looking for is evidence you can handle a debt, not evidence you've got loadsa money. Apparently never having had a credit card counts against me on some level then again I might go completely bonko if I got one and lose some of the banks money

For evidence of financial responsibility managing to live without debt at all up to now seems a much better indicator, quite frankly. Still, you need to play the system, which is one reason why I use a credit card occasionally (never actually paid any interest on it, and never used it for anything where I'd get charged more).

[Confounded]

I have a friend who in the last 4 years has saved over £300,000.00, bought 2 properties in cash for £400,000, new cars, etc, all in cash. He has tried to get a mortgage for £550,000 using a large deposit and has been turned down as they say his earnings aren't enough because of how his tax was structured and that his credit score was low because he had no debts.

If he has saved 300k and bought 400k of houses all in cash saved over a 4 year period why does he not just save for a few more years and then buy in cash again?

[Democorruptcy]

I have a friend who in the last 4 years has saved over £300,000.00, bought 2 properties in cash for £400,000, new cars, etc, all in cash. He has tried to get a mortgage for £550,000 using a large deposit and has been turned down as they say his earnings aren't enough because of how his tax was structured and that his credit score was low because he had no debts.

Yet another friend who is in debt upto his eyeballs, doen't earn half as much, has no other properties, cars on HP got the same mortgage easily.

Why would they lend to the person with a large deposit when they can screw the debt junkie with a higher rate mortgage? It's like a saver putting his money in a bank at 3% instead of where he can get 6%. There is no risk for the bank now taxpayers are stood behind them dressed in gimp suits.

[MC Fur Q]

Someone, somewhere will be willing to lend to him, just not this specific deal. Maybe he ends up paying a slightly worse interest rate but it's not all over yet.

Maybe this guy ought to go to a mortgage broker who can look about for the best deal among those that would be willing to lend to him?

[Hyperduck Quack Quack]

I have a friend who in the last 4 years has saved over £300,000.00, bought 2 properties in cash for £400,000, new cars, etc, all in cash. He has tried to get a mortgage for £550,000 using a large deposit and has been turned down as they say his earnings aren't enough because of how his tax was structured and that his credit score was low because he had no debts.

He's got plenty already and doesn't need a mortgage. Perhaps this mortgage lender actually has some principles and thinks it's better lending the money to a couple of first-time buyers. Edited February 10, 2011 by Hyperduck Quack Quack

[MinceBalls]

has been turned down as they say his earnings aren't enough because of how his tax was structured

I feel so sorry for him.

Maybe if he declared his actual income and paid tax on it everything would be fine for him?

I have several friends in the city who are on 150K + per year and they don't pay as much tax as I do (and my wages are more than 3 x less). Am I supposed to feel sorry for them when it bites them is the ass because they cant get a mortgage? No.

[jplevene]

You certainly seem to have a lot of friends with money/no money who can get mortgages/cant get mortgages

http://www.housepricecrash.co.uk/forum/index.php?showtopic=158975&view=findpost&p=2883035

Same friends, just got final details and came to fruition. Sorry forgot about last post.

Looked into it a bit more and found it is not the bank but regulation set by FSA and/or Mystic Merv.

I spoke to a Mortgage Advisor friend who pointed out a few more advantages of the "Affordability Report" method:

1) Less work for the banks, thus saving them money (not sure this is good, but maybe they would pass on the savings)

2) If the Affordability Report uses a similar type of principal as house surveys in that Accountants complete a standard form. This would also enable banks to continue to use "16 year old school leaver managers" as they could still use the "computer says no", but it would do so on a more accurate measure of wealth and earnings.

3) Affordability Report should still be crossed checked with standard Credit Checks which would also show up lies, such as debts not declared.

4) Banks could still use current method, but should also be able to use Affordability Report

5) Would startup a new industry of accountant firms offering standard rates to do Affordability Reports. Creating a new industry, creates more wealth, growth and jobs.

6) He also said that the banks would also greatly benefit as there was no security with liar loans, whereas now the Accountant would want the report to be as accurate as possible as they (or their insurers) would be liable for bank losses (this could be all money not reclaimed from the repossession) should the report not be accurate.

The problem with the richer friend is that he made lots of his money buying, renting and selling properties which was mainly taxed as capital gains. Using the current system, this immense profit does not account for earnings, so the bank computers say he had earned very little money. Go figure ????

[jplevene]

I feel so sorry for him.

Maybe if he declared his actual income and paid tax on it everything would be fine for him?

I have several friends in the city who are on 150K + per year and they don't pay as much tax as I do (and my wages are more than 3 x less). Am I supposed to feel sorry for them when it bites them is the ass because they cant get a mortgage? No.

He paid the tax, but it still didn't count as it was capital gains as the regulation says that it can't be included. Over the next few years he will earn loads more capital gains, pay the tax, etc.

[xux42]

I feel so sorry for him.

Maybe if he declared his actual income and paid tax on it everything would be fine for him?

I have several friends in the city who are on 150K + per year and they don't pay as much tax as I do (and my wages are more than 3 x less). Am I supposed to feel sorry for them when it bites them is the ass because they cant get a mortgage? No.

If they are contractors they can simply give themselves a huge payrise, collect it for 3 months to get the bank statements to show the lender and then cut their salary back down to min wage + a bit to avoid the taxman taking an unhealthy interest.

Its wicked and cynical but legal.

[Bloo Loo]

Same friends, just got final details and came to fruition. Sorry forgot about last post.

Looked into it a bit more and found it is not the bank but regulation set by FSA and/or Mystic Merv.

I spoke to a Mortgage Advisor friend who pointed out a few more advantages of the "Affordability Report" method:

1) Less work for the banks, thus saving them money (not sure this is good, but maybe they would pass on the savings)

2) If the Affordability Report uses a similar type of principal as house surveys in that Accountants complete a standard form. This would also enable banks to continue to use "16 year old school leaver managers" as they could still use the "computer says no", but it would do so on a more accurate measure of wealth and earnings.

3) Affordability Report should still be crossed checked with standard Credit Checks which would also show up lies, such as debts not declared.

4) Banks could still use current method, but should also be able to use Affordability Report

5) Would startup a new industry of accountant firms offering standard rates to do Affordability Reports. Creating a new industry, creates more wealth, growth and jobs.

6) He also said that the banks would also greatly benefit as there was no security with liar loans, whereas now the Accountant would want the report to be as accurate as possible as they (or their insurers) would be liable for bank losses (this could be all money not reclaimed from the repossession) should the report not be accurate.

The problem with the richer friend is that he made lots of his money buying, renting and selling properties which was mainly taxed as capital gains. Using the current system, this immense profit does not account for earnings, so the bank computers say he had earned very little money. Go figure ????

your mortgage advisor speaks no sense whatsoever.

new industry for affordability reports. no security in liar loans...cross checking nonsense, less work for banks.

one does have to ask?...why do we need banks at all when their entire operation is a form filling computer says no.yes?