Conservative Party Conference October 2011
Helping kick-start the housing market
Prepared for EMMA CARIAGA
Belgravia Top Up Lending Proposition
“Capital adequacy and responsible lending issues have created a market where borrowers realistically require a deposit as high as 25%. The result is a struggling housing market. The Belgravia top up lending proposition is unique in securing a framework for lenders to share risk and to meet capital adequacy and responsible lending requirements. It provides borrowers with access to true, responsible 90% lending. The scheme is privately funded with over £250m available – double the government allocation. Whilst supporting home builders in their sales needs, it also allows them to recapitalise in months rather than years.” John Lloyd BA (Hons), MBA
John Lloyd 07595953277 Robert Rogers 07914818651
Background: Capital adequacy and responsible lending issues have created a market where borrowers realistically require a deposit as high as 25%. There are a large number of 90% loans available and there are great aspirations for 95%, but the reality is that the banks cannot afford the capital reserves to substantiate such lending and the FSA demand substantial validation for high risk lending. The result – a struggling housing market.
Current solution: The current solution is the government-backed shared equity scheme. This facilitates a sale by offering an equity loan to bridge the finance gap. There are two issues: the amount of funding required from both builder and government at this time on the one side, and the open-ended financial commitment on the borrower, on the other hand. The borrower has no idea what level of finance they may have to raise in years to come, or indeed, what their financial position will be at that time.
Proposed solution: Top up lending in a new transparent scheme.
10% personal deposit. This promotes responsible lending. The default rate at 95% compared to 90% is considerable. This requirement provides confidence to lenders. 75% first charge loan. This facilitates good quality low LTV lending. It meets capital adequacy requirements.
Lender Transparency Document.
A new document & procedure introduced to summarise the total lending required. This document details both lenders, the borrowing requirement, the product, the rate charged and the monthly repayment. This supports the requirement on the lenders (whilst underwriting at 75% and 15% respectively) to apply an overall affordability measure at 90%. The document allows both lenders to communicate under the Data Protection Act. 15% top up loan. This is offered by the builder on commercial terms. RICS has confirmed that this transaction does NOT constitute an incentive
and, as such, should NOT be recorded on the CML declaration of incentives form. The builder holds the loan for a minimum of 3 months. This provides a payment profile before sale. The builder sells the loan on commercial terms in month 4, assuming the first 3 monthly repayments have been received. The loan note is sold at a discount of 33.3%, offering an excellent return for the investor and an immediate recapitalisation for the builder. The 33.3% discount is similar in cost to the builder to 5% of the purchase price.
Costs: The top up loan is a fixed loan of 15%. The amount repaid is fixed at 20%. The repayments are fixed. The duration of the loan is fixed (10 years). There is an administration fee for the top up loan (maximum £275+vat). There will be a range of first charge products offering feefree or lower rates. Example: £100,000 purchase price, 15% loan = £15,000, amount repaid 20% = £20,000 over 120 months £166.66 per month.
Mortgage Sale Agreement: The lenders and builder will sign up to the MSA in advance. Firmly entrenched in this agreement are the arrears management protocol and loan terms, conditions, rate and duration. This protects the consumer and the reputational risk of the lender and builder. The builder has asked for an option to buy back a property in the event of a potential repossession. This may be exercised where the default is immediate and occurs on a house at the commencement of a development.
Panel management: The scheme requires the use of panel lenders, solicitors and IFAs. Belgravia will manage appointments to the panels. The scheme must be controlled and transparent. The solicitors and IFAs will be trained in the product and must agree not to profiteer from their panel appointment.
Branding: The scheme can be branded to meet an individual builder requirement. Barratt have selected a brand of Easy Step. The product will be supported by a brochure and information website. The website offers details about every component in the scheme, as well as supporting the home builder and home hunter with a range of free house buying tools.
Easy Step for Barratt Purchasers
Providing an Easy Step on to the property ladder
Only 10% deposit Take 75% mortgage Plus
15% top up loan
Struggling to secure a mortgage or save a large deposit? Barratt Easy Step is here to help.
You only need 10% deposit
Barratt lends you 15% over 10 years
This means you only need a 75% mortgage
75% mortgages are easier to secure than a conventional 90% loan from the same lender
Terms and conditions apply. Scheme cannot be used in conjunction with any other Barratt offer. Ask your sales adviser for full details. BDW Trading Limited (company number 03018173) whose registered office address is Barratt House, Cartwright Way, Forest Business Park, Bardon Hil l, Coalville, Leicestershire LE67 1UF (“BDW”) BDW is a subsidiary of Barratt Developments PLC. BDW provide a loan for 15% of the purchase price of the property which is secured as second charge on your property.
Easy Step for Barratt Purchasers
If you only have a small deposit of 10% Barratt Easy Step is designed to help Easy Step is a top up loan of 15% of the property value repaid over 10 years with fixed monthly instalments. Easy!
How Does Easy Step Work?
Your lender will require you to have a 10% deposit. Your mortgage will be for 75% of the property value. Barratt Easy Step offers you a top up loan of 15%. The Easy Step loan is for a fixed amount (15%) for 10 years with fixed repayments and a fixed interest rate. At the end of 10 years you will have paid off your 15% loan (plus interest).
Do I Qualify?
You must have a deposit of 10%.
You must be accepted for a 75% mortgage granted under this scheme from a participating lender.
This lender will ensure that you can afford to pay a total loan of 90%.
You must pass a credit assessment undertaken by the second loan provider.
Does This Mean I Have Two Loans? Yes. Firstly, you will have a mortgage for 75% of the property value. This may be fixed or discount — your Independent Mortgage Adviser will help you choose. Secondly, you will have a fixed rate top up loan of 15% of the property value. Add the two payments together to compare the cost to a conventional 90% loan.
Barratt Easy Step Loans Barratt Homes is not a financial institution and will, therefore, look to such institutions to take over our loans as soon as it can. This allows us to keep offering the product and helping purchasers to secure an “easy step” on to the property ladder. Assuming banks/lenders take over our loans, nothing changes so far as the borrower is concerned. The rate, the terms, the monthly repayments, the direct debit/standing order always remain the same.
Easy Step loan
The Easy Step loan is repayable in equal instalments of £166.66 including interest over a term of 10 years and interest is payable at
APR 6.7% How Do I Apply? Easy Step is available on houses priced at £100,000 and above on selected developments. If you would like more details, your Barratt Sales Adviser will refer you to an Independent Financial Adviser who is familiar with the scheme. Your lender will use a conveyancer who is familiar with this scheme. You will be invited to use the same firm as this will offer you attractive rates and a swift transaction. Applications will be subject to status. Barratt terms & conditions will apply, including exchange of contracts within 28 days and legal completion by a specified date. Written details are available on request. Barratt Homes does not give financial advice. Mortgage lenders’ criteria may vary.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER LOAN SECURED ON IT
Lender Transparency Document
(New Build Solutions)
DATA PROTECTION You are applying for two separate mortgages from the lenders detailed below, to help purchase the above property. In order to process your application, the two mortgage lenders and their underwriters need to have access to the information you have supplied to them. Without it, they will not be able to reach a decision as to whether or not to grant you a mortgage. They will not send you information about their other products, or those of other companies without you giving your prior written consent. By signing this form, you are giving your permission for the two lenders and their agents and underwriters to have access to all the information you provide, along with the results of any credit reference checks that may be carried out. This means that both lenders can disclose to each other information regarding the conduct of the mortgage account at any time. Both lenders will disclose to you, on written request, what information they have on their systems relating to you, how they use it, and they will give you the opportunity to review and correct any information they may hold. nd
Please note that at some time in the future the house builder who has granted the top up loan/2 mortgage facility may sell this loan/mortgage; this would have no impact on your monthly payments, the rate of interest charged, or the terms and conditions of the loan.
SOLICITORS As this scheme involves two mortgage lenders and two loans, we have created a panel of solicitors offering you specialist knowledge and speed at a reduced cost. By signing this document you agree to a solicitor from this panel contacting you regarding the scheme.
FINANCIAL ADVISERS Firm name:……………………………….……. Adviser ………………………………………... First Charge Lender
Top Up (IPS) Lender
Barratt Homes Instalment Payment Scheme
3.3% flat/fixed APR 6.7(max)
Loan Monthly Payment Purchase Price Deposit Total Loan
£ £ £ £ £
THIS DOCUMENT IS FOR LENDERS TO DETERMINE AFFORDABILITY FOR THE TOTAL LENDING REQUIRED I / We have read this document and understand and accept the terms of this document. I / We understand that two loans as detailed above are being arranged to help me / us purchase the property which means that I / we will have two monthly payments. If I am / we are unsure about any aspect of this document I / we agree to speak to our Financial Adviser before signing SIGNED
……………………………… (First Applicant)
……………………………………… (Second Applicant)
YOUR HOME MAY BE REPOSSESSED IF YOU FAIL TO KEEP UP REPAYMENTS ON A MORTGAGE OR LOAN SECURED ON IT V4 01/09/11 open ended version