95% purchase – failed credit score

We are seeking opinions on how useful this new product would be to your clients and plan to release it first to Promise’s registered brokers.

If you have any comments please let us know – sorry but we doubt we will be able to respond to all the comments; but we are grateful for any feedback nonetheless.

We are involved in the design and launch of this alternative to the government Help to Buy scheme – with some important differences:

• It can be used to purchase Pre-owned property (not just New Build) – that really opens up the market massively
• Second Element: Unlike other high LTV lending there is no credit score so we expect to accommodate cases with credit glitches / events
• Third Aspect: It is available to second / third time buyers who want to move up market
• Additional Point: It is interest bearing from day one at 5.5% above base
• Fifth Consideration: It is an unsecured interest only loan

Understanding Market Rates & Repayment Terms

Borrowers still need a 5% deposit and it is a shared equity scheme like the government scheme but we think the market for this could be significant.

However, what do you think?

A few questions:

• Do you think there is much demand from your clients for this type of product?
• Do you have any reasonable suggestions to tweak / improve the product?
• We plan to launch with a small panel of around 4 first charge lenders who will work closely with us – who would you like to see included? – They will need to be capable of taking this product on board quickly so the high street lenders are not really an option.

Key Criteria & Application Guidance

The product is aimed at clients buying pre-owned homes who have a good or excellent credit history have no CCJ’s or defaults over £300 in the last 2 years. Their rent / mortgage reference should be clean for 2 years and overall the application should also be acceptable to the first mortgage lender which might be lending at 75% LTV – plenty of specialist lenders accept this credit profile. There is no credit score so common sense underwriting decisions can be made.

There should be 2 years job stability and good income – including self employed. That said if a first charge lender caps the income multiples for its own lending, this loan may still fit the affordability calculation based on income and outgoings.

This is a peer to peer loan – unsecured but with a notice at land registry to ensure the loan is repaid on sale.

It may interest your BTL clients as an alternative form of investment – they can choose the property and clients they want to invest in, how much to invest, and expect a 5% plus base annual return plus an uplift in their investment equal to the increase in property value. Given this would be an owner occupied property, it should be well maintained and the investor shares in any increase in the property value created by the homeowners improvements.

Lending Considerations & Next Steps

Benefits over traditional BTL investing:

• Primary Factor: No stamp duty
• Second Element: No need to set up a limited company
• Third Aspect: No mortgage required – invest what you can
• Additional Point: No agency fees
• Fifth Consideration: No solicitors – we deal with them for you
• Sixth Criterion: No refurbishment costs
• Seventh Option: No empty lets
• Eighth Detail: No tenants trashing the property – the occupier will love the house more than you will
• Primary Factor: No repairs, renewals or liability
• Second Element: 5% annual return
• Third Aspect: Greater capital growth due to homeowner improvements and maintenance
• Additional Point: 100% share of the increase in the value of your investment – if the property doubles in value so does your investment
• Fifth Consideration: These are the basic bones of the product with final tweaks happening now.

We will keep you updated and in a controlled launch plan to give you first access to the product.

In the meantime any feedback is helpful.

www.promisemoney.co.uk

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