New approach to the offer of mortgages

Changes put forward by the Financial Services Authority will introduce some of most significant changes to the mortgage market this country has seen in recent times.

The FSA new rules for banks  to follow on approving mortgages are designed to make sure customers are not able to borrow more than they can afford. They include a ban on self-certification mortgages, new rules for those seeking to remortgage, stricter rules on interest-only mortgages, improved affordability checks, and a change in the rules on how advice is given by mortgage brokers.

These changes have come about prevent another boom in mortgage lending and in house prices. This is what happened in the middle of the last decade and why some right wing commentators say we are now facing one of the worst financial disasters ever witnessed.

So how does the affordability test, as proposed, work?

A lender will consider how much you spend on essential household expenditure such as heating and council tax plus basic living costs and other debt commitments. If these changes are implemented a lender will no longer have to consider how much you spend on discretionary spending such as on leisure activities and holidays as it will expect a borrower to change spending habits if the borrower wishes to succeed with the loan application.

Lenders will also apply a “stress test” on your finances so as to assess your ability to afford your mortgage repayments if interest rates rise in the future.

What about interest only loans?

Borrowers will only receive an interest-only mortgage if it can be proved there is a robust strategy to repay the capital, such as from the sale of a second home or have an Isa (Individual Savings Account) or from regular bonuses.

Replacing existing mortgages will also prove difficult under these new rules though the FSA have introduced “transitional arrangements” to help existing creditworthy borrowers that might not be able to move home or refinance as a result. Lenders will be allowed to waive the new affordability rules for existing borrowers if the borrower has met repayments for at least the last 12 months and have not fallen into arrears. Existing borrowers who need to borrow more will however be subject to the new affordability rules.

These new rules are unlikely to change the current attitude of borrowers and in the short term are likely to keep property prices stagnant.  Whether this will assist first time buyers remains to be seen, though our view is that they will only serve to make it more difficult for those looking to get onto the property ladder and force more people into looking to the rental market.   These rules could very well begin to turn our property market into those markets commonly found on the continent where home ownership is not a priority and indeed a goal of those looking for a home.

The rules will create a more stable housing market but one which will be seeing a reduced number of transactions and one where only those who have financial stability and a track record of proving it will be able to become home owners.  Whether this is good for the country as a whole and will lead to a more stable and balanced society will remain to be seen.

As conveyancers, there will be fewer transactions around and as those borrowing will face higher lender fees and perhaps spend more money to prove their track record and credit worthiness, there may be a temptation to make economies elsewhere, and perhaps look to find the conveyancer advertising the lowest price.

At MJP we understand this, and this is why we offer a competitive price for our moving service, but with the commitment to ensure we also provide a personalised service and one in which we take pride.   We are able to offer a quality service at a discounted price because we operate a unique case management system and have quality checks built into every stage of our process.  All out clients can access the system and receive regular updates straight to their phones.

Each client is also assigned his or her very own case handler who will oversee the transaction throughout its course.

Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk

"David Pett and his team have been excellent - regular updates and speedy responses to queries. Something that has been problematic with other solicitors in the past" 

Louise Stone - December 2011

Merry Christmas

We would like to take the opportunity to wish all of the followers of our Blog a very merry Christmas and a happy New Year and to invite you all to take some time out to read our Christmas Newsletter which you can find HERE

All the best from the team at MJP Solicitors in Norwich - have a good one!

Letter to the Justice Secretary

Dear Mr Clarke,

I wanted to write to you and express my dismay at your comments in the press this week:-

“What we have marching towards us is an army of lawyers advancing behind a line of women and children saying, of course, they're not concerned about the income of the profession, they're only concern is these vulnerable clients who would be adversely affected if they're not paid at the rate they currently are".

I was deeply offended by what you said.

I am one of your “lawyers advancing…………..” and am against your proposals for removal of legal aid for clinical negligence claimants and even more so against the idea of taking up to 25% of a Claimants damages for a success fee. I have never been in this game for money.  I have always carried out this job so that I can help accident victims. That is my first priority and always has been. I have a real passion for helping accident victims.

Only this morning I spent 2 hours with an 18 year old and her mother talking about her child abuse possible claim which will be “free time” for which I will recover nothing. This is not unusual  as it happens most weeks, providing free advice to potential clients. I help at the CAB too. Last week I was in the High Court with John Foy QC settling a £9m plus RTA claim for a young lady who was knocked down by a car in 1996. Liability was only resolved in the Court of Appeal and the Defendants only came up with an offer acceptable (approximately £500,000 more than their previous offer) 2 days before trial (we were listed for 7 days about which see below). This was one of the last legal aid cases for personal injury, possibly in the country I would imagine.  We needed to provide the Claimant with enough by way of income from her lump sum (and Periodical Payments Order) for her care regime for the rest of her life. How could I ever have taken away any of  her damages for a success fee? How could my practice (or indeed any other) run that case (with a legal bill of over £1m) now?

Whilst talking about this case you may be interested to know 2 other points of interest. Firstly the discount rate currently set at 2.5% is going to mean that it will be a real struggle to bring in sufficient funds to pay for all her outgoings let alone taking some of her damages for losses. If it were not for her loving parents putting their lives on hold to care for her then she would really struggle. All because of someone else’s negligence and you want to deny people like her access to justice, Justice Secretary!

Finally the same case had leading counsel for both sides (plus a junior) and 4 leading experts in their field yet the court would not provide a fixture for the hearing, notwithstanding a joint application from the parties to do so. Hence we had experts (and counsel/clients/witnesses) all waiting on the whim of a court listing, which had still not come through 2 days before. I would estimate that this will have cost at least an extra £20,000, payable by the Defendant, onto the costs which would not have been incurred if the experts could have been given a fixture and booked other work in when they knew they would not be required.

I am not alone in these sentiments.

On my wall is a commitment to accident victims which tells them I will put their interests first and I do, with pride.

I thought you should know that there are in fact a great many people with similar sentiments to me. I would hazard to guess the wider public, if properly informed would actually be horrified at your plans.

If you would like to respond or discuss matters with me then please feel free to.

Yours sincerely,

Simon Bransby F Inst L Ex

Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk

Are Banks lending to the legal sector?

I have attended many conferences over the past month or so and have had to listen to one bank representative after another making claims of how wonderful they are when it comes to helping the legal profession.   Often presenting with a smile and twinkle in their eye I have had to sit and listen to how lending to the legal sector is up on the previous year and how they have extended overdrafts and provided loans for practices to develop.

Listening and drifting off to another world it is easy to get lost in the fluffy words and  believe how lucky we are to have banks who despite the deepening recession and meltdown in Europe, are still there to help when help is needed.

Unfortunately the reality bears no relationship to this fairyland rhetoric. Yes, banks are lending to the sector, and perhaps lending is up, but the fact is that a solicitor business is viewed no different from any other business, and unless you meet the credit criteria fixed by some faceless person stuck somewhere is a skyscraper in London, you will not be helped.  It’s as simple as that.

The truth is that banks will only lend when the exposure to bad debt is minimized with security and capital reserve requirements.  Ask yourself how many practices fit this criterion.  Moreover, the very reason for turning to the bank in the first place is that there is nothing in reserve and short term assistance is required. 

In fact banks look at solicitor practices differently, and in a way which  when compared with other businesses makes it even more difficult to satisfy the faceless men who make these decisions.  Most firms are profitable, but face cash flow problems. Apart from those who own the premises they occupy, there is normally no other assets of value in the business other than work in progress.  The problem is that banks when looking at the balance sheet refuse to attach any weight to it, even though the Inland Revenue is quick to value and tax it!  I am not sure why this is so when its no different to stock in a stock room.

So what can be done?  Very little I am afraid to say as the banks hold all of the cards and will clearly dictate the fate of many of those legal practices who are struggling to keep their heads above water.  All I can say is to forget loyalty and shop around.  Although most banks are the same, there are some that are worse than others.  The days of receiving a more favorable hearing if you have been with a bank for some time are long gone.  Loyalty is only a one way street for many of these banks.

Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk