Ever wondered how we reach a decision when using manual underwriting to assess an application? When it comes to lending, we believe there are six key aspects that our mortgage experts must consider when assessing any mortgage enquiry – we call them ‘the Six Pillars of Lending’.
The principle is that six strong pillars hold up a sturdy roof. If one or more of the pillars is weaker, the strength of the remaining pillars will keep the roof from falling in. Focussing on these areas when discussing, packaging, and underwriting a case helps us make consistent and logical decisions meaning a quicker decision for your client!
Please note, the examples given in this piece are illustrative of the kind of scenarios we encounter and do not mean that we would not lend in those specific circumstances. Please refer to our criteria or speak to a member of our team if you are unsure about aspects of a case.
Read an explanation of each of the Six Pillars of Lending below, alongside examples of how we use them in real life.
Loan to Value (LTV)
The higher the LTV, the greater the risk to the lender. A lower LTV may mean a higher chance of an application being approved, but it will still depend on the quality of the remaining pillars. When considering higher LTV lending, there is greater reliance on the other pillars supporting the overall case.
As one of our ‘central’ pillars, its strength will be a key factor whether we can lend the amount requested, especially where one or more of the other pillars are ‘weaker’. For example, if the application has a high LTV but the property is of a good standard and the applicant holds a good credit history, we would be happy to lend at the higher Loan to Value. However, if the property has quirks limiting its market appeal or the client has demonstrated issues maintaining their previous credit agreements, we may be more cautious.
Loan to Income (LTI) – aka ‘Income Multiple’
As a measurement of how many times income must be multiplied to match the loan size requested, the higher the LTI the greater the risk. Whilst our LTI is 4.49 and 5.5 for professionals, we do have flexibility if the other pillars are strong.
For example, if the client’s affordability comfortably meets our requirements and other ‘central pillars’ (LTV and Individual Circumstances) are of a strong standard, we would be more likely to lend on a higher income multiple, and possibly above our normal standard level of 4.49. An example of this would be the enhanced income multiple we offer to certain professions where there is high demand, or evidence of clear career progression or predicted/set salary increases.
Affordability
As with all lenders, the chances of us approving the application will ultimately depend on whether the client can realistically afford the monthly repayments. As a responsible lender, it’s important that we have a realistic view of a borrower’s finances, particularly their remaining income after paying their commitments. Discuss your client’s income thoroughly with them and gain as much information as possible about their income and outgoings.
It’s important a client understands that although they may be able to afford the mortgage repayments now, they should consider the implications of a change in circumstances or increase in interest rates. Our requirement is that borrowers have at least 5% of their income remaining after their committed expenditure and necessary outgoings. The greater the amount in remaining income each month, the more flexible we can be when assessing the other pillars.
If you would like an initial indication of your client’s affordability before speaking to one of our team, use one of the online calculators on our website.
Standard of the subject property
Let us know the type of property the applicant wishes to purchase and identify any potential quirks. This could include any unusual build types or locations, any land or outbuildings associated with the property, any commercial usages, or proximity to commercial buildings.
The standard of a property can make a big difference to an application and some lenders can be put-off by certain properties, for example, if the subject property has an agricultural tie or a section 106 agreement. We will look at all the circumstances of the case and the property when making a decision. Perhaps there are mitigating factors minimising the issues presented by the property’s quirks.
If your case involves a property with a peculiarity, we encourage you to discuss the details with us.
Individual circumstances
When looking at a mortgage case, we look at the whole picture – there are many aspects that we consider when looking at an applicant. Are they employed, self-employed or a landlord? Are they a first-time or next time buyer? Have they just got a new job, recently changed profession, or still in a probationary period? If they have debt, how are they managing it? We may sometimes ask more questions about a client’s circumstances than other lenders in order to get to the right decision.
Like LTV, this is one of our ‘central’ pillars. The individual circumstances of the client is a pivotal factor when deciding whether we can approve on the mortgage. If there are weaknesses in the other pillars, the strength of this pillar and the standard of the borrower could determine if we are willing to lend. As every borrower is unique, we are here to listen to their individual circumstances, needs and, wherever possible, find a structure whereby we can help them achieve their goals.
Credit history
We don’t credit score. Instead, we review the client’s credit history in detail. If your client has imperfections on their credit report, please discuss the circumstances surrounding the irregularities with us. We’ll take everything you tell us into consideration, so gather as much information as you can.
If there is an irregularity identified and explained to us, we may be able to lean on the strengths of the remaining pillars to hold up the mortgage. We won’t automatically dismiss an application because of a one-off missed payment, and are ready to understand the explanations for credit issues.
As with many lenders, there are limits to what we can agree when it comes to issues with credit history. But if the other pillars are strong, we can exercise more flexibility considering the client’s reasons for the difficulties they have experienced.
Manual underwriting at Hinckley & Rugby
We know that no two borrowers are the same. Our six pillars process helps us to look at the strength of an application using truly manual underwriting to help meet your clients’ needs.
To see the six pillars in action, join one of our monthly drop-in sessions where our Chief Executive, Colin Fyfe, and our mortgage experts discuss your complex cases LIVE. Find out about our Mortgage Referrals Committee (MRC) Drop-in Clinic and book on to the next session.
Alternatively, if you have a case you would like to discuss with our team today, call 01455 894084.
