Special lending situations

General policy | Buy-to-Let policy | Income | Property | Special lending situations

 

This section gives an overview of the C&G mortgage lending policy for the most common special lending situations. For any others, please contact your C&G Business Development Manager.

 

Index

• Auction and sealed bid properties
• Builders’ incentives
• Business use of property
• Customers not resident in property
• Customers with adverse credit
• Discounted purchases
• Expatriates
• Foreign nationals
• Foreign nationals and buy-to-let/second properties
• Flying freeholds
• Freehold flats and purchase of freehold
• Guarantors
• Holiday homes / Second homes
• Lettings and release of land
• Local Authority or Housing Association - Incentive schemes
• Local Authority or Housing Association - Purchase of remaining share
• Multiple applicants
• Occupation by a relative
• Pied a terre
• Power of Attorney
• Right to Buy and other schemes
• Second properties
• Starter homes initiative for key workers
• Sub-sales and back-to-back transactions
• Tied accommodation

Auction and sealed bid properties

• The property must be of good quality and in good condition.
  
  
• As properties that are sold in this way are often in a poor state of repair, you must make the customer aware that, if any works are required, an offer will only be issued on a ‘when done’ basis – i.e. the works must be completed before the mortgage can be drawn. 

   

  Due to contracts being exchanged on the day of the auction, with completion of the purchase commonly set for 28 days or less, the customer risks being in breach of contract if the work is not finished in time for the mortgage to be drawn to achieve the purchase completion deadline. 

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Builders’ incentives

Deposit paid by the builder:

 

• Can be accepted only from well-known reputable builders and on new-build properties only.
• A maximum 5% deposit may be accepted as long as the builder is GIVING and not LENDING the deposit to the purchasers. A deposit, which is repayable and/or protected by way of a second charge, is unacceptable.
• If the builder is giving more than 5% deposit – the application will be referred to mortgage underwriters.
• If the purchase price is not affected, confirm purchase price with solicitors and proceed as normal.
• Appropriate product criteria for loan to valuation (LTV) limits apply.

Cash back payments:

 

• Where building developers offer a cash-back incentive on a new-build property.
• The valuation figure provided by a valuer for a property where a builder’s incentive is applicable will have the 'incentive' amount already deducted, effectively producing a 'net' figure.
• If you are made aware by a customer that there is a builder’s incentive to the purchase, you must advise the customer that the valuation will be carried out on an 'open market' basis, which may not reflect the purchase price.

Appeals against valuation figures on properties purchased with incentives will not be considered.

 

Low-start schemes:

Customer funds a percentage of the purchase price (for example as little as 70%) by taking out a mortgage.  The remaining percentage is financed by a loan from the builder and is secured by a second charge on the property.

 

• Customers must provide 5% of the purchase price as a personal deposit in addition to the percentage provided by the builder.
• All applications will be referred to mortgage underwriters.
• A copy of the scheme details will be required by the mortgage underwriters.
• Vendor deposits are NOT acceptable.

If the deposit is from an unusual source, not stated above, contact your Business Development Manager for further details.

 

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Business use of property

 

Office/Study

 

Applications where one room is being used on an informal basis as an office/study are acceptable.   Any other situations will need to be referred to mortgage underwriters.

 

Child minding

Acceptable on a small scale, caring for up to 6 children in addition to any children in the family.

 

• The customer can be treated as self employed. 
• If more than 6 children, the application will be referred to mortgage underwriters.

Foster children

Refer to your Business Development Manager for further guidance. 

 

Annexe

Applications will be considered in the following situations:

 

• Where the annexe is used by a dependent relative or au pair.
• Where the annexe is vacant.
• If the annexe is let commercially, letting must be on an assured shorthold tenancy.
• If the annexe is larger than the owner-occupied part of the building, the application will be referred to mortgage underwriters.

Supported lodgings and small residential care homes

 

• Local authority supported lodgings are used for adults with learning difficulties whose placement is supported by the local authority social services department (rather like fostering).
• Small residential care homes are where elderly medically infirm people reside in the customer’s home and are again funded by social services.

These are acceptable subject to a maximum of two residents under the scheme.  If there are three or more, the application will be referred to mortgage underwriters.

 

Lodgers

 

• Up to two lodgers are acceptable providing that they are treated as a family member, i.e. sharing living accommodation (married to the customer, the customer's partner or a member of the customer's family).
• The rent from the lodger(s) can be used
• Lodger income can be verified from three months’ bank statements if amounts provided are regular.
• Take care if lodger(s) hold any legal rights in a property.  The application will be referred to mortgage underwriters.
• If there are more than two lodgers, the application will be referred to underwriters.

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Customers not resident in property

This procedure does NOT relate to buy-to-let or second properties

 

It is acceptable for a borrower not to reside at the mortgaged property and be on the mortgage, eg when parents buy for a child or one spouse is living abroad for their employment. Customers who do not reside at the mortgaged property on right-to-buy applications and applications involving an ex-spouse or ex-partner will be referred to mortgage underwriters.

 

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Customers with adverse credit

Bankruptcy

Applicants with an undischarged bankruptcy are not acceptable.

 

County Court Judgments (CCJs)

An application where one or more CCJs totalling £1,000 has been found (within the last six years) cannot be appealed unless this adverse does not relate to the customer.

 

Debt Arrangement Scheme (Scotland)

The Debt Arrangement Scheme (DAS) register applies in Scotland and is a pre-bankruptcy register. The debt is unenforceable for customers on the register. Applications are unacceptable with the exception of existing C&G/LTSB customers (this will be referred to underwriters).

 

Insolvency

Section 339 of the Insolvency Act 1986 provides that a trustee in a bankruptcy case can set aside gifts and transfers at an undervalue made within five years of the transferor being made bankrupt.

 

Individual Voluntary Arrangements (IVA) Insolvency Act 1986

If a request is received to loan monies to an existing customer who has entered into an IVA, the application will need to be referred to underwriters. Full details of the IVA will need to be enclosed, and must include the name and address of the supervisor, along with a copy of the proposed document and the report on the creditor's meeting.

 

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Discounted purchases

Sitting tenants (other than local authority 'right to buy') and family arrangements

Applications from sitting tenants who are able to purchase their home at a concessionary price from a private landlord, and family arrangements where a discount is being offered, are acceptable.

 

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Expatriates

 

The definition of an expatriate is ‘a person who is a UK National and stays in a country outside the UK for at least 183 days (or spends more time outside of the UK), with the exception of stays for medical treatment or studies provided that that time totals no more than 30 days in a tax year.’

 

• Maximum LTV 75% (however, discretion ultimately rests with underwriters, based on the merits of the individual case, and cases of 65% LTV or less may still be declined).
• The customer can apply for one future main residential property which will not be immediately owner occupied, but there must be a clear intention to return to the property within 10 years (evidence of an intention to return is likely to be required e.g. confirmation from employer).
• If the customer is not paid in Sterling, the application will be referred to underwriters.

Applications must be input onto Caseflow using the foreign home address.

 

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Foreign nationals

Applications from foreign nationals are considered provided: 

 

• They are resident in the UK at the time of their application.
• They will occupy the property immediately the mortgage begins.
• They have permanent rights to reside.

The application cannot be considered if the customer has diplomatic immunity.

 

Non-EU States

 

In order to continue with the application, the customer's permanent right to reside in the UK must be confirmed, using specific documentation.

 

The following documents can be accepted:

 

• A letter from the Home Office confirming the customer's 'indefinite' right to remain in the UK.
• Indefinite/Right of Abode UK Residency stamp in the passport.
• A Residence Permit showing 'indefinite' rights to remain.

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Buy-to-let/Second properties

 

Applications received from foreign nationals resident in the UK are acceptable for buy-to-let/second properties provided they meet requirements in terms of residency and buy-to-let criteria. UK Nationals/expatriates can apply for one future main residential property that will not be immediately owner occupied, but there must be a clear intention to return to the property within 10 years.

 

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Flying freeholds

• This is where a property is built (or has been converted) in such a way as to have the 'vertical' dividing line between it and its attached immediate neighbour in one position at first floor level and in a completely different position at ground floor level.  An example of this is a first floor bathroom in one property being over the kitchen of the adjoining property.
• The valuer's comments are particularly important.
• Acceptability is determined by the solicitor acting for the lender.
• If the solicitor, after investigating the title, advises not to proceed, the application will be declined. 

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Freehold flats

A flat or a maisonette with a freehold title is unacceptable.

 

Other freehold arrangements

 

If the customer owns one flat/maisonette in the block and owns the freehold of all flats subject to the other flats being leasehold, this is acceptable if the following conditions apply:

 

• Customer must occupy one flat/maisonette.
• No more than four flats/maisonettes in block (ie the applicant’s flat plus up to three others).
• The valuation must include the freehold of the whole block and is subject to the leases of the other flats/maisonettes.
• Insurance must be arranged for the reinstatement cost of the whole property (ie including the units not occupied by the customer).
• The flats should be converted and not purpose-built.

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Guarantors

• Guarantor(s) must reside in the UK.
• Maximum of two guarantors is acceptable.
• On a Homeowner Loan, the guarantor must be party to the main account.
• Foreign nationals can act as guarantors providing they have permanent rights to reside in the UK (see Foreign Nationals section in this chapter).
• If the loan exceeds 75% LTV, the guarantor must be under 65 at the time of application.
• Ensure that the guarantor will not be 75 or over before the end of the term. If they will be, the term must be reduced.

Who can act as a guarantor?

The guarantor must be a close relation of one of the customers. The following are acceptable:

 

• Spouse/Long-term partner
• Parent
• Sibling
• Son/Daughter

*A long-term partner is classed as couples who have lived together for two years or more. This can be confirmed by a Voters’ Roll check.

 

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Second properties

While most C&G mortgages are for normal owner–occupation,  lending will be considered for other residential purposes, as follows:  

 

• Buy to let.
• Holiday homes/second homes.
• Pied a Terre.
• Occupation by a relative
• Tied accommodation

Lending will not be considered on a property which is being purchased for the sole purpose of restoration and sale.

 

Applications will be governed by mortgage regulation provided any of the following occupy at least 40% of the property/land:

 

• The individual
• An immediate relative, (their spouse, parent, brother, sister, child, grandchild or grandparent)
• The person with whom the individual has a relationship which has the characteristics of the relationship between a husband and wife.

The full product range is available, provided the property is occupied as described above. This applies even where there is occasional informal/holiday letting (defined as less than four months), where the applicant will only occupy the property occasionally or where the customer will not occupy the property at all, provided it will not be formally let out. Maximum LTV 75%, the only exception is where the customer is in the Armed Forces and living in military accommodation, for these customers the maximum LTV is 90%.

 

For ALL applications where the customer’s mortgage commitments will include a second property, please complete and send us the additional mortgages form alongside the C&G Caseflow application or mortgage application form.

 

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Holiday homes/Second homes

• A holiday/second home is a property to be used primarily as a holiday/second home which can also have occasional holiday letting (defined as less than four months). 
• If let for more than four months of the year, treat as a buy-to-let.  
• The full C&G mortgage product range is available, a maximum LTV of 75% (65% LTV for new builds) applies.
• Standard product and valuation fees apply.
• Not acceptable for Right to Buy, guarantor applications or builders’ incentive schemes.
• Property must be of good quality, in sound structural condition and in a reasonable state of repair.
• Standard construction policy applies.
• Only one property is to be considered. If more than one property is required, buy–to-let criteria will always apply.
• Timeshare properties are excluded, with no exceptions.

For ALL applications where the customer’s mortgage commitments will include a holiday/second home, please complete and send us the additional mortgages form alongside the C&G Caseflow application or mortgage application form. 

 

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Lettings and release of land

Lettings

 

Where the property was originally the owner’s main residence and they now wish to rent the whole property to someone else.

 

• The letting application fee is £225.

Release of Land

 

Release of land is where the property owner sells or donates part of the land to someone else.

 

• Maximum LTV is 90% for a main residence.
• Maximum LTV is 75% for a buy to let.
• A revaluation may be required.
• Application fee is £225.

For more information on how to proceed with the above, refer to your Business Development Manager.

 

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Local authority or housing association - incentive schemes

Applications will be considered where the local authority/housing association has given a cash lump sum to vacate the council house to assist a purchase in the private sector - cash is given to solicitors at completion.  

 

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Local authority or housing association - purchase of remaining share

Applications will be considered where customers already own a share in their current property and wish to purchase the remaining share from the local authority/housing association.  Lending will only be agreed where the customer is purchasing 100% of the property. 

 

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Multiple applicants

There can be up to four applicants (including up to two guarantors).

 

These can be made up of:

 

• friends
• family members
• same-sex couples.

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Occupation by a relative

Customers may wish to purchase a property to be occupied by a relative (typically an elderly dependant or student offspring) who will not be named as a customer.  

 

If the tenancy is informal and involves no legal agreement, process as 'Holiday homes/second homes' and also note the following:

 

Qualifying individuals

 

• Spouse
• Long-term partner
• Parent
• Sibling
• Son/Daughter
• Grandparent
• Grandson/Granddaughter

If there is a formal tenancy, the application must meet buy-to-let criteria.

 

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Pied a Terre

Pied a Terre is a property that has been bought close to the customer’s place of work. There should be no letting.

 

• The full C&G mortgage product range is available (maximum LTV 75%).
• Income must comfortably cover all mortgage commitments and the additional expense of running two households.
• One such property per customer only or the application will have to fit the buy-to-let criteria.

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Power of Attorney

A Power of Attorney is a document by which an individual grants authority to another to act on their behalf.  The Power can be general or can be limited to specific acts.

 

A mortgage application form is acceptable if signed by an Attorney subject to the following: 

 

• The Power of Attorney must be a General Power, no more than 12 months old, an Enduring Power of Attorney signed before 1 October 2007, or a Lasting Power of Attorney.
• Co-customers cannot act as Attorneys for each other.
• In England and Wales, an Attorney cannot act on behalf of more than one customer.  If both customers wish to appoint an Attorney, each must appoint a different person to act on their behalf.
• In Scotland, an Attorney can act for more than one customer.
• The Attorney must be identified in accordance with Money Laundering guidelines in the same way as the customer.

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Right to buy and other schemes

Applications are considered where the property is being purchased: 

 

• Under a 'Right-to-Buy' scheme (provided the customer(s) will own 100% of the property).
• From a local authority/housing association under a discount or incentive scheme.
• Under a Ministry of Defence or Police House discount scheme.
• Under a builder's scheme, such as a property 'exchange' or where the builder is paying a deposit.
• Under the Key Workers Initiative.

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Starter homes initiative for key workers

This scheme is currently under review.

 

 

This scheme is aimed specifically at nurses, teachers and the police, although other key workers may be eligible.

 

The scheme provides assistance for house purchase in areas where high property prices prevent 'key workers' from living in or near the communities they serve. The types of assistance fall into two categories:

 

• Interest free loans, including equity loans
  Or
• A new build property being provided by the Scheme
  These loans are repayable only on sale of the property at the percentage value borrowed, eg if an equity loan was 25% at purchase, then 25% of the sale price would be repayable. The loans are secured against the property by way of a second charge.

Schemes that provide this type of assistance are acceptable.

 

Share ownership on a property purchased on the open market or newly built by the scheme
This is on an ownership/rent basis.  Further shares may be purchased at current market value. 

 

Schemes that provide this type of assistance are unacceptable.

 

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Sub-sales and back-to-back transactions

 

A sub-sale occurs when a property is bought and then sold on within six months, i.e. the borrower is buying the property from someone who has themselves bought the property less than six months before. A back-to-back transaction is a type of sub-sale where an intervening seller buys from the original seller and sells on to the borrower on the same day or within a few days.

 

These types of applications are not acceptable.

 

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Tied accommodation

Where the customer is living in accommodation provided by their employer (in the UK or abroad) due to their employment. The property to be mortgaged is let upon completion but will become their main residence in the future, when they leave the tied accommodation.

 

• Not restricted to Buy to Let products.
• Maximum 75% LTV (the only exception is where the customer is in the Armed Forces and living in military accommodation, for these customers the maximum LTV is 90%)
• Ensure there is an intention to occupy the property in the future.
• All other buy-to-let criteria must be satisfied.
• If a customer does not intend to use the property as their main residence in the future it must be treated as buy to let in terms of both product and policy.

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