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UK-Based


Once upon a time, banks gave mortgages based on the branch manager having known Joe Bloggs for 20 years and making a judgement call about whether he was good for the money.

These days mostly everything is done by punching numbers into the Lender's algorithm and saying "you can only have what the computer says you can have".

My wife and I have been foolish enough to fall in love with a property that is just a little outside the range of what we can afford based on lenders calculators. (We went through a couple of Lender's detailed calculators).

However, we've kept exceptionally detailed budgets and spend records for the past 5 years and we know for certain that we can very comfortably afford more than the bank's limits say; even if the Interest rate were to climb precipitously. (For reference, between current Mortgage, current Mortgage voluntary over-payments and monthly contributions to long-term savings we can currently afford about 70% more than the monthly payment we'd be making on the new Mortgage)

Is it still possible to go and talk in-detail to a Bank Manager, to demonstrate this to them, to convince them to authorise a Mortgage Loan that is beyond the limits of what the algorithm says?

How would I go about achieving this? Who do I ask for at the bank / is there a particular kind of meeting or product that I should be asking for?

(Alternatively ... is this all bound by regulation now, so that the concept is legally impossible now?)

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    Clarifying questions: is it possible for you to use your detailed budgeting to quickly build up more of a deposit, so that you need less mortgage? How much more outside the affordability range are you? Is there any leeway in the amount you are assuming you will get for your current property, that might mean you need slightly less of a mortgage? – Vicky Sep 25 at 10:56
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    All sensible questions :) All of which we're examining already. One of our issues is that we weren't expecting to find something we loved so quickly, (we were intending to "just get a feel for the market" atm) so we haven't really progressed selling as much as we'd need to to make a firm offer. We've got our own guestimate of sale price, which I'd guess is very mildly optimist but not by much. Given the extremely chilly market (c.f. Brexit) it seems very unwise to rely on a lucky sale. – Reinstate Monica --Brondahl-- Sep 25 at 12:48
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    Using the previously mentioned sale guess we'd be 25k under the asking price. So I'm looking for 3-4 ways of gaining an extra 5-10k on what we can manage, in the hope that that leaves us able to make a plausible under-offer without needing to be unrealistic on the sale. Squeezing ourselves harder for the next 5 months would probably get us one of those. Talking to work about a salary advance would be another. I'm hoping that I'd be able to get another small stretch on the Mortgage ... hence this question. – Reinstate Monica --Brondahl-- Sep 25 at 12:50
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    With all due respect, I would suggest that if you're just now intending to "get a feel for the market," your love for this house may just be infatuation. You may find that there are lots of "dream homes" out there. You may also find that your tastes change significantly once you've looked at many houses, or looked at houses for many months. In other words, don't pressure yourself to buy the first house you fall in love with. – dwizum Sep 25 at 15:59
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    A bank's job 24/7/365 is to calculate the financial capacity across a broad spectrum of people, backgrounds, and situations. Your only experience is with your own finances. The bank takes into consideration things like divorce, job loss, death, unforeseen medical expenses, and countless other things that you have not put into your purchasing power equation. Quite frankly, my bank approved me for almost triple that which I was personally comfortable borrowing so I only borrowed a third of my capacity. – MonkeyZeus Sep 25 at 19:03
3

Standartized process for small standard loans

In the last couple decades, retail banking has moved a lot towards cost-cutting by ensuring a standardized process for their common products - including lending - that does not expect much customization, negotiation, delegation of actual decision making, etc. Thing is, while a home mortgage is a lot of money for most buyers, for the bank a single standard mortgage is not really a significant amount for a loan or a profit. For a particular salesperson (whatever they're called in that particular bank) the sale of a single mortgage is meaningful, but for their closest manager with any discretionary decision making power it is not.

So the answer to your question is "yes, of course" if your potential loan is large enough and "no, they won't bother" if it's not. And for most banks, a standard home mortagage is not. If you're borrowing 20M to build a commercial building, then you probably can negotiate with a manager; if you're borrowing 200k for your home, then likely not - this is a small standard deal that will have to go through the standard mass-market process.

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    If you use bold, and then make a spelling mistake in the first word, I'm going to downvote without reading on. – Nobody Sep 26 at 16:07
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    @Nobody then maybe you should downvote a LOT less. – Harper - Reinstate Monica Sep 26 at 21:44
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It is important to differentiate between corporate and governmental policies. It is unlikely that the governmental policies are that draconian. However, it is plausible that corporate policies are exactly that. If customer A does not meet these guidelines, then the answer is "No".

There is another possibility, if you have already been turned down. Perhaps the banker looked over your financials and their discretion said "no". They then might blame the "no" on some unseen boogie man to avoid conflict and perhaps earn your business on a more affordable property.

Your best bet in these matters are to establish a good working relationship with a smaller bank. You want the kind of culture where a loan officer could have a conversation with the VP in charge of lending if not the CEO of the bank. That loan officer can then make your case to a decision maker that can override policies.

Please also consider that the bankers may be correct, and this home is beyond your means at this time. I plugged some numbers into an online UK mortgage calculator and the metrics say I can borrow quite a bit considering the numbers that I entered. In fact it was way more than I would be comfortable borrowing.

House fever is a real thing, but you will get over it.

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    "way more than I would be comfortable borrowing." +1: this was my thought too. I'm in the UK and would not be comfortable borrowing as much as the bank would be willing to lend me. Depending on the exact numbers, a 70% margin on monthly payments may well not be enough if interest rates rise a lot (remembering that they are at a historic low at the moment), and unlike the other expenses you mention which can be cut back in tighter times, a mortgage would be a fixed commitment. Borrowing £100k at 2% is £424 / month and if it goes up to 8% - which is not at all improbable - that's £772 / month. – Vicky Sep 25 at 12:45
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    @Vicky Just curious, does the UK not have fixed-rate mortgages? Here in the states you are hard-pressed to find a mortgage where your interest rate would change, most everything I've seen is fixed-rate APR, so once you sign that contract it can neither raise nor drop unless you specifically refinance. – 410_Gone Sep 25 at 20:50
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    @DerKommissar evidently not — there are variable-rate mortgages, and variable-rate mortgages with an initial fixed-rate period which are called "fixed-rate mortgages" (and which encourage people to roll over every few years, Canadian-style). No one appears to offer a 15+ year loan with a rate that's fixed for the lifetime of the loan. – hobbs Sep 25 at 22:15
  • @DerKommissar yes, what Hobbs said. – Vicky Sep 25 at 22:31
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    There aren't really any "smaller banks" in the UK. Even the smallest are pretty big. I would suggest instead talking to a mortgage broker who is likely to know who is most flexible about lending limits at the moment. – Martin Bonner supports Monica Sep 26 at 12:36
7

Pete B. has provided a practical answer. I'm answering separately to address an interesting point you brought up:

(Alternatively ... is this all bound by regulation now, so that the concept is legally impossible now?)

In the strictest "regulatory" sense, in most countries, there are basic banking regulations that strongly deter making loans to people who can't afford them (especially real estate loans). For instance, in most banking systems, lenders are responsible for maintaining reserves based on the risk of their loan portfolio - those reserves have to be calculated based on "putting numbers into a formula" in order to level the playing field and allow aggregation - they can't be calculated based on what the branch manager thinks about Farmer Joe who they've known since they were kids. A lender who makes a lot of loans that the formula says is risky, even if they personally don't think the loans are risky, is going to have to carry a lot more reserves. And there may be regulatory pressure on them more generally which makes their operation expensive to the point that it doesn't make sense to make those loans in the first place. Thus, even though there may technically be some leeway in the decision making, the lender's hands may be tied.

If we step beyond regulation, and look at the way most mortgage products operate in most banking systems, there are many other pressures that also serve to deter or downright stop "risky" lending.

For instance, in many countries, mortgages that are deemed more risky will have requirements for insurance of some type, to protect the lender or the entity backing the mortgage. Often, this means the decisions about what the most risky loan possible could be are in the hands of the insurer, not the bank. So, even if a bank would be happy to lend you the money, they may not be able to insure your loan, because the insurer won't underwrite you.

Similarly, in many countries, mortgage products are either backed by a central bank or other central entity, and/or they are typically sold to banks that specialize in carrying real estate loans. Again, this doesn't inherently mean there is no leeway in the decision making, but if a bank is not backing their own mortgages, or they intend to sell the mortgages they write, once again we end up in a situation where a third party is responsible for making the decision.

  • I would just like to add that it also seems really dependent on the economic situation in the country. Pre-2008 housing bubble down here was fuelled by banks giving mortgages for overvalued properties up to the point that you could ask the valuer to add practically as much as you needed. If a house was realistically valued at 100k, you could ask it to be valued at 120k so that bank would give you 120k loan and you got 20k extra for renovation. After the crisis only approved valuers were accepted by the banks and no more than 70-80% of the conservative value is given in a loan. – Gnudiff Sep 25 at 20:59
  • Agree with this answer. There is another tier of regulation below this, "justify deviations". In this case, a bank can deviate from the formula set in regulation, but it needs to justify and document why it does so. "I have known Joe Bloggs for 20 years" would not be justification, but "detailed financial documentation [attached] shows consistent income and expenditure patterns that are compatible with the mortgage" is justification. – MSalters Sep 26 at 14:16

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