HPP CREDIT GUIDELINES NOVEMBER 2009 VERSION 7

HPP CREDIT GUIDELINES

NOVEMBER 2009 VERSION 7

INDEX

1.

Basic Criteria

2.

Employment

3.

Sources of Income

3.1 Acceptable sources of income

3.2 Unacceptable sources of income

4.

Documents

4.1 All applicants

4.2 If the applicant is employed

4.3 If the applicant is self employed

4.4 Additional properties

4.5 Standard Documents required for underwriting assessment (Matrix)

5.

Purposes

5.1 Acceptable purposes

5.2 Unacceptable purposes

6.

Application Form

7.

Deposit

7.1 Acceptable evidence of deposit

7.2 Gifts

7.3 Loans

8.

Affordability

8.1 Net income for employed applicants

8.2 Net income for self employed applicants

9.

Property

9.1 Tenure

9.2 Age

9.3 Acceptable construction types

9.4 Properties not acceptable for security purposes

9.5 Ex local authority properties

9.6 Concrete construction

9.7 Steel frame

9.8 New build

9.9 Retentions

9.11 Scottish Valuations

10. Credit Search

11. Decision

12. Revised Offers

13.1 Change of finance amount

13.2 Adding an applicant

13.3 Removing an applicant

13.4 Change of term

13.5 Change of property

HPP Guidelines (Nov 2009)

1. Basic Criteria

HPP (HPP) applications are available to a maximum of four applicants who will all reside in the property.

The main income provider must have the right to reside in the UK permanently and documentation should be provided.

HPP is available on properties in England, Wales and Scotland but not Northern Ireland.

The property must be owner occupied. Minimum property value - £100,000 Minimum Age – 21

Maximum Age – 65 Minimum term - 7 years Maximum term - 30 years

(a) If an applicant is approaching 65, IBB (the Bank) may need to restrict the amount and term, as a pension income is invariably lower than a

salary. Documentary evidence of the likely pension income is to be obtained if the term of the facility goes beyond normal retirement age (NRA).

(b) An application term that exceeds NRA age for the main applicant is an exception to policyand needs agreement from IBB before the application pack is completed. The Bank would not wish to exceed the age of seventy at the termination of an HPP term.

Minimum advance - £70,000 Maximum advance - £750,000 Maximum FTV - 80%

2. Employment

This can be full time, part time or self-employment. 2.1 Permanent Employment

Applicant must be in permanent Employment for a minimum of 6 months, and be able to evidence whether probationary period has been satisfactorily completed. If this is not available we will not be able to use this income.

(Acceptable Proof of Income – Section 5)

2.2 Temporary Employment

Applicants in temporary employment e.g.through a recruitment agency or hold a

temporary contract, will not be eligible for a sole HPP application. Where an application is in joint names, the income of the party in temporary employment will not be used. (Acceptable Proof of Income – Section 5)

2.3 Self Employed

Theapplicant must have been trading for a minimum of 2 years and be able to provide a minimum of 2 years signed & finalised accounts.

(Acceptable Proof of Income – See Section 5)

2.4 Second Employment

Full details of the additional job should be provided to include employer‟s name, address, phone number, job title, whether full or reduced hours, start date, income etc.

2.5 Other

Students, homemakers and the unemployed are not eligible to apply for HPP as the sole or main applicant.

3. Sources of Income

3.1 Acceptable sources of income

PAYE salary evidenced via an employer‟s payslip. This can be paid via Bacs, cheque or cash (BUT not „cash in hand‟). Where income is paid in cash we would still expect to see reasonable activity through the applicants bank account to support serviceability of the HPP request.

Income from self-employment providing this is an applicant‟s main source and not a secondary role. A minimum of two years signed full annual accounts must be provided Bereavement allowance (widow‟s pension) or private pension income is acceptable. Earnings from let properties will be used for affordability provided it is the applicants main source of income and is verifiable from the following sources.

a. Last three years annual company accounts complied and signed by a Chartered Accountant

b. Chartered Accountant‟s letter stating business turnover, gross profit and net profit for the previous three years

c. Self Assessment tax returns for the last three years

d. HM Customs and Revenue form SA302 for the last three years

3.2 Unacceptable sources of Income

Earnings from let properties where it is not the applicants main source of income OR where the income cannot be verified from the sources indicated above.

Unofficial salary that is not declared to the appropriate authorities. This is known as “cash in hand”. This is not to be confused with salary paid in cash but supported by an employer‟s payslip, which is acceptable.

State benefits or income from an insurance claim. This includes disability, carer‟s allowance, tax credits, child benefits and unemployment income amongst others. The following are all considered unacceptable:

a) Maintenance payments b) Investments c) Shares d) Bursaries e) Grants f) Donations g) Handouts/Gifts

4. Documents

All supporting documentation should be certified copies.

 All supporting documents are to be stamped and signed by the sales representative to confirm authenticity. It is the receiving sales representative‟s responsibility to action this requirement and to ensure the correct documents are supplied

regardless of the origin of the HPP application. IBB reserves the right to return the application to the sales person if any of the standard requirements have not been provided.

Unless otherwise agreed or waived by an underwriter all HPP applications should be supported by the minimum following documents.

4.1 All applicants

Certified documentary evidence of the applicant‟s right to permanently reside in the UK. The following are acceptable forms forthis:

a) Valid UK Passport b) Valid EU Passport

c) Valid UK visa confirming indefinite leave to remain

Fully completed application form (to include signed declaration, direct debit mandate and payment instruction)

Fully completed budget planner

The last three months consecutive and certified personal bank statements, in full

including name, address and all transactions plus running balance. Any items missing or transactions disguised are liable to be queried. If the applicant uses an Islamic Bank of Britain (IBB) account as the main salary fed bank account then the requirement for certified copies ofstatements can be waived. Internet statements are acceptable for one month only and the remaining two months must be certified copies of the original statement

Latest certified annual mortgage statement in full. This must evidence starting balance, monthly payments and end balance. Applicant(s) name(s) and address must be evident. Purchase: Evidence of the deposit (see section 8)

Refinance: Evidence of the use of funds (see section 6.1) 4.2 If the applicant is employed:

Last 3 months certified payslips (or equivalent period if paid weekly, fortnightly or four weekly)

4.3 If the applicant is self employed:

Any one of the items listed in (i) below are required as proof of income along with the items listed in (ii) and (iii)

i) Last 2 years certified or original full annual company accounts compiled and signed by a Chartered Accountant

OR

Chartered Accountant‟s letter stating business turnover, gross profit and net profit for the previous three years

OR

Self Assessment tax returns for the last 2 years or a Customs and Revenue form SA302 for last 2 years.

AND

ii) Letter from Chartered Accountant confirming the applicants tax position is up to date AND

iii) Certified copies of the last 6 months consecutive business bank statements in full, to include name, address and all transactions plus running balance. Any items missing or transactions disguised are liable to be queried. If the applicant uses an IBB account as the main, business bank account then certified copies of the bankstatements can be waived. Internet statements are acceptable for 1 month only with the remaining 5 months all being certified copies of the original statement

4.4 If any other additional property(ies) are owned:  Full address of the property(ies)

If a mortgage is held on the additional property(ies):

 Latest annual certified mortgage statement in full. This must evidence starting balance, month payments and end balance. Applicant(s) name(s) and address (es) must be evident.

If the property is tenanted:

 Up to date Assured Shorthold Tenancy Agreement. This must be the full agreement and show the landlord & tenants name along with the term of the tenancy and the amount of rent.

Additional documents and information can be supplied with a HPP application but they should be relevant to the matter, understandable and not used to pad the case.

The above documents are the minimum to be supplied with a HPP

application. IBB can request additional documents and/or information

deemed fit by an underwriter.

4.5 Standard Documents required for Underwriting Assessment (Matrix)

Employed Self Employed Retired

Application Form (including budget planner)

Passport/ Rights to Reside

Latest 3 months Pay slips

2 years Signed Accounts

Letter from Accountant confirming Tax position

Latest 3 months Bank Stats

Bank Statement showing Deposit/ Gift Letter

Latest 3 months Business Bank Statement

Existing Home Finance / Mortgage Statement

Additional Mortgages details if applicable (E.g. BTL)

Evidence of suitable pension income

Use of funds for Equity release

This list is not exhaustive and further documentation may be requested to support the application.

5. Purposes

5.1 Acceptable Purposes

The following are considered as acceptable purposes for a HPP advance:  Property purchase

 Refinance of existing property finance

 Equity release from an existing unencumbered property

There are potentially many acceptable sub purposes for which a HPP advance could be used, with the following being the main ones:

 Home improvements (Please provide quotes, planning permission, building regulations if required, particularly if structural work is to be undertaken)  Furnishing, this is to include furniture, carpets, electrical goods, decorating  Car

 Wedding expenses

 Property purchase/deposit. Preferably in the UK but potentially, depending on the application data, abroad. Documentary evidence of the source of any shortfall between the proposed advance and purchase price must be supplied. If a third party advance (e.g. mortgage, loan, relative/friend loan etc) is used to cover the shortfallthen documentary evidence of the amount borrowed, the term and the monthly repayments must be supplied.

5.2 Unacceptable Purposes

There are potentially many unacceptable purposes for which a HPP advance could be used, with the following being the main ones:

 Personal debt consolidation to a family member or friend  Third party debt consolidation for a family member or friend

 Gift and/or donation to a family member, friend or charitable organisation  Funeral expenses

 Business purposes

 Investment to include stocks, shares or third parties  Shared ownership schemes

 Right to buy

6. Application Form

The sales person and branch details must be on the application form in capital letters. All appropriate fields in the application form are to be completed in full with the form being signed and dated by the applicant(s) once the supplied information has been checked and verified by the same.

Any additional comments or supporting information supplied in the „Comment Sheet‟. Any changes to an existing customer‟s stored information, be it marital, address,

employment, financial etc, should be noted and passed to the appropriate department for the Bank‟s database to be updated.

Full details of each applicant‟s present residential arrangements are to be supplied, including home, work and mobile numbers. Be conscious that different applicants may not have been resident at the same property for an identical length of time. E.g. the recently (within the last 3 years), married, university students etc.

If an applicant has more than one job full details of the additional job(s) should be provided to include

a) employer‟s name, b) address, phone number, c) job title,

d) whether full or reduced hours, e) start date,

f) income (See section 2.4)

If an applicant has an interest in or is party to a second or subsequent property (be it temporary or otherwise) within the last 3 years, full details should be provided to include a) address,

b) postal code,

c) use of property, mortgage arrangements (to include lender, original advance amount and date, present balance and monthly repayments),

d) any leasing (either paid by or to the applicant) arrangements. (See section 5.4)

Any alterations to the application information must be initialed and dated by the individual applicant whose information has been altered.

A fully completed Budget Planner is required for ALL applicants.

All credit held by the applicant should be declared in the application form. Details

including the monthly payment, balance and whether this is to be repaid with the advance should be provided.

7. Deposit

7.1 Acceptable evidence of deposit

Evidence is required of the deposit which is to be placed on a property purchase. Please note we will require the entire deposit to be evidenced. The following are acceptable forms of evidence of the deposit:

 Certified copies of up to date bank statement  Building society passbook

 Investment report

 Sale of property (evidence of the sale price of the property is required)  Letter from a family member/friend confirming a gift (see 7.2)

7.2 Gifts

If the all or part of the deposit is to be a gift from a relative or friend a letter from the benefactor is required. This must state the following:

 Be addressed to the bank  Signed and dated

 The amount of the funds and that this is a gift which will not need to be repaid  That they will hold no interest in the property

 The full name of the recipient

 Relationship of person providing gift to applicant 7.3 Loans

If a loan is being taken by the applicant(s) from either a finance company or family/friends for part of the deposit we will require the following information:

 Amount

 Monthly repayment  Term

 Whether the lender will hold any interest in the property

If this is to be repaid in a lump sum in a set amount of time, we will require details of how the applicant(s) intend to meet the commitment.

The monthly payment will be taken into account when calculating affordability. (See 8)

8. Affordability

The maximum monthly repayment is to be no more than 60% of the calculated net monthly income after existing, ongoing financial commitment is taken into account.

The profit rate will be stressed by 2% to allow for future rate increases and these figures will be taken into account during the assessment. Affordability must be met at these levels for the application to be considered.

8.1 Net income for employed applicants

We will use the basic net income for employed applicants. Basic salary may include:

Guaranteed weighted allowances (e.g. London Weighting Allowance) Guaranteed shift allowances (e.g. Computer Support Staff)

Where shift allowances are advised as guaranteed we will require written confirmation from the employers.

8.2 Net income for self employed applicants

The net profit figure to use for income purposes would normally be the lower of either the 2-year average net profit or that for the latest year.

In exceptional circumstances the Underwriter may consider using the last year‟s net profit.

9. Property

The minimum acceptable property value/purchase price is £100,000. This is to be a realistic valuation and not just convenient. If in doubt, make use of the Nationwide Building Society or HBOS price calculator for guidance. The Bank will use the surveyor‟s valuation figure as the final arbitrator in all cases. An application with a property having a lower figure requires authorisation from IBB in the form of documentary evidence before it is sent to us.

The Bank will always use the lower of the purchase price or valuation figure when calculating the Finance to Value (FTV)

9.1 Tenure Freehold

Leasehold properties with a minimum of 60 years remaining at the end of the term are considered suitable for security purposes.

9.2 Age

The minimum age for applicants for HPP finance is 21. 9.3 Acceptable Construction Types

Properties of brick or stone walls with tiled or slated roof:

a) Modern timber framed properties with cavity walls and brick outer skins b) New pre fabricated modular construction that are covered by NHBC (National

House Builders Council) Warranty But exclude:

a) Properties described as defective under the Housing Act 1985

b) Pre cast reinforced concrete (PRC) flats, masionettes and large panel systems (LPS) properties together with properties of insubstantial construction

9.4 Properties not acceptable for security purposes

The following tenures/property types will not be considered as suitable: a) Flying Freeholds

b) Properties outside the UK c) Freehold flats

d) Flats over 6 storeys

e) Flats above retail premises (Shops etc)

f) Ex local authority flats and Ex Ministry of Defence properties g) Mobile homes or houseboats

h) Vacant land

i) Agricultural restrictions 9.5 Ex Local Authority Properties

Ex local authority properties should have a minimum of 60% of private ownership in the area. Anything below this could make resaleability more difficult.

9.6 Concrete Construction

IBB‟s finance policy will depend on the classification into which the property falls. Property of concrete construction normally falls into one of the following classifications: a) In-situ cast concrete

IBB considers this type of construction as being acceptable. The most commonly encountered types are Wimpey No-Fines and Laing Easiform.

b) Precast reinforced concrete (PRC) construction designated defective by the Housing Act 1985/Housing (Scotland) Act 1987

PRC flats/maisonettes are unacceptable under any circumstances.

IBB will only finance PRC properties (houses/bungalows) provided they are repaired under one of the following repair schemes:

i) The PRC Homes Ltd Repair Scheme - The Bank is prepared to accept a detached, semi detached or terraced property that has been, or is to be repaired, with a repair equivalent to a PRC Homes Ltd licensed repair scheme with the adjoining property or properties remaining in an un-repaired condition. Marketability will be a key issue. ii) The Non-Traditional Homes Appraisal Scheme - The Bank is not prepared to accept a property that has been repaired singly, with the adjoining property or properties remaining in an un-repaired condition unless the repair is to NTHAS Category 5, which is equivalent to a PRC Homes Limited repair scheme.

Large panel systems are not acceptable for security. 9.7 Steel Frame

This is an acceptable form of construction and will be considered on the merits of the individual unit.

9.8 New Build

IBB will only accept a newly built or newly converted property if it is provided with an approved new build warranty, or it is built under the supervision of a suitably qualified professional (with professional indemnity insurance).

(Note: A warranty is not required in the case of flats and maisonettes converted from, or out of, a former house.)

Building Warranties accepted by IBB

1) The National House-Building Council (NHBC) 2) The NHBC equivalent for Self Build

4) The Premier Guarantee for Private Housing and Premier Guarantee for Completed housing

a) Structural warranties underwritten by Liberty Mutual offering 10 years cover similar to that of the NHBC and Zurich schemes.

5) LABC Hallmark New Homes Warranty Scheme

a) A derivation of the above. A partnership between Local Authority Building Control and Premier Guarantee, underwritten by Liberty Syndicates (Lloyds) and offering similar cover

6) Building Life Plans

a) A similar warranty scheme, with inspections during the build period. This is a scheme backed by Allianz Cornhill. Cover is for 12 years from the date of inception.

7) Build-zone - A ten year structural guarantee for part built/completed buildings. a) Surveyors should state that conveyancers should confirm that the insurance guarantee is in place before funds are advanced‟ and suggest a whole advance (numerical figure) retention until confirmed.

9.9 Retentions

IBB do not hold retentions on essential repairs advised within the valuation report. If works are required reports will need to be carried out and sent to underwriting prior to offer, together with evidence of funds for the works and a letter accepting the quotes. If the retention for works advised by the valuer is significant, we will work on the before works figure given by the valuer. We will only work on the after works figure where the retention and works are not significant.

For example:

Retention £10,000.00

Before works figure (valuation) £200,000.00 After works figure (valuation) £210,000.00

9.10 Specialist Reports

IBB will only accept specialist reports from the following qualified persons / firms. Damp and Timber Reports - BWPDA (British Wood Preserving and Damp Proofing Association), Nationwide Association of Preserving Specialists or other recognised bodies as long as the works are backed by long term, insurance bonded guarantees. Electrical Reports – NICEIC, IEE, ELECSA, NAPIT or ECA (Electrical Contractors‟ Association)

Structural Engineers Report MIStructE or FIStructE MICE or FICE

MBEng or FBEng

FRICS or MRICS only where designated as Chartered BUILDING surveyors

MASI or FASI only where belonging to the Structural Engineers or Building Surveyors Section of the Architects and Surveyors Institute

Arborealist Report - Arborealist qualifications F ARBOR A or a recognised contractor listed in the current edition of the Arboricultural Associations Directory of Contractors and Consultants. The Institute of Chartered Foresters (MICFor or FICFor) are also acceptable

Mining Reports - National Coal Board mining search

Drains Report - No formal qualifications necessary, but a report from a specialist firm required.

9.11 Scottish Valuations

Purchases: The valuation report must be supplied with the application form and be transcribed from one of our panel valuer‟s, DM HALL or GRAHAM & SIBBALD. Valuation reports from any other valuer‟s will not be acceptable.

Refinance: The valuation report will be instructed by Admin. They will use one of our panel valuer‟s, DM HALL or GRAHAM & SIBBALD.

10. Credit Search

Accounts Processing will undertake a Credit Search upon receipt of the application form. Credit will assess the returned information. Any additional searches required will be actioned by Credit.

Applicants who are Bankrupts or have IVA arrangements will be declined, as will those with active CCJs.

CCJs will need to have been satisfied for a minimum of three years before an application will be considered. General adverse data, missed payments, defaults, arrangements etc, will be considered on a case to case basis.

IBB reserve the right to alter the supplied information due to data evident in payslips, bank statements, the credit search plus any other pertinent facts obtained during the assessment of the application.

11. Decision

An underwriter will assess all Home Purchase Plan applications and reach one of the following decisions:

 Authorised  Declined

 Pending (The underwriter will request additional information, which can be verbal, documentary or both. The intention is to be able to assess the additional information and/or data and proceed to authorizing the application. The request will be sent to the sales person and it is this individual‟s responsibility to supply the information. A maximum of two weeks are allowed for a satisfactory response to be received by IBB. If no such response is received, the application will be abandoned (cancelled)).

An explanation does not have to be given to an applicant for a decline decision. If considered appropriate by IBB additional documents and/or data may be allowed as an offer condition. Such action should not be seen as setting a precedent.

The Bank reserves the right to withdraw an offer after it has been issued if additional information is obtained that affects the security and/or applicant’s situation. An explanation does not have to be given to an applicant following such a decision.

A formal HPP offer is valid for three months and the Bank’s copy of the offer must be signed by the applicant(s) and returned within 30 days of the offer date.

12. Revised Offers

Any change to the original application should be provided in writing from the applicant. A fee of £50.00 is required for a new offer to be issued.

The application will be subject to reassessment due to the change in information. If the change is more than 30 days since the original application, the latest bank statement and payslip will be required.

There are a number of reasons a new offer may be required, these include:  Change of finance amount

 Adding/removing an applicant  Change of term

 Change of property  Change of purchase price 13.1 Change of finance amount

The reason for the change in finance is required. If additional funds are required, please advise what the funds will be used for.

13.2 Adding an applicant

A new application form will be required for the new applicant along with all standard documents. (See Documents Section 5).

13.3 Removing an applicant

A letter will be required from the applicant which wishes to be removed from the application. This must be signed and dated and addressed to the Bank.

13.4 Change of term

The new term will be required. If the term exceeds the NRA, acceptable documentary evidenced of pension arrangements may be required.

13.5 Change of Property

If this is within 30 days of the date of the original application, a Change of Property Form may be completed.

The reason for the change in purchase price is required along with any change in finance amount. If the deposit will increase due to the change of purchase price, the additional deposit will need to be evidenced by the applicant.