In this brief blog we are going to discuss the Natwest Mortgage criteria.

Natwest mortgage criteria

Natwest mortgages is a UK mortgage lender with a varying amount of mortgage products so when referring to the Natwest mortgage criteria this could be referring to any one of the Natwest mortgage products.

In this brief guide we will therefore provide the Natwest mortgage criteria for all Natwest mortgage products on offer at the time of writing. We will only point out the key Natwst mortgage criteria requirements which may affect most residential mortgage borrowers.

You can find a more detailed guide to the Natwest mortgage criteria here.

Age requirements

“Applicants must be at least 18 years old at the time of application. The maximum age at the end of term is 70. 

Affordability

Our affordability calculator is the same one used by our underwriters:

·         Debts being repaid are not included in the calculation.

·         Pension costs are not included in the calculation.

·         Maximum age for lending is 70, subject to affordability, if lending is beyond the intended retirement age.

·         Assumes values for expenditure for basic essentials and quality living costs.

·         Forms of car finance, e.g. Personal Contract Purchase (PCP), Hire Purchase (HP), lease hire etc. should be included in our Calculator as committed expenditure regardless of the term remaining

·         If a customer still has an active car finance contract then the payment must be included unless the customer is repaying the finance prior to (or immediately following) completion from one of the following sources:

·         Savings (proof of savings required)

·         Equity from the sale of the property (home movers only)

·         Additional borrowing on their mortgage

·         Additional evidence may be required in relation to any of the above at the underwriter’s discretion.

·         When assessing the amount required to repay the car finance, you should also take into consideration any balloon payment which may be applicable as part of the agreement and discussions relating to this should be detailed within the application.

Bank statements

We accept internet bank statements in paper format, which don’t need to be certified by the issuing bank. However, they must show your client’s name and the account number. For supporting documents please refer to our packaging guide.

Bonus

For guaranteed bonuses we will consider an average of the last two years’ payments (cash element only) and use 100% of it in our affordability calculation. Please note that if there has been a sharp decline in the latest year’s bonus the underwriter may use 100% of the most recent year’s bonus.

For discretionary bonuses we will consider an average of the last two years’ payments (cash element only) and use 50% of it in our affordability calculation. Please note that if there has been a sharp decline in the latest year’s bonus the underwriter may use 50% of the most recent year’s bonus. We will not consider deferred bonuses.

Builder’s Incentives

The maximum amount of acceptable incentive is 15% of the purchase price of the property.

Portable and proportionate incentives, such as carpets and curtains, along with other financial incentives such as support with up-front costs such as Stamp Duty, legal fees or cashback or enhanced part exchange terms can be accepted in the 5% allowance

Non-standard items such as an upgraded kitchen or integrated appliances can be accepted as an incentive but do not need to be included in the 5% allowance. It will be the responsibility of the valuer to decide which incentives are included in the calculation 

To comply with the requirements of the Help to Buy schemes, customers must still fund a 5% deposit themselves

Lending is based on the lower of the purchase price of the property or the property valuation

The purchase price will not be adjusted for incentives, unless the total amount of incentives exceeds 5% of the purchase price. Incentives greater than 5% will be deducted and lending based on the reduced purchase price (unless the property valuation is lower) The example below explains this for a New Build residential house:

– Purchase price of the property: £120,000

– Incentives total: £8,000

– Incentives to be deducted from purchase price: £8,000 – £6,000 (5% of purchase price) = £2,000

– Reduced purchase price: £120,000 – £2,000 = £118,000

Cashback

Where a mortgage product includes a cashback feature, it will be paid to the customer’s solicitor with their mortgage funds on the day the customer completes. The customer should agree with their solicitor how they would like to receive the cashback.

Child Benefit

We can accept up to 100% of working tax credits, Child Tax Credits and Child Benefit. Please note that if an applicant is heavily reliant on these benefits (the ratio of benefits to main income) then please discuss these with your BDM but be aware that the final decision remains with the underwriter. The age of an applicant’s children may be a factor so we recommend submitting the awards letter with as part go the application packaging. If the applicant earns more than £50,000, then we will not include Child Benefit.

Childcare costs

We use the actual amount the customer has declared they pay in our affordability calculations for this commitment. Customers with dependants will be asked about the type of childcare they use, how often and how much they spend.

There is no formal evidence which is required for childcare costs, however if there is a difference between what is on the evidence provided as part of the application and the declared costs, this will be challenged/discussed to ensure the correct figure is used for the customer.

As part of the affordability discussion, you will need to clarify with the customer whether it’s certain or likely that childcare costs will change over the next 5 years. The highest figure should be used over the 5 year period.

In some circumstances childcare costs may be unknown, for example if the customer is currently pregnant, on maternity leave or if childcare arrangements are yet to be made. Customers can suggest likely future costs or you can refer to the national average figures here (figures correct as at August 2018)

Contractors

For PAYE contract workers, we require one year’s evidence (for example, two six-month contracts or four three-month contracts) and a contract in place for minimum of a further three to six months.

For self-employed contractors who earn more than £75,000 pa we’ll calculate their income as their average weekly contract income multiplied by 46, provided they can confirm evidence of:

their latest 3 months’ consecutive personal bank statements for their main account (not required if their main account is with NatWest or RBS)         

where significant business expenses are identified on the application, 3 months’ consecutive bank statements (personal or business) detailing these

a copy of contract(s) to encompass a 12-month period, with a minimum of 6 months’ contract(s) already completed immediately preceding the date of application.

they have taken no more than a six week break between contracts in the 12-month period

the tax position is paid and up to date.

Many self-employed contractors may also trade via a Limited Company because it may be tax efficient for them to do so and subject to the criteria below we can help them under this policy . There is some additional information that you need to be aware of when submitting an application for a customer who meets these criteria:

When using the NWIS web site or MTE to submit an application, you must key the applicant as ‘Self-employed’ NOT ‘Employed’. 

Operating via a limited company. The applicant(s) must meet one of the following circumstances:

o   Single applicant owning 100% of the company

o   Joint application where one applicant owns 100% of the company

o   Joint application where the company is jointly owned

o   Joint application where one applicant owns 100% of the company and the other applicant is employed by the company (in this instance the employed applicant’s income should be excluded to avoid double-counting).

Significant business expenses not reimbursed as part of an applicant’s contract. Significant business expenses as detailed below, must be fully understood, evidenced and accounted for in the affordability calculation. Significant business expenses may be, though not limited to:

o   Car/finance loans

o   Extended travel and accommodation costs

o   Training courses

o   Professional indemnity insurance

o   Partner/spouse/employee salaries

Umbrella arrangements. We cannot use the high earning contractors’ criteria to consider applications from customers using an umbrella company arrangement. Under these circumstances we would consider an application under our PAYE contract worker policy.

Dependants

This includes children under 18, those in higher education and financially dependent elderly relatives. Where the customer pays maintenance for a child, they should not be listed as a dependant.

Freehold Flats/Flying Freehold Properties

Acceptable but only where it is possible to enforce positive covenants against other occupants of the building i.e. a written agreement is in place to ensure maintenance, repair and insurance of the building and common parts are shared equitably amongst all residents

The valuation must confirm the property is readily saleable and a Solicitor confirms the Title is good and marketable

Maximum Loan to Value is restricted to 90%

AVM / HPI Valuations and the Fees Free Mortgage product are not suitable for this type of property

Gifted deposit: family gift

We accept deposits (and gifts) from parents and guardians and treat them as if they were the applicant’s own deposit. This applies even where the money is advanced against a formal loan agreement or a second charge is put in place to secure the parents’ rights.  Any monthly cost relating to a formal loan agreement must be included in the affordability calculation.

Transactions at undervalue / Gifted deposits – the purchase of a property  from a family member / family business where the purchase price is less than the value and the vendor does not receive any monies for the difference between the purchase price and the valuation. This situation is only permitted where there is a family connection and subject to the Solicitors providing a clear report on title or appropriate indemnity insurance. The maximum lend can be based on the Valuation not the actual purchase price.

Gifted deposit: third party

Gifts from third parties (not sellers/vendors) are an acceptable source of an applicant’s deposit, but only where there is no repayment required. We will require a signed letter from the third party confirming they have no interest in the property and that there will be no repayment required. The letter must be addressed to NatWest and confirm the amounts, who the money is coming from, who it’s going to and the relationship to the applicant. 

Gifted deposit: vendor

Deposits provided by a private vendor by way of a second charge or unsecured loan are not acceptable. Vendor gifted deposits, where no repayment is required, must be treated as an incentive and be deducted from the gross purchase price to establish the net purchase price of the property. If, for example, the vendor is offering to pay Stamp Duty/legal fees/cashback on the property being purchased this amount must be treated as an incentive and be deducted from the gross purchase price to obtain the net purchase price. We will base our maximum lend on the net purchase price or valuation whichever is the lower, with the applicant putting their own deposit in.

Guarantors

We do not currently support mortgages backed by a guarantor.

Help to Buy: shared equity (Purchase)

Help to Buy shared equity mortgages are open to all intermediaries and available for new build properties only. Please note the following information:

Property must be in England.

Maximum property value is £600,000

Available to first time buyers and existing homeowners.

Applicants need a minimum 5% deposit.

Government will loan up to 20% of property value.

Applicant’s mortgage must be for a minimum of 25% of the property value

Part Exchanges not permitted

It must be the primary residential and only property.

We offer specific 75% LTV mortgages to support this scheme.

Need to apply for eligibility through a HomeBuy Agent in region of desired property.

We require a minimum 5% deposit from the applicant and the minimum LTV must be 25%. 3% of the equity share will need to be factored into the affordability calculation as a monthly commitment.

Help to Buy: London

The customer must have a minimum deposit of 5% and the Government will provide an equity loan of up to 20% of the property value.  In specific London boroughs the Government may provide an equity loan of up to 40%. The equity loan must be repaid by the end of the mortgage term or upon the sale of the property, whichever comes first. The customer must take a mortgage of at least 25% of the value of the property they are purchasing.

Help to Buy: shared equity (Remortgage)

Customers with a Help to Buy Shared Equity mortgage with another lender will be able to remortgage to us on a like for like basis, keeping the same balance and term. To switch, customers need to notify the Home and Communities Agency (HCA) and, if applicable, the Developer Lender for consent to change mortgage lender.

On completion we will provide customers with £500 cashback to offset the scheme fees charged when changing lenders.

Customers are required to pay a Deed of Postponement administration fee of £115 to the HCA through their scheme administrators (Target) and need to do this directly themselves – they can call them on 0345 848 0235.

Customers are required to pay a Deed of Postponement fee of £150 + VAT (Some developers also charge £150 when changing mortgage provider) and £95 + VAT for additional legal work to complete this by our solicitors whilst interacting with Target.

Customers will also be required to pay a CHAPS fee of £30 + VAT.  (If there is any remaining funds to be paid back to the customer there is an additional chaps fee of £30 + VAT (customer has option to have this paid by cheque free of charge).

Customers wanting to complete a Transfer of Title to remove a party from the mortgage are required to pay an administration fee of £50 to the HCA.

Our solicitors will act on behalf of the customer to process their application and provide the scheme administrator, Target, with the necessary paperwork.

All Help to Buy Shared Equity Scheme rules and policies apply. 

If a customer is looking to repay any shared equity loan then we can also help with any of our standard remortgage products.

3% of the equity share will need to be factored into the affordability calculation as a monthly commitment.

New build

A new build is defined as any property built, first occupied in its current state or significantly modernised, refurbished or altered within the last two years.

The maximum loan-to-value on a residential new build house is 85% (65% for buy-to-let). For a residential new build flat, the maximum is 75% (65% for new build buy-to-let flats). The amount will be calculated on the net purchase price or the valuation, whichever is the lower.  Also see ‘Builder’s Incentives’ and ‘Offer of Loan – validity’

New build Structural Warranties

We will only lend on New Builds/ Renovations where one of the following 10 year or more Structural Warranties are in place:

NHBC

Zurich Municipal (not available from August 09)

Trenwick International

Premier Guarantee *

Build Zone & Buildcare

Building Lifeplans Limited (BLP, Allianz Guarantee )

Ward Cole (12 year structural warranty)

LABC (New Home Warranty – not self build)

Castle 10 ( Checkmate)

Build Assure (New Home Structural Defects Insurance)

Global Home Warranties

CRL – New Build 10 Year Structural Defects Insurance policy for Residential Property

The Q Policy

Protek New Home Warranty

Aedis Group Homeproof Structural Warranties

Advantage Warranties

International Construction Warranties

Ark Residential New Build Latent Defects Insurance

* Premier Guarantee Warranties for flats will be referred to us by the acting solicitor – check the amount of cover at least equals the reinstatement figure on the Valuation report.

Structural warranties issued retrospectively cannot be accepted.

Property types – acceptable 

Subject to the valuer confirming saleability and suitability for mortgage purposes, we can lend against the following:

No-fines concrete construction.

Steel framed houses (exceptions apply, please check).

Flats over or immediately alongside business premises.

100% timber construction.

Properties containing high alumina cement.

Freehold flats – where it is possible to enforce positive covenants, the maximum LTV is restricted to 90%. Before considering lending against this type of property, we rely on the valuer’s recommendations and the solicitor’s confirmation that the property title is good and marketable.

Agricultural restrictions – the maximum LTV will usually be 50% but each case will be assessed on its own merits.

Properties used for business – we can only lend if the property is primarily for residential use and the work area of the property is 20% of the total property area or less.

Leasehold properties – there must be at least 30 years left on the lease at the end of the term (we may consider less for properties in central London).

Flats (on any level) in multi-storey type properties are usually acceptable, subject to exceptions e.g. where the valuer identifies issues with the building and/or locality which are likely to adversely affect resale.

Property types – unacceptable

Properties with a floor area of less than 30m2.

Properties with a plot size in excess of 4 hectares/10 acres.

Properties listed under the Housing Defects Act (valuers will advise us if the property falls within the Act).

Steel clad houses.

System built concrete construction.

Prefabricated/(pre)reinforced/poured or shuttered concrete construction.

Easi-form construction (except by Laing from 1945 onwards).

Mundic block property.

Properties built on contaminated land.

Timber-framed property with cavity wall insulation unless installed during construction.

Multi-ownership properties.

Shared ownership properties.

Working farms, smallholdings and crofts.

Where the purchase of the property was completed within the last 6 months e.g. where a property has been purchased either with a mortgage or short-term loan and a mortgage application has been submitted immediately or shortly afterwards. This does not affect applications from customers who have had a bridging loan simply because of delays in selling the existing property, subject to normal underwriting.

Property Locations

We lend to customers in England, Wales, Scotland, Northern Ireland and the Isles of Scilly.

Self-employed

Self-employed applicants are able to complete their tax self-assessments online. Copies of online submissions are acceptable provided:

It is clear from the document that the return has been submitted to HMRC (100% complete) and is not simply at the ‘In Progress’ stage.

The applicant provides a copy of their Tax Year Overview.

Shared equity

We lend on the Government-backed shared equity schemes. We require a minimum 5% deposit from the applicant and the minimum LTV must be 25%. 3% of the equity share will need to be factored into the affordability calculation as a monthly commitment. We do not currently offer a shared equity scheme remortgage product. The following eligibility criteria apply:

The applicant will be planning to live in the house and not rent it out i.e. it will be the main residence

The applicant cannot own any other property, in full or in part

The property must be in the UK

The applicant(s) must meet our affordability criteria

The applicant(s) must meet our underwriting criteria such as an acceptable valuation and being able to provide proof of income, etc.

The mortgage must be taken out on a capital and interest repayment basis

The scheme is available to existing homeowners and first-time buyers purchasing a property.

Shared ownership 

We do not lend against Shared Ownership properties where the cu

Unacceptable income types

The following forms of income are classed as unacceptable for a mortgage application:

Bereavement allowance: paid to widows, widowers or surviving civil partners for a maximum of 52 weeks. Not acceptable as it’s paid to reimburse personal expenditure.

Employee benefit trusts (EBT): this is a tax mitigation scheme used in conjunction with employment income.

Expenses: not acceptable as they’re paid to reimburse personal expenditure.

Housing Benefit: payment of full or partial contribution to claimant’s rent. The full rental figure i.e. rent amount without receipt of the benefit, must be listed in the applicant’s commitments. Housing benefit is not acceptable for mortgage products. This has been incorporated into Universal Credit.

Income Support: payment for people on low incomes, working less than 16 hours a week and who have not signed on as unemployed. Can be accepted as a main allowance only if paid in conjunction with Disability Living Allowance. This has been incorporated into Universal Credit.

Job Seeker’s Allowance: paid to people who are unemployed or working 16 hours or less per week. This has been incorporated into Universal Credit (on a limited basis).

Stipend: a form of salary paid for internship/apprenticeship. Only acceptable by exception, at the discretion of the underwriter, if they are comfortable with the evidence seen of the long-term nature of the income.

Third Party Income: earned by a spouse, partner, parent who are not included on the application.

Universal Credit: only certain elements of the Universal Credit are deemed acceptable as forms of income..”

In this brief guide we covered the Natwest mortgage criteria on all Natwest mortgage products which were available at the time of writing.

The Natwest mortgage criteria above may also have changed so please check for the up to date Natwest mortgage criteria.

John Bate

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.