These guidelines are designed to give general guidance to mortgage brokers on Melton Building Society’s lending criteria. The guidelines summarise our minimum high level criteria required as part of our mortgage underwriting process. In addition, Melton applies a number of other credit assessment tools which may result in an application being declined, despite appearing to meet the guidelines documented.

Melton reserves the right to change its lending policy at any time, however, we aim to ensure this document reflects the Society’s current approach to mortgage lending. Please note the Society will lend in England and Wales only. All underwriting is carried out manually. For all mortgage applicants the Society uses a credit reference agency to complete a voters roll search together with a credit search.

 

If you would like to search our criteria by word, please use the CTRL+F buttons to find the word/s you are looking for.

Contents

Loan Type & Sizes

Mortgage Terms

Mortgage Types

Shared Ownership

Self Build

Buy to Let

Age Requirements

First Time Buyer

Residency Status

Repayment Strategy

Employment

Income Requirements

Affordability

Commitments

Adverse Credit

Deposit

Security

Solicitors

Loan Type & Sizes

Maximum Loan

• As specified in product literature

Maximum Loan To Value

• As specified in product literature
• LTV based on the lower of the purchase price or valuation

Minimum Loan

• £25000 (unless otherwise stated on product literature)

Mortgage Terms

Minimum Term

• 5 years

Maximum Term

• 40 years

Mortgage Types

Purchase

• Permitted

Remortgage

• Permitted on properties which have not been subject to sale or remortgage in the preceding six months with the following exceptions:
  • Inherited properties
  • Self-build properties
  • Properties to be renovated
• Loan purposes considered:
  • £ for £ remortgage
  • Capital raising for home Improvements
  • Capital raising to purchase a second home or Buy to Let*
  • Capital raising for debt consolidation up to 75% LTV**

*Where funds are being used to purchase another property, we will release the funds to the solicitor and evidence of the purchase will be required before release of funds.

** Where a loan is advanced that consolidates other debts, payment will be made directly to the borrower’s creditors to ensure that commitments are repaid.
Where the debt consolidation is greater than 50% of the mortgage, this will need to be referred to us for consideration.

• Where funds are being raised in addition to any loan being remortgaged and those funds are more than 10% or more of the value of the property, additional checks will be carried out to verify the purpose of that borrowing
• Where a loan is made for home improvements exceeding £10,000, the details of those home improvements will be verified
• Loans to raise capital for purposes, other than for home improvement and debt consolidation (e.g. cars, caravans, school fees) may be considered subject to the term of the loan being in line with the expected life of the asset
• The following types of loan will not be considered:
  • Loans to repay gambling debts
  • Loans for holidays
  • Loans for business purposes
  • Loans for wedding expenses

Shared Ownership

• The maximum loan to value ratio considered by the Society is 95% of the share being purchased subject to a maximum of 75% of the value of the property for the purposes of staircasing (maximum 60% LTV for new build flats)
• Society will only lend on 25% of affordable scheme housing on any single development subject to a cap of 10 properties
• Shared Ownership is not available on Credit Repair adverse products

Self Build

Self build applications will be considered where the applicant intends to reside in the property in line with general criteria and in addition the following will also apply:

Minimum Age

25

Security types

The Society will lend on freehold houses and bungalows, but not on flats

Society Standard
The Society will consider loans to individuals requiring funds to purchase land with full planning permission and building regulations approval for a residential property and for the construction of a residential property with monies being released in stage payments in arrears

Full details including plans, cost estimates, schedule of works and timescales must be obtained

Modern Methods of Construction

The following modern methods of construction property types and cladding systems will be considered for self build lending, subject to satisfactory insurance and new build warranty, along with a full assessment of the demand and future salability:

• Huf Haus
• SIPs (structural insulated panels) where the outer skin is masonary, brick, polymer/cement renders or a combination of these
• Timber frame where the cladding is masonary, brick, polymer/cement renders or a combination of these
• Light guage metal framing where the cladding is masonary, brick, polymer/cement renders or a combination of these
• CLT panel (cross laminated timber) where the cladding is masonary, brick, polymer/cement renders or a combination of these

Loan terms

Society Standard
The maximum term for a mortgage is 40 years. The maximum loan to value ratio will be as specified in product literature

If the applicant intends to remain in their current house for more than 12 months from the inception of the mortgage, the monthly mortgage or rent payment will need to be input into our affordability calculator and treated as a commitment

 

Family Assist

Parents can provide the deposit, which is then repaid to them as a final stage payment on completion of the build, subject to the final end value being 75% or lower

Available as part of our Society Standard proposition only

Affordability will be based on full borrowing, including the last stage release

Maximum 75% of land and build costs

Deposit donor letter required on application confirming that the funds are only repayable on completion of the build, subject to the final end value being 75% or lower

Refer to product guide for details of minimum and maximum loan amounts

Repayment method

Applicants may opt to be charged interest only during the build and switch to repayment or part and part post build

Insurance

Site insurance must be in place at the time of completion and must cover as a minimum:

• £5m Public Liability
• £10m Employers Liability
• Contract works for the re-instatement value
• Reinstatement for any existing structure
• The Society’s interest noted as mortgagee

Title insurance will be arranged to protect against defective title and/or planning consents and permissions

Valuation

Society Standard
We will lend up to 75% of the land value and build costs with funds being released in arrears of each stage of the build, subject to a maximum of 75% LTV at each inspection

An appropriate interim certificate from an architect, architectural technologist, structural engineer or RICS surveyor (minimum PI cover of £1m is normally required) will be required at each stage. The valuer appointed by the Society will be required to carry out reinspection’s at the following stages of construction (as a minimum):

• Land with full planning permission and building regulations approval
• Foundations
• Wall plate
• Wind and watertight
• Completion

Buy to Let

Buy to let applications will be considered in line with general criteria and in addition the following will also apply:

Please check our latest product guide for details of products currently available as these will vary from time to time

Age Requirements

• Minimum age 25
• Max age 80 for regulated and consumer BTL
• No maximum age for standard and holiday BTL

Income Requirements

Minimum earned income of £25,000 between both applicants

Income evidence in accordance with our standard proof of income requirements

Type of Buy to Let

Standard Buy to let – this is where the transaction does not merit either of the criteria above and is purely a business transaction to generate income and yield

Regulated Buy to let – this is when you or a member of your family will at some stage be a tenant

Consumer Buy to Let – this is when you have lived in the property as your main residence or you inherit a property that was a main residence and then due to a change in circumstances you choose to let the property and you receive no other rental income. Intermediaries must hold appropriate FCA permissions

Rental Cover & Affordability

Standard, Family & Consumer Buy to Let

Gross rental Income must cover the mortgage payment (calculated at the Society’s BTL Stressed Rate on an interest only basis) by a minimum of 145% (130% for Holiday Lets) calculated after taking into account any other borrowings secured against the BTL subject property

Evidence of actual or anticipated rental income is obtained by reference to a mortgage valuation report. Rental income declared will be compared to the estimated rental figure provided on the valuation report and the lower of the two will be used to assess the 145% coverage

Holiday Let

Gross rental income must cover the mortgage payment (calculated at the Society’s BTL stressed rate on an interest only basis) by a minimum of 130%. For the purpose of HBTL, gross rental income shall be;

• In the case of an existing holiday let (purchase or remortgage), a minimum of one year’s gross rental income verified by the latest years accounts for the business or an approved accountant, or
• In the case of a new holiday let, confirmation of potential income and the % occupancy rate are required. These must be based on an average of low, medium and high seasonal data, received from a letting agent with relevant experience in the area of the property taking 80% as a maximum occupancy rate

Holiday Let Criteria

The property must be free of any planning restrictions that limits use to holiday home use only

Details of any company managing and/or marketing the property will be required

The requirement for an assured shorthold tenancy agreement is not applicable

Portfolio

A maximum portfolio of 3 properties in total in mortgage to the Society or other lenders will be allowable to an individual or connected counterparty. Full details must be obtained from the applicant and details verified, as far as possible, to the loans reported on the credit search

The maximum that may be lent to any individual or connected counterparties is £500,000 in aggregate

Security

A minimum EPC rating of ‘D’ is required on all BTL applications with the exception of Holiday Lets

Leasehold properties will be considered up to a maximum loan to value of 60%. A minimum of 70 years must be remaining on the lease at the end of the mortgage term

AST

Assured Shorthold Tenancy agreements with a minimum of 6 months and a maximum of 12 months are required, with the exception of Holiday Lets

Age Requirements

Minimum Age

• 18 years – Standard
• 25 years – Buy to Let
• 25 years – Self Build

Maximum Age

• At least one borrower must be no more than 80 at the end of the mortgage term for residential mortgages. For joint mortgages, the maximum age 80 applies to the youngest borrower. In addition to the checks on income into retirement there is also a requirement for the mortgage to be affordable based only on the younger borrower’s income.
• The maximum age for family buy to let mortgages is 80.
• There is no maximum age for standard buy to let mortgages.
• Where the term of a mortgage would go beyond an applicant’s intended retirement age, or state pensionable age, if earlier, independent documentation is required to demonstrate that the mortgage will remain affordable in retirement. Where the applicant has indicated that their intended retirement age is beyond state pensionable age, we will assess whether this is feasible, given the nature of the job being performed

First Time Buyer

Definition

For the purpose of this policy a first-time buyer is defined as a person who:

• has never held a mortgage
• has not held a mortgage in the last three years

Where the mortgage is to be in joint names the FTB definition need only apply to one of the applicants

Residency Status

The applicant(s) whose status is to be relied upon must have resided in the UK for the past 3 years.

HM Armed forces personnel who have been temporarily stationed abroad are deemed to have been resident in the UK during their period of overseas deployment under the Armed Forces Covenant.

In the case of Foreign Nationals, the applicant(s) MUST have:

• 3 years provable residency in the UK, and
• permanent rights to reside in the UK and be able to evidence this, and
• a current valid passport.

We do not accept applications from applicants on working Visas

Repayment Strategy

Capital and interest

• Permitted

Interest only

• Permitted on specific products – refer to product guide
• Maximum LTV 60%
• Minimum equity £175,000 (£250,000 where downsizing is the repayment strategy)

Repayment strategy:
Must be held in the UK in £ Sterling. Repayment strategies held outside the UK or not in £ Sterling are not acceptable

Endowment policy

• Projection from the provider based on current value and contribution levels
• The Group will use the projected value based on the lowest of the standard growth assumptions set down by the Regulator as the amount that can be used on interest only
• Term must coincide with or mature before expiry of the mortgage term

Commutable sum from pension

• Projection from the provider based on current value and contribution levels
• The Group will use the projected value based on the lowest of the standard growth assumptions set down by the Regulator as the amount to be used to calculate the maximum cash lump sum that can be taken
• Term must coincide with or mature before expiry of the mortgage term. It must be both legal and practical for benefits to be taken at the end of the mortgage term

ISA

• Projection from the provider based on current value and contribution levels
• The Group will use the projected value based on the lowest of the standard growth assumptions set down by the Regulator as the amount that can be used on interest only
• Where the investment is a cash ISA (or other cash based deposit), a calculation should be carried out based on the current value and contribution levels to assess whether there is likely to be sufficient to repay the proposed interest only amount at the end of the mortgage term. The interest rate used in the calculation will be prudent
• Term must coincide with or mature before expiry of the mortgage term

Realisation of other assets/Investment properties

• Ownership and value of assets must be able to be established together with details of any encumbrances. The value of the assets subject to any encumbrances must be sufficient to repay the loan in full at the end of the mortgage term. Assets must be held in the UK in £ Sterling

Downsizing

• Equity of at least £250,000 must be available in the property. Subject to assessment of feasibility based on full details of applicant’s plan to move including estimate of date, location and type of property the applicant intends to move to

For Buy to let applications, the repayment strategy could be sale of the property

Part and Part combined

• Permitted on specific products – refer to product guide
• Maximum LTV 75% (60% for interest only part)
• Minimum equity £175,000 (£250,000 where downsizing is the repayment strategy)
• Repayment element of a part interest only mortgage can count towards the minimum equity requirement

Employment

Employed

• Applicants must have been employed in their current job for a minimum of 3 months at the point of application
• Applicants must have been in continuous employment for a minimum of 12 months. Any gaps in employment must be explained
• Employment within a probationary period will be considered where the applicant has been in continuous employment for the last 12 months and employed in their current role for a minimum of 3 months at the point of application
• Income paid in cash is not acceptable
• Income paid in a currency other than £ Sterling is not acceptable
• Maternity leave:
• Where applicant is currently on maternity leave, they will be asked of their intentions to return to work. Income based on the response (i.e. full-time, part-time) can be taken into account in considering the application. The applicant(s) must be asked to confirm that the mortgage will remain affordable during the remaining maternity leave period
• Employment by fixed term contract must have:
  • Been renewed at least once
  • Have at least 3 months to run to renewal
  • Have every chance of being renewed
• Zero hours contracts are considered where the applicant has been in this type of employment for at least 12 months and another applicant has a primary income source, usable at 100%. Where there is evidence of decreasing income for the last 6 months, this income will not be considered

Verification:

• Income will be verified in all cases by the most recent 3 monthly (or 6 weekly) consecutive payslips
• A satisfactory employment reference from the applicant’s current employer (and from previous employer(s) if the applicant has had more than one employer in the last 24 months) is required where the LTV exceeds 75% LTV. References will also be required on lower LTV cases to establish, for instance, whether overtime or other payments are regular and likely to continue. The underwriter has discretion to ask for references as they see fit in relation to any application
• Hand written documents will not be accepted
• Three months’ full bank statements, evidencing receipt of salary, must be produced in support of each application

Rental Income:
Rental income must be verified by a letter or reference from an ARLA registered agent, or by reference to a tenancy agreement plus proof of 6 months’ rental income evidenced on bank statements

Self Employed

Applicants must have been trading for a minimum period of 3 years

For self-employed applicants and company directors owning 33¹/³ % or more of the company, the following are required:-

• LTV < 75% – most recent 3 years accounts or SA302 documents and respective Tax Year Overviews
• LTV > 75% – most recent 3 years accounts and an accountants reference
• BTL Applications – latest year’s accounts or SA302 documents and respective Tax Year Overviews

Profits:

• Stable/increasing net profits: The average pre-tax net profit (or share of) from the latest 3 years accounts provided will be used to calculate income
• Unstable net profits (i.e. where profit increases and decreases over the 3 year period, or where profits increase or decrease by 20% or more from one year to the next): a satisfactory explanation must be received from the accountant. Where a satisfactory explanation is received the average of the latest 3 years most recent accounts will be used
• Declining net profits (more than 20% year on year) are not normally acceptable

The income of company directors will be based on the lower of either:

• an average of salary and dividend payments in the last 3 years, or
• the most recent year’s income

Where the applicants own 100% of the shares in a company then the residual net profit may also be taken into account

Verification:

• A statement from an accountant confirming the profits before tax for the last 3 years plus a projection is required in all cases where the loan to value exceeds 75%
• Acceptable Accountants qualifications are ACA, ACCA, ACMA, CPFA, FCA, FCCA, and FCMA. AFA or FFA will be acceptable where the LTV is under 50%. Other accountancy qualifications may be acceptable but would need to be referred for consideration

For professionals:
(Solicitors/Architects/Accountants/Dentists/Doctors/Surveyors/Pharmacists/Vets) a minimum of one years accounts are required as long as they have been working as part of an established partnership of at least two years standing. The maximum LTV will be restricted to 90%

Sub-Contractors:

• Sub-contractors must have been in that position for a minimum of 12 months. Income will be verified through the latest 3 consecutive years’ Tax Calculations and Tax Year overviews
• Employment through umbrella companies is acceptable under our sub-contractor criteria as detailed above. Income will be verified through the latest 3 months’ payslips and latest P60

Construction Industry Scheme (CIS) Workers:

• Where an applicant is self-employed as a CIS worker, our sub-contractor criteria applies as detailed above. Income will be verified through latest 3 months C.I.S vouchers and latest P60. We will also request a reference from the main contractor

Income Requirements

Income

Applications with more than 2 applicants

• If there are more than 2 applicants applying for the mortgage with the Society we will use 100% of the first 2 applicants’ income only, except where the additional applicants are immediate family members, in which case we will consider up to 4 incomes, subject to affordability
• All applicants must be UK Tax Payers and resident the UK. In arriving at eligible income the following may be taken into account:

*average of the last two years provable income will be used to calculate the figure to apply the 50% to
** subject to satisfactory evidence/accounts and proof that there has been foster caring arrangements for at least 12 months

• Where basic salary has been reduced because of salary sacrifice, the amount of income taken into account shall include the amount of salary sacrificed
• Regular overtime and bonuses must be evidenced by at least 3 months wage slips and the latest P60 or an employers reference
• Commission paid in addition to a basic salary, which forms more than half of a person’s income may be taken into account at a rate of 50%, subject to the latest 3 months pay slips and last 2 years P60’s or an employers reference

Unacceptable Income

Unacceptable income includes:

• Share dividends and interest on savings accounts
• Temporary employment
• Travel allowance
• Expenses
• Income Support
• DWP Payments
• Agency work
• Income paid in cash
• Income not paid in £ sterling
• Income derived from crypto currency

Affordability

Affordability

Commitments

Mortgage/ Tenancy

Mortgage:

• Full details and proof of payments will be required for all current and previous mortgages, including second charges, held in the last 12 months unless Experian Insight information is available
• We will accept the latest mortgage statement, which must be supported by bank statements showing payments from the statement end date to the application date
• For let to buy, where current mortgage will remain, rental income must cover the mortgage payments by minimum of 145%. In addition, confirmation will be required from current lender that they are in agreement with the tenancy and a copy of the tenancy agreement will be required

Tenancy:

• Full details will be required for all current and previous tenancies held in the last 12 months
• Confirmation of rental payments will be verified by bank statements

Expenditure

Regular commitments in respect of loans, credit cards, hire purchase agreements, mail order, maintenance etc. will be deducted from income as follows:

• Loans, hire purchase, maintenance – Annual payments made
  (Loans with less than 12 months to run may be disregarded, provided the aggregate monthly payment does not exceed 10% of net monthly income)
• Credit cards and mail order commitments – 60% of outstanding balance (5% of outstanding balance X 12)
  Where the aggregate total of credit card and mail order balances is less than £1,000 – these may be disregardedWhere credit card balances are repaid in full each month – The amount should be covered by expenditure items rather than be deducted from income
• Child care costs – will be included in the affordability calculation
• Negative capital – For self-employed applicants, any negative capital disclosed in the accounts or accountant’s reference will be treated as a commitment
• On other encumbered properties any shortfall (i.e. where the rental income is less than 145% of the borrowing commitment) will be treated as a commitment

Payday Loans

• Where there is any evidence of a payday loan, the application will be declined.

Adverse Credit

Credit Repair Criteria

The Society will consider residential applications where there is evidence of adverse Credit including Secured Arrears, Defaults, CCJs, IVAs, Bankruptcy, Debt Management Plans, Debt Relief Orders and Repossession.

We offer a dedicated range of Credit Repair Products. Please visit our Credit Repair Hub for full details of our Credit Repair product range and criteria.

The criteria below is applicable to our prime standard product range:

Standard Criteria

The Society will consider residential applications where there is historic adverse Credit/CCJ/IVA/Bankruptcy/Debt Management Plan/Debt Relief Order where these were settled more than four years ago and repossession where settled more than 6 years ago*.

In addition, the following criteria regarding an applicant’s credit history will be considered:

Where there has been a deliquency, as defined by Experian at any point in the last 3 years, this will not be considered by the Society

* Buy to let applications will not be considered if there is any form of impaired credit as per the regulatory definition as detailed below

Impaired Credit History – Regulatory Definition

Under regulatory rules borrowers with an impaired credit history are those who meet any one of the following conditions:

• Arrears on a previous (or current) mortgage or other secured loan within the last two years, where the cumulative amount overdue at any point reached three or more monthly payments;
• Arrears on a previous (or current) unsecured loan within the last two years, where the cumulative amount overdue at any point reached three or more monthly payments;
• One or more county court judgement (CCJs), with a total value greater than £500, within the last three years;
• Being subject to an Individual Voluntary Arrangement (IVA) within the last three years;
• Being subject to a bankruptcy order at any time within the last three years.

Deposit

Acceptable Sources of Deposit 

• Builders’ and vendors’ deposits of up to 5% of purchase price permitted. Such incentives are to be deducted from the purchase price so that the loan is calculated upon the lower of the discounted purchase price or valuation
• Gifted deposits as an incentive from the vendor or other connected person, including builders’ deposits, up to a maximum of 5% of the purchase price are permitted and will be deducted from the purchase price when calculating the loan to value
• Parental gifted deposits are acceptable up to a maximum of 50% of the lower of the purchase price or valuation
• Gifted equity

Unacceptable Sources of Deposit 

• Gifts from occupiers not named on the mortgage
• Deposits funded through unsecured credit
• Vendor cash deposits
• Deposits from employers
• Deposits derived from Crypto currency

Verification:

• In respect of property purchases the source of the deposit must be verified by written confirmation
• Deposit from a gift from a family member or other third party, such as a builder, written confirmation of the gift will be required from the donor

Security

Property Types

• The following types of property are acceptable as security:
• Properties in England and Wales only
• Property with a minimum valuation of £90,000
• Leasehold with minimum remaining term on the lease of 85 years at the end of the mortgage term
• Property in shared ownership
• Owner occupied private dwelling

Acceptable security types:

• Houses:
  • Detached/semi-detached/terraced/townhouse/bungalow built of traditional construction, i.e. brick or stone walls and tiled or slated roof
  • New build houses subject to maximum LTV of 90%
  • Leasehold with minimum remaining term on the lease of 85 years at the end of the mortgage term
  • Flat roofed properties will be considered although for older properties the valuer’s comments will be specifically sought
  • Properties with agricultural or equestrian ties may be considered by referral up to a maximum of 65% LTV
• Flats:
  • Purpose built leasehold flats or maisonettes
  • Maximum 4 storeys and no balcony access
  • Leasehold with minimum remaining term on the lease of 85 years at the end of the mortgage term
  • New-build leasehold flats subject to a maximum LTV of 60%
  • Flats in converted houses may be acceptable if the conversion has been done to a professional standard. Such mortgages would be subject to initial referral for consideration
  • Ex local authority flats will only be considered with a maximum of 4 storeys, no more than 12 flats in the block, no balcony access, not in London and in an area where the number transferred into private ownership is more than 40%
• New build acceptable warranty:
  • NHBC
  • BLP Secure
  • Premier Guarantee
  • Buildzone
  • Q Policy
  • Protek
  • Castle 10
  • ICW
  • LABC
  • One Guarantee
  • Ark Insurance Group Limited
  • Advantage HCI

Unacceptable Security

• The following types of property are not acceptable:
• Properties of non-standard (classed as defective under the Housing Act) construction
• Freehold flats
• Studio flats
• Bedsits
• Houseboats
• Property adversely affected by subsidence
• Property in a derelict condition
• Multiple occupancy properties
• Properties with a value of less than £90,000
• Properties described in the valuation report as being unsuitable for mortgage purposes
• Properties with flying freehold in excess of 15% of floor area
• Properties attached to commercial premises
• Ex-local authority houses in an area where the number transferred into private ownership is less than 40%
• Farms/Small holdings
• Restricted properties
• Properties which are affected by Japanese Knotweed
• Properties where spray foam insulation has been installed
• Conversion of steel framed commercial premises to residential
• Properties which are in effect ‘temporary construction’

Loans on properties which have been subject to sale or remortgage in the preceding six months will not normally be accepted with the following exceptions:

• Inherited properties
• Self-build properties

Non Standard Construction

Any properties of non-standard construction or defective construction as defined under Housing Act 1985 listed below will not be considered:

• Airey
• Boot
• Boswell
• Butterley
• Cornish Type 1
• Cornish Type 2
• Dorran
• Dyke
• Gregory
• Hawksley
• Laing Easi Form
• Lileshall
• Myton
• Mundic
• Newland
• Orlit
• Parkinson Frame
• Remma Hollow Panel
• Schindler
• Smith
• Stent
• Stonecrete
• Terran
• Underdown
• Unity
• Waller
• Wates
• Wessex
• Wimpey no fines
• Winget
• Woolaway

Where appropriate for properties of non-standard construction not covered by the list above a referral will be made to the Group’s Valuer Panel manager for further advice relating to the construction type

Solicitors

Panel

The Group operates a panel of solicitors and licensed conveyancers, which is managed by LMS. New firms may be added to the panel subject to each firm satisfactorily meeting our requirements; having two or more partners (i.e. sole practitioners are not acceptable), minimum PI insurance of at least £2 million, carry out a minimum of 120 conveyancing cases per annum and be CQS/CLC listed