15 November 2018

Looking at a property project? Refurb to Let...

Looking for a property project?  Just because a property is run down or even classed as 'uninhabitable', does not mean you cannot get a mortgage on it.  Or, if you are intending to purchase a property to let out, but it's currently in an 'unlettable' condition.  Lenders will cater for these scenarios (dependant on the exact type of works required!).  In the main, the work required needs to be cosmetic - a redecoration, maybe a new kitchen or bathroom.  Many now offer 'refurbishment' loans where the work must be carried out within a period of time after purchasing the property (normally three months). 

Our good friends at Precise Mortgages have recently launched a product called the ‘refurb to let’.  This gives the flexibility of a bridging loan to carry out the works, and the certainty that the property will then go on to a buy to let mortgage once works are finished.  They will look at 75% of the property value at the outset and allow a re-mortgage up to 80% of the end value, once works have been completed.  The nice thing with this product is you have one processor to cover both parts of the underwriting, as well as just one surveyor to review the upfront property value and then again once the works are done. No mortgage repayments are required whilst the works are being completed, subject to terms and conditions of course!

There are a raft of reasons why this type of product might be taken. These could include properties needing work to meet minimum Buy to Let EPC ratings.  Or properties purchased at auction, that need work, or where they’ve been bought under value.  Or it could simply be a landlord choosing to refurbish the property to maximise the rental yield available.

Seek out a local architect to assist you with plans and costs and always make sure you set out your budgets from the outset.

Lenders will cater for all types of scenarios (dependent on the exact type of works required!).  Each lender will work on the surveyors comments once they have visited the property and adjust their offerings accordingly.  Just because the high street or your current lender says no, does not mean that it can't be done..

08 November 2018

Complex scenarios are common in the mortgage market.

The high street lenders tend to only deal with pretty straight forward scenarios.  So, you will need to fit their standard credit score requirements, meet their standard income multiples and, in the main, simply be easy to deal with.  However, we all know that not everyone fits this ‘ideal client’ picture.

Complex scenarios are on the increase.  We had one recently where the clients had built a number of properties but could not sell them for the desired price, siting Brexit as a major factor in this.  Having financed the build with development funding, this can be quite expensive if you run over the agreed timescales.  In addition, this company was running at a loss for this project, as all the building costs had been put through the accounts without the counterbalance of the properties selling to recoup funds.   Therefore, this was not a case many lenders would look at!  However, we found a lender who was willing to assist due to the fact that the clients had previously completed many projects like this, had a number of shareholders and, as they were converting the properties in to Buy to Lets, this would be a long-term venture.   All in all, the clients interest rate changed from over 10% on the development finance, to less than 5% on the buy to let rates.  They also managed to recoup their funds and rent out the properties. 

These are just some of the benefits of using an independent mortgage brokerage and especially if they are ‘whole of market’ and have the ability to deal with any lender and are not restricted to a small panel of lenders.

Other examples include applicants with no credit: too much credit: a desire to pay up front or add additional security in the form of another property thus increasing their ability to borrow more.

AToM has a vast number of lenders on its Complex Prime panel already looking at these types of difficult scenarios. These lenders may not be household names, but you’ll probably find they are extremely helpful and will look at most scenarios, manually, with no credit scoring and have an appetite to lend! Most importantly, their interest rates are mostly very competitive too!

01 November 2018

Another budget over and some good news for First Time Buyers!

Well that was not the most of exciting of Budgets, although it could have been a lot worse.  It does seem like the spending taps have been turned slightly on, rather than off!

On the up side, Stamp Duty Relief has been extended to first time buyers purchasing shared ownership homes valued up to £500k.  Shared ownership meaning that you buy a percentage share of the property and rent the remaining amount from the housing association, normally with the option to ‘staircase’ (buy more of a share) at a later date.  This can be a good way to get onto that first step onto the property ladder, although you do need to cater for the additional rent payments and normally there are ground rents and service charges relating to the property to also take in to consideration.

The Government backed Help to Buy scheme, which was due to expire in 2021, is to be extended to 2023 for First Time Buyers.

Landlords took another hit as private residence relief on Capital Gains Tax is now only available if the landlord lives in the property with the tenant!  Landlords and tenants sharing properties is something currently not well catered for by mortgage lenders!

In other news, Virgin Money have scrapped their guarantor mortgage citing lack of use and that many lenders now prefer parents to be joint borrowers on the mortgage itself.  A number of lenders now offer joint borrower, sole proprietor mortgages.

Finally, there have been a number of changes over the last few days with some rates increasing and some decreasing.  TSB, Secure Trust Bank, Precise Mortgages, Nationwide, Family Building Society, Together Money, Kensington Mortgages, Coventry and Accord Mortgages have all issued product updates.  It is a volatile market currently and the uncertainty of Brexit is making an impact across the whole market.  Therefore, if you are looking to review your mortgage and have been offered a respectable and appropriate deal, do your homework, review all options, but don’t hang around!

25 October 2018

HMO Licences taking up to 9 months...

If you have a House of Multiple Occupation (HMO), you should now be aware of the rules that came in to effect on 1st October.   You also be aware that some councils are behind already on the licence applications with one rumoured to be nine months behind!

To recap - any property with five or more occupants (not all related) will now need an HMO licence, as the Licensing of Houses in Multiple Occupation Order 2018 takes impact.  

Previously, the licence applied to properties with three or more stories and five or more occupants (not related to each other).  However, it was decided to change these requirements and ultimately increase the number of properties that require a licence.

These changes impact both existing and prospective HMO landlords and full details on how to obtain licences will be available on the relevant councils’ websites, alongside other requirements the individual council may have put in place.

A minimum size for bedrooms has also been implemented and the guidance will recommend that floor space be no less than 6.51sqm for a single adult and 10.22sqm for two adults sharing.  Any room with less than 4.64sqm is not to be used as sleeping accommodation.

With the possible delays in granting the license some lenders may not be willing to assist until the approval has been actually issued.  However, speak to a specialist who has access to All Types of Mortgages as some lenders are happy to proceed once the application has been made.

Finally, also remember that the surveyor is the lenders ‘eyes’ in all financial transactions.  They will value the property for both rental possibility as well as its actual value.  As this report is for the lender, they have no obligation to tell you what is in the report or give you a copy!  If you are looking to buy a property and convert it in to an HMO, you will need to let the valuer know when they visit the property as this may change the value of the property and more importantly, the rental achievable.  This could also affect the possible loan amount that the lender will allow.

18 October 2018

Affordability is the key to you achieving the right loan.

The lenders main area in deciding whether to lend to you, or not, is on your ability to pay the mortgage both today and also in the future.  It's difficult to detail when I have a limited word count, but in the main, lenders will stress test all mortgages against a possible rate rise and underwrite the applicants based on their ability to pay at the higher rates. 

The regulators want lenders to ensure the customer can afford their mortgage for at least the next five years.  So, for example, a shorter term deal may be stress tested at a pay rate of, lets say, 3% plus 3 percentage points higher than the prevailing rate at origination, so in this case 6%.  However, a five year (or longer) deal may be stress tested against the pay rate, which might only be 3% in current climates.  This can make quite a difference when it comes to calculating the affordable loan amount over the first five years of the loan, subject to the lenders terms and conditions.  Longer term fixed rates can also be good for the end consumer as they should get the loan they want, but also the monthly payments remain fixed for the next five or more years.

Whilst in the 'planning' frame of mind, and with so much talk about rates increasing, have you reviewed your current financial arrangements to ensure sure you are on the best deal available?  

Whether you require the security of fixing your payments for an amount of time, or whether you are a bit of a risk taker and might look at a short to a medium term tracker, right now, there are a number of attractive five year deals, and also some ten year deals currently available.  Potentially great value if you know your plans for the longer term and prefer to fix your monthly payments.

Finally, when you come to the end of your product term, your current lender may write to you offering you some products to stay with them.  However, STILL do your homework and shop around.  These may look good, but there might be better options available to you elsewhere!

11 October 2018

The maximum loan achievable on a Buy to Let is a complex calculation.

AToM exhibited at the Property Investor and Homebuyers show at the London ExCel last weekend.  It was a great opportunity to talk to professional landlords, as well as those looking to make their first steps in to the buy to let sector. 

With many changes and increases in taxation on profits being introduced over the next few years, the Buy to Let sector has taken quite a beating!  Yet with interest rates so low and demand for rented properties increasing, and no clearly defined solution to help first time buyers, I can't see these changes killing off the buy to let sector just yet!

In fact, the exhibition showed how many people were genuinely interested in looking at renting out property as a long-term investment and project. 

There’s a lot of confusion still regarding buy to lets and how lenders look at affordability.

So, to try and clarify - Since the Prudential Regulation Authority stress test rules came in to effect in 2017, lenders have to work out affordability based on the rental income achievable from the property and stress the product term over a five year period, often at 145% of a nominal rate of 5.5%.

Lenders interpret the rules differently and differentiate between a buy to let in a personal name compared to a property brought in a limited company name.

However, if the lender offers a fixed rate over a five year period, the actual pay rate can often be used, instead of the nominal rate of 5.5%.

Therefore, by way of example - A standard buy to let in a personal name, achieving a rent of £950 per month, with the calculations of 145% of 5.5%, would equate to a loan of £142,946

If we used the same example, but in a limited company name, the calculation changes to 125% of 5.5%.  A rent of £950 pm would now equate to £165,818

If we then look at the same examples, but on a five-year fixed rate, the changes in loan achievable become very apparent:

145% of 3.49% (Personal name & 5 year fixed) - a rent of £950 pm = £225,274
125% of 3.49% (Limited Co & 5 year fixed) - a rent of £950 pm = £253,333

Please note that these are examples only and every case is looked at on its own merits

With all of the recent tax changes on Buy to Lets, you should now seek professional mortgage advice, along with in-depth tax advice from an accountant who understands property, limited companies and all the new rules surrounding landlords and, where applicable, portfolio landlords.

04 October 2018

A Bridging Loan could help you if you need something short term.

There is an abundance of choice for consumers across the mortgage market currently and this includes the bridging / short term lending sector.

Bridging Finance is the term most used for funds to be used in the short term to facilitate a financial transaction which has either an urgent or short lifespan and which is primarily geared to a property transaction. The most regular type of transactions include: a property being purchased at auction: the purchase of a new property whilst the current one is still being sold: acquisition of a property which needs substantial renovation before it is suitable for a traditional mortgage or payment of an unexpected expense whilst more regular finance is being arranged. This can also be used for legitimate tax payments or short term business requirements.

More recently we’ve seen hesitation with new properties that would have sold with ease now coming across some delays as people decide whether to wait or not as the uncertainty of Brexit deepens. This inevitably might require the builder to look at refinancing their current and sometimes expensive development finance, whilst the properties remain on the market.

We’ve also just completed a Bridging Loan for a conversion of a Barn. The lender wanted full plans, permissions and a host of other information, but they offered short term funding with timescales of up to 18 months to get the conversion complete.

There are a myriad of other reasons for which short term lending can be applied and each application is looked at on its own merits before a lender will agree to assist. The best way to look at this is as a means to an end. These lenders will need certainty on the exit route (how will they get their money back?) and they will always insist on an agreement being in place from a traditional mortgage lender to provide a mortgage, at a given time and once any requirements have been fulfilled. Alternatively, the exit route might be from the sale of the same or another property. So, short term lending is designed to fulfill the need or desire to act quickly.

Finally, this type of funding has become more competitive over the years with some now offering rates as low as 0.44% per month for the right customer.  Obviously, individual terms and conditions apply and with these types of offerings, as always, seek professional advice!