23 November 2017

HMOs, Ltd Company Buy to Lets and Credit scoring!

There have been a number of competitive launches this week in the Buy to Let sector.  Especially for those buying a House of Multiple Occupation, or in a limited company name.

The more noticeable includes the launch of new products from our friends at Precise Mortgages, designed to assist those looking to purchase investment properties in a Limited Company name.  With Buy to Lets, the loan tends to be calculated based on the rental income achievable. If the product is not a 5-year fixed rate, then this is required to be at a nominal rate of, circa, 5.5% and with rental required at up to 145% of that figure.  With the Precise product, the lender will use the pay rate of 3.09% to calculate the loan, as it is a fixed rate for five years, and with a 125% rental requirement, depending on individual circumstances.  This makes a huge difference to the loan available, and a fixed rate that low is an attractive deal also.

With the recent reduction in mortgage interest relief, since April 2017, landlords are only able to offset finance costs at the basic rate of tax at 20%.  This affects higher rate tax payers, but also basic rate tax payers if they are pushed in to the higher rate bracket, perhaps as a result of their rental income.  As such, we are seeing more and more customers look at a Ltd Company Special Purpose Vehicle to hold their investment properties and provide more efficient tax benefits under current legislation.  Obviously, tax advice should be sought as individual circumstances vary!

Sticking within this area, Landbay have launched some attractive Buy to Let tracker rates with no redemption penalties at all.  These products are great for those looking at a short term project, or perhaps where they want to re-mortgage after a short period, possibly following some works to the property, and taking money out of the increased value to reinvest in further properties, and so on.

Conversely, with lenders reducing rates and chasing completion volumes for year end, we are seeing more people being declined.  Not necessarily due to adverse credit, but because their credit score is not as high as they thought, and they don't meet the lenders requirements as a result.

Credit scoring is one of the most widely used means to assess a customer’s ability to obtain a mortgage.  All credit scores include a credit search – this reviews your financial history, payments to utility suppliers, mobile phones, etc.  The high street lenders, in the main, use credit scoring.  However, do your homework as many smaller lenders will offer just as attractive rates, but they will manually assess your ability to obtain a mortgage and use a human to assess your credit profile, rather than a computer aided credit score decision making system.  

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