It has been a long time since we’ve had significant news about new products; this morning, Kensington Mortgages announced one of the most significant indicators to date; that mortgage lending is returning to normality.
Their new buy-to-let product range is available up to 85% loan-to-value even for first-time landlords; although the arrangement fees on the 85% product are 2.5%, it is still a step forward for buy-to-let landlords.
It is available on up to 3 properties, with an interest rate of 5.99% fixed for two years, and a portfolio maximum of £1 Million or three properties on the product.
Rental coverage requirements are also lower than the competition, with a rental yield requirement of 120% coverage at the pay rate; this should help to ensure that the products are viable.
The range also allows first-time landlords into the market at 80%, and at this loan-to-value, there is a flat fee product option in addition to the 2.5% fee option, which will work well for those borrowers with higher property values.
The products are available for purchase and remortgage; however, they are only available for properties in England and Wales and have a minimum income requirement of £25,000 or £30,000 above 75% loan-to-value.
For more information on these products, please call one of our mortgage advisors on 0345 4594490.
There is a big difference between mortgage lenders assessment of income for self-employed applicants and those who are employed and paid on a PAYE basis.
This short guide explains how lenders typically calculate income and some of the pitfalls to be aware of when becoming self-employed.
Lenders usually class you as self-employed if you are a sole trader, in a partnership, or when you own more than a set percentage of a limited company (typically 25%).
Employees paid a PAYE salary who own a significant share of another company would have two incomes, one from employment and one from self-employment.
If classified as self-employed, most lenders require a minimum of two years of full accounts before lending; only a limited number may lend based on a single year.
There are certain exceptions, for example, where an applicant buys a share of a limited company that is a ‘going concern’.
If you are considering starting these types of employment, securing a new mortgage deal before switching to self-employment could be a good idea.
When classed as self-employed, the lender will base their affordability assessment on your pre-tax net profit, not your turnover.
That is essentially your money received minus all allowable deductions, typically the profits stated in your tax returns.
If you own or are a major shareholder of a limited company, you typically pay yourself a minimum PAYE income and dividends; the two added together would be considered your profit.
It is important to remember that leaving profit within the business as capital rather than drawing these funds as dividend income will limit the maximum borrowing potential available to you with most lenders. But we can help you arrange loans with lenders that consider this additional profit.
It may be worth taking a ‘tax hit’ in the accounting year before arranging a mortgage if the previous year’s drawings were low, as many lenders will refuse to look deeper into your accounts, basing their assessment on just your PAYE and dividend and ignoring excess profits.
If your profits or drawings have decreased, most lenders will work on the most recent year’s accounts; if increasing an average of two or three years is typical.
Proof of income for the self-employed usually comprises either your SA302 or self-assessment tax computations, or a copy of your company accounts for the last two to three years. Some lenders will request accountants’ certificates if these are not available.
For the sole traders or those submitting their tax returns it usually pays to keep your SA302s handy for coming mortgage applications, although you can request reprints from HMRC, or easily download these from HMRC online if you have access.
For help with your self-employed mortgage, get in touch on 0345 4594490.
Q&A; Mortgages for flats above shops and commercial property
Question; I am buying a flat above a shop or other commercial premises; I understand this can be difficult; what do I need to be aware of?
Lenders always have to be aware of risks that may affect the value of a property and its saleability should the loan go into default.
A flat above a shop or commercial premises has several risks that a lender will consider in making a loan.
These include the nature of the business the flat is above; if it would cause little disturbance to the owners (think florist or estate agent), it is less of a risk.
However, a flat over a fish and chip shop, where late opening hours and food smells may affect the ability of the lender to re-sell, would be challenging to mortgage.
The usual suspects are all varieties of hot food outlets, any kind of bar or off-license, shops with late opening hours or antisocial attributes, and more bizarrely; beauty salons and hairdressers.
Lenders will consider the location of the flat. A flat over commercial premises in an area like Chelsea or Knightsbridge would still command a significant value and appetite for lending.
But the same property in an unfashionable part of a city like Manchester or Liverpool would be far harder to mortgage.
Another issue is access; a mortgaged property must have independent access; if this is too close to the working areas of a kitchen or similar commercial activity, it is unlikely to be a compelling security for lending.
And it isn’t just flats that suffer this issue or properties with commercial premises directly below. Any commercial premises directly adjacent to a property or within a few hundred yards may present problems.
The main consideration is how it affects the desirability of a property. A haulier’s yard fifty meters from a house could limit your choice of lenders but probably wouldn’t leave you without mainstream options. A house abutting a giant scrapyard would likely be a challenge.
Be aware as a potential purchaser of such a property; hard to mortgage may mean hard to sell. And a property that might have a few interested lenders during a boom; may be harder hit by falling prices in a downturn due to a total lack of interested lenders.
For further information and advice on flats over or adjacent to commercial property, call one of our mortgage advisors on 0345 4594490 for independent mortgage advice.
In Q&A, we take a look at some of the common questions faced by mortgage brokers currently.
Question: I recently moved to the UK from abroad; when can I buy a property?
High street lenders will usually require you to have a permanent right to reside in the UK and to have been resident and working in the UK for a minimum period, often a year or perhaps up to three years.
There are exceptions to this; some private banks may be able to lend from the moment you arrive regardless of whether you have a permanent right to reside. These arrangements may be restricted to people with higher incomes (for example, £50K a year) or high levels of existing assets.
There are also a small number of lenders able to consider applicants without permanent rights to reside, i.e. those on visas. Again several will still require six to thirty-six months of residency history, but a small number can consider applications from day one.
For that reason, there isn’t a black-and-white answer to this question; so it’s usually best to seek professional mortgage advice, so if you would like to know; call us on 08454594490 and speak to a mortgage advisor.
Woolwich have announced changes to their 4.19% fixed rate until 31/10/2011 mortgage product at 70% Loan to value.
The product was restricted to a maximum loan amount of £200,000 and a minimum loan of £100,000. The amendments now allow maximum borrowing of £1 million and minimum borrowing of £50,000, opening the product up to a much wider audience, to the delight of Mortgage Brokers and borrowers alike.
The product remains the same otherwise with a £499 arrangement fee. The APR is 2.5%, and the reversion rate is 1.99%. Based on a loan of £100,000, other applicable fees are; a valuation fee of £295, a land registry fee of £200, a lender Conveyancing fee of £126 and a £35 completion fee. Early repayment charges are 3% until 31/10/2011.
As usual, consult a mortgage advisor and request a Key Facts Illustration about the mortgage before deciding.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. We do not usually charge a fee for mortgage advice, although you may pay up to 1.5% of the loan amount. Some buy-to-let and commercial loans are not regulated by the Financial Services Authority.
