Mortgage & Property Centre (UK) Ltd

Buy to let

Buy to Let mortgages are supported primarily by the rent a property generates and each lender has its own formula for calculating the minimum rent required for a given loan amount. The rental income for a property will be assessed during the lender’s valuation by the surveyor, or by reference to the current tenancy agreement, if the property is already let. You can have numerous buy to let mortgages and special schemes are available to portfolio borrowers. Also, most lenders now require a minimum deposit or equity of 25% and many have minimum personal income levels, to ensure applicants can meet the mortgage payments at times when a property may not be generating any rental income. If you provide us with the necessary figures, we will do the appropriate calculations and let you know which products might be available to you.

Conveyancing

This is the term for the legal work involved in buying and selling property, or when changing your mortgage lender. There is clearly more work to be done when buying a new property, especially if you also have a property to sell at the same time. The work carried out by solicitors includes preparing contracts of sale and purchase, negotiating with solicitors acting for other involved parties and administering the movement of mortgage funds between the parties concerned. They also check the ownership and title of the property at the Land Registry to ensure you are buying what you think you are buying and that the vendor is entitled to sell it to you and whether there are any debts secured on the property and what restrictions may be attached to the property such as listing, rights of way and restrictions on use. The conveyancing carried out during a remortgage consists mainly of checking the title at the Land Registry, carrying out a Local Authority search and administering mortgage funds, hence many lenders will cover the cost of the legal work on their remortgage schemes as an incentive to borrowers.

Council right to buy

If you live in a council owned property you may have the right to buy it from the council and you may also be entitled to a discount depending on the number of years you have been a tenant. The first step you should take is to enquire at the Council's Housing Office to see if you are eligible and if you are they will arrange to value your property and present you with your Right to Buy papers. These will state the value they have placed on the property and the price you can buy it for. Once you have this information you should submit your enquiry to us, and we will sort everything from there on. The discount takes the place of the deposit and you can usually borrow the full amount required. You may be able to borrow more than the right-to-buy price but only if these funds are to be used for home improvements. Normally, council valuations are relatively conservative and the discounts can be very substantial making the purchase of your council home very lucrative. You should be aware that the discount will be secured on the property for a number of years following the purchase and if you sell during this time, a portion of the discount will be repayable to the council.

Dependant relative’s mortgage

A standard domestic mortgage for a property that a dependant relative will occupy rather than the applicant. Typically, used to buy properties for dependant ‘children’ to reside in or an older dependant relative. The maximum LTV is usually 75% and the applicant’s income needs to be sufficient to cover the cost of this mortgage and any other domestic or dependent relative mortgages. No rent from the occupying relative will be taken as income in affordability calculations.

Divorce/separation and transfer of equity

Often when a relationship between two joint owners breaks down, the property needs to be divided up in some way. If not being sold and the proceeds split between them, one party will usually buy out the other and take over responsibility for the mortgage. The removal of a person from the title deeds and the mortgage is known as a transfer of equity (ToE). If the party leaving is agreeing to do so in return for a sum of money (i.e. their share of the equity), this payment is known as the consideration. A transfer of equity is best done at the same time as remortgaging onto a new product, often with additional borrowing to cover the consideration. A full mortgage application is required in the sole owner’s name and although free legals may be included, that will not cover the work involved in the ToE, which will need to be paid for separately.

Endowment shortfalls

At the end of the 80's the Government instigated an 'endowment review' which was carried out by all those insurance companies who had previously sold such policies. At the time of applying for an endowment the insurance companies were provided with estimated figures for future investment growth to enable them to calculate the premium you would need to pay to reach a particular maturity value. The review involved insurance companies recalculating every policy holders estimated maturity proceeds using significantly lower growth rates. As the premium was to remain the same the lower rates would clearly lead to lower estimated maturity values and hence the term 'endowment shortfall' became popular. You should bear in mind that this was a Government initiative and nowhere in the calculations is your providers actual investment growth rate used, i.e. their investment returns could be better or worse than the figures quoted in the review letters sent out. There are several ways to deal with possible shortfalls and they will differ in each case. Our recommendations are to act sooner rather than later if you have been presented with a shortfall letter and secondly do not cancel any endowment or other policy used to support your mortgage until you have submitted your enquiry to us to examine further. Finally, do not panic, in our experience most cases are easily sorted.

First time buyer mortgages

Buying any home can be stressful and no more so when it's your first purchase. With over 4,000 mortgages and similar numbers of insurance policies to choose from the task of finding the best yourself is almost impossible. At the Mortgage & Property Centre we use several bespoke sourcing systems to make the job easier, quicker and a lot less stressful.

Full Building Survey

This is carried out by a qualified building surveyor and will examine in detail all aspects of the structural integrity of a property. This type of survey is a must for those buying properties of unusual construction or in unusual locations or properties that show signs of structural alterations. The cost will be dependent on property type and location but expect to pay in excess of £750.

Further advances

A further advance is the name given to extra borrowing you take on with your current lender. If you have sufficient equity and income to cover the extra monthly cost most lenders will grant a further advance. The rate applied to the extra borrowing will in most cases be different to the rate applied to the main mortgage and could be relatively expensive compared with the alternative, which would be to remortgage the entire borrowing onto a cheaper rate with a new lender. You should make sure you are not in a redemption penalty period with your current lender before taking the remortgage route. Care needs to be taken if you’re party way through a product term, otherwise, you may be ‘trapped’ by differential end dates. For example if you have a 5 year fixed rate and after 2 years apply for a further advance, the redemption penalty on your 5 year fixed rate will still be applicable for the next 3 years, so it would be better to put the further advance on a 3 year fix rather than another 5 year fix, so that the redemption penalties on both parts come to an end around the same time, allowing you to remortgage both parts onto a new product without having to pay any penalties. If you are not sure which works out best simply get in touch and we will do the calculations for you.

Help to Buy

A Government scheme introduced after the credit crunch to help maintain the sales of new build properties. Applicants need a minimum 5% deposit, the Government lends 20% and a bank or building society lend the remaining 75%. For the buyer, it gives access to a new property with just a 5% deposit. For the lender, it reduces the risk profile from that of a 95% LTV product to a 75% LTV product, although the rates tend to be more typical of 95% products, providing a greater profit margin for the lender. The Government’s 20% loan is an equity share mortgage; there’s no interest charged for the first 5yrs but after that the rate may not be competitive, and as it’s an equity share, they are entitled to 20% of the value of the property, whenever you decide to sell or remortgage away their loan. The main risk is not being able to remortgage in 5 years’ time in order to borrow more from a lender and pay off the Government to avoid the relatively higher follow-on interest that becomes payable on the 20%. Loss of job, insufficient income, poor credit history, are all possibilities that should be considered before going down the HTB route.

Holiday lets

Strictly speaking, these mortgages are for furnished holiday lets (FHL), properties in tourist areas let for short term occupancy. In a similar way to BTL mortgages, the maximum loan amount is related to the rental income generated, usually on an annual basis due to the fluctuations in week-to-week letting prices. Holiday lets can be more cost effective than BTL’s as they’re treated as businesses by HMRC rather than investments.

Homebuyers Report

This goes into more detail than a basic valuation and contains information concerning energy conservation. They tend not to be a popular choice and cost around £500 or above, depending on property size and location.

Home insurance

We recommend all homeowners affect a quality buildings and contents insurance policy to protect their home and possessions. You should ensure you have cover for accidental damage and personal possessions taken away from the home. Up to five years no claims discount is available, and we can obtain 2 years complimentary no claims discount with certain providers for first time buyers. Various terms and conditions may apply.

House in Multiple Occupation (HMO)

In general, this is a let property where there are more than 3 occupants and they are not related, e.g. students. A property is a house in multiple occupation (HMO) if both of the following apply:

There are at least 3 tenants living there, forming more than 1 household, and they share toilet, bathroom or kitchen facilities with other tenants.

A property is classed as a large HMO if both of the following apply:

There are at least 5 tenants living there, forming more than 1 household, and they share toilet, bathroom or kitchen facilities with other tenants.

A ‘household’ is either a single person or members of the same family who live together.

Many lenders have specific products for HMO properties and criteria that differs depending on whether it’s a small or large HMO. Many local authorities licence HMO’s and lenders will need to see a copy of an appropriate licence.

Landlords insurance

This type of policy is designed to cover properties which are let to tenants. Such policies typically cover landlord's fixtures and fittings with options to cover loss of rent or malicious damage. Standard domestic policies should not be used for let properties. Various terms and conditions may apply.

Limited company buy to let

Generally used when building large BTL portfolios. The limited company must be a non-trading SPV (special purpose vehicle) holding specific SIC codes (trading styles), usually relating to trading in real estate. Ltd company BTL products are not that common, nearly always at higher rates and often come with higher fees. Applicants should seek advice from a suitably qualified accountant before deciding to buy property to let in this manner. For the majority of clients, buying using standard BTL products will be more cost effective.

Mortgage protection

We recommend clients affect a suitable life policy to cover their mortgage debt in the event of death, critical illness or permanent disability. If you are taking out a buy-to-let mortgage, having suitable life cover is often a condition of the mortgage offer. On the other hand, those with no dependents may wish to affect only critical illness and disability cover. Various terms and conditions may apply.

Part & part mortgages

This is where part of the mortgage is on interest only and part is capital repayment. These have become more common following the demise of endowment mortgages and the assessment of endowment shortfalls. If a client started with a £90,000 endowment mortgage but is now looking at £10,000 shortfall, £10,000 of the mortgage could be set up on a repayment basis with £80,000 remaining on interest only and to be cleared with the endowment proceeds at maturity.

There are other instances where part & part may be appropriate, for example when a lump sum might be expected relatively soon into the mortgage term, such as a retirement lump sum, inheritance, etc

Payment protection

We recommend all clients ensure they will be able to meet their mortgage commitments should they be made redundant or unable to work due to accident or sickness. You can choose between two types of policies; the first are short term providing a monthly benefit for 12 or 24 months starting immediately following an accident or sickness which prevents you from working, or your involuntary unemployment. The other type is designed to come into effect after a waiting period of between one and six months and will normally pay out the monthly benefit, in the event of you being unable to work due to sickness or accident, for as long as it takes you to recover or until your mortgage ends, whichever comes first. This cover is ideally suited to those who may have some income protection already, such as from their employer, and who wish to extend it to cover their full mortgage term. Various terms and conditions may apply.

Portfolio BTL mortgages

Some confusion can arise in this area. Many lenders will consider a landlord as a portfolio borrower if they own more than 4 rental properties, although portfolio mortgages are nearly always for landlords with more than 10 properties. Different affordability calculations apply to portfolio cases compared with standard BTL applications.

Purchase mortgage

A loan to purchase a property for your own residential use. The type of scheme you choose will depend on your circumstances, but special schemes are often available for first time buyers and those purchasing their council house. The amount you can borrow will depend on income and existing credit commitments as well as the size of the deposit you can put down. The latter is commonly translated into the loan-to-value ratio (LTV) which is simply the loan expressed as a percentage of the purchase price, i.e. putting down a £10,000 deposit on a £100,000 purchase requires a loan of £90,000 which is 90% of the purchase price so, for example, you could not choose a scheme which had a maximum of LTV of 75%. Often as the loan-to-value reduces, the more you may be able to borrow, as this represents less risk to the lender, and the greater choice of products.

Purchase under value from relative

This is a special situation where the applicant is buying from a family member at less than the open market price and the ‘discount’ is being used as all or part of the deposit. Commonly referred to as ‘purchase-under-value’ or ‘genuine bargain’. This type of application can be processed in two ways, so choice of lender is critical. A typical purchase-under-value would look like this; applicant buying a property worth £200,000 from parents for just £150,000, with the £50,000 gifted equity being treated as the deposit. For mortgage purposes, the LTV is taken as 75%, even though the purchase price is £150,000. The Stamp Duty liability is based on a purchase price of £150,000, not £200,000.

In the example above, some lenders will only allow the gifted equity to be used as deposit if the purchase price is declared as £200,000. If it is declared as £150,000, the gifted equity cannot be used, and the applicant will need to find a deposit!

Remortgages

Changing your lender without moving to a new house. Usually done to obtain a new, different or better rate product Remortgaging is often used to release equity to fund home improvements, etc or provide a deposit for a second purchase such as a buy-to-let property. In the case of separation or divorce a remortgage can be carried out in conjunction with a 'transfer of equity' which is the procedure of removing (or adding) a party to a mortgage. In many cases, funds are raised at the same time in order to meet the financial settlement of the separation agreement. Many remortgage deals come with a free valuation and free standard conveyancing.

Repayment methods

Most new mortgages today are taken on a repayment basis whereas in the past it has been popular to have an investment backed mortgage using one, or a combination of, endowment, pension, PEP or ISA. If you have an endowment or similar supporting your mortgage, we recommend that you stay with this method. However, it is essential that you review the progress of your investment vehicle at regular intervals as it may be necessary to convert part of your mortgage to repayment in order to compensate for any projected shortfall in the plans maturity proceeds.

Second home mortgage

A mortgage for a second home for personal use by the applicant(s). Typically, this would be a holiday home for personal use only, no holiday letting, or a bolt hold, such as a flat close to a place of work if that were a substantial distance from the applicant’s main residence. Generally, the LTV is restricted to 75% and income must be sufficient to cover this and all other domestic mortgages the applicant may have.

Self-build mortgages

Self-Build mortgages are for those people who intend to build their own house or have a house built for them to a design of their choice. The project normally starts with the purchase of a plot for which a 20% deposit is usually required. Future funds are released in stage payments at the standard build stages, subject to regular revaluations and a maximum loan-to-value of 80%. If you already own the plot you can borrow up to 80% of its value in order to raise money to fund the building work

Shared ownership

This is where an applicant buys a share of a property and rents the remainder, usually from a housing association. The mortgage calculations are all carried out on the value of the share being purchased and the rent for the remainder will be treated as a financial commitment. This type of purchase can be good for first time buyers living in areas with high property prices or for those requiring a bigger property than their income and or deposit would allow.

Split mortgage

This is where the total borrowing is divided between two or more products from the same lender. Dividing up the mortgage can allow the borrower to make use of the distinct features associated with different types of products. If a borrower was expecting to acquire significant funds at some, as yet, unspecified time during the mortgage term, they could have an corresponding amount of the mortgage on a product with no redemption penalties, allowing penalty free lump sum repayments, whilst having the rest of the mortgage on a long-term fixed rate to guarantee a fixed monthly cost.

Valuation for mortgage purpose

This is the valuation will be instructed by the lender in most cases. It should highlight problems commonly found in average properties and if needed the valuer will recommend further, more detailed, surveys be carried out prior to release of funds. Typically, this may be for damp, wood rot, electrical circuits, drains, etc. This is the most common survey carried out when purchasing a property. If conditions requiring more serious investigation are uncovered during the standard survey, then you can instruct a structural engineer to carry out a 'condition specific' report e.g. if the property roof is found to have a sag in it. The engineer will look at just the highlighted issue and report back on the cause, remedy and estimated repair costs. For most properties, this route will be more cost effective than a full structural survey on the entire property. We will be happy to organise whichever type of survey may be most appropriate for your situation.

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