Month: December 2018

Do HMO and Buy-To-Let properties require different Mortgages? | Q&A Series

Ashanta Charm1 Comment

Reading Time: 2 mins

Yes. 

Whether you go directly to a Bank or use a Mortgage Brokers, something many Buy-to-Let property owners will find challenging is having a HMO.

What is a HMO?

A Household in multiple occupation. 

This means that a property rented out by at least 3 people who are not from 1 ‘household’ (for example a family) but share facilities like the bathroom and kitchen. It’s sometimes called a ‘house share’. … You must have a licence if you’re renting out a large HMO in England or Wales.

REMORTGAGE

Before your Mortgage Broker approaches or advises that you submit an application with a particular lender, it is important that you understand that lenders policy. This is because you could go through the credit search, application process and find out that your application is rejected once the valuation is carried out. This would be down to the fact that the surveyor has observed that your property isn’t a conventional BTL property, but a HMO.

PURCHASE

Ideally you would of applied to your local council for a HMO licence during the negotiation/Purchase Offer stage as the licence can take a while to come through. 

Featured Image source: Google

Why are some Mortgage Brokers free while others charge a fee? How do the free ones make their money and what Brokers do you recommend using? | Q&A Series

Ashanta Charm4 Comments

Reading Time: 5 mins

Mortgage Brokers are also known as intermediaries. They are the middle man – the mediator between you, the customer and the lender.

The Mortgage industry is a business and lenders are in constant competition with one another. They compete with their interest rates, product benefits and last but not least, procuration fees.

The procuration fee is a percentage of your Mortgage that the intermediary (Mortgage Broker) is paid by the lender for using their services and sending business their way.

Both the lender and Mortgage Broker benefit from helping you! One funds your purchase and the other arranges the Mortgage for you.

It’s a, “You scratch my back, I scratch yours” scenario.

How?

When you borrow money from the bank, you pay back what you borrowed plus interest. So although the bank is facilitating and funding your Mortgage, it’s not a good will gesture, it’s business!

  For Example:

How the Bank benefits

You borrow £143,822 with a 1.74% interest rate.

You actually pay back £271,417.44

This means that you pay back £1.88 for every £1 that you borrow.

How the Broker benefits

The average procuration fee is 0.3% – 0.5% of your Mortgage Balance

Using the above Mortgage as an example, the procuration fee earned on £143,822 is £719.11 (0.5%)

However, many Brokers are in *Mortgage Clubs and would loose a cut of the “proc fee” to the club. So after deductions etc, they may walk away with around £550.

Note: The procuration fee is only paid to the Mortgage Broker on completion. This is, once the purchase, remortgage or product transfer has been completed.

Therefore you can understand why the larger Mortgage Brokers can get away with not charging for their services.

This is because they submit many Mortgage Applications with a variety of balances over the course of weeks/months. If they submit say 100 Mortgage Applications consistently a week for 4 Months, buy the end of the 4 Months, that’s 1,600 Mortgage Application. At the end of the 4th month, roughly 800 of those people would have completed on their remortgages, 400 completing on their Purchases and 400 non completions with a variety of unforeseeable issues: sellers pulling out of the purchase, the intended property being down valued and deemed unsuitable, the applicants circumstances changing etc.

1,200 completions with an average procuration payment of £700 is £840,000.

Now do you see why they don’t charge?

Mortgage Brokers I’ve either used, worked for or been affiliated with that I’d recommend are:

Habito

Capricorn

Mojo

Alexander Hall

*A Mortgage Club is a network many Mortgage Brokers belong to. By belonging to these, they have access to a panel number which they use in order to submit Mortgage Applications to lenders.

The Mortgage Club/Network facilitates the Brokers ability to advise, place Mortgage Application and therefore take a cut of their procuration income. The two main Mortgage Clubs/Networks out there are Legal & General and Openwork.

Despite having to abide by the standards of the clubs/networks, Brokers also have to adhere to the FCA standard and therefore have their own FCA registration number.

What is the difference between using a Mortgage Broker vs. Going direct to the Bank? | Q&A Series

Ashanta Charm4 Comments

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Reading Time: 7mins

In 2015 my mother gave me some great advice. She knew that I had the desire to get my foot on the property ladder and as I had no idea where to start, she advised me to go to the Bank with my then fiancé and see what we were “worth”.

As my fiancé worked for HSBC at the time, we booked an appointment with a Mortgage Advisor, disclosed our salaries, savings, commitments etc and based on our situation she gave us a flat maximum amount that we’d be able to borrow.

This meant that regardless of what property we found, that’s the maximum Mortgage amount that we qualified for.

I can’t remember what that max lend was, but let’s just say for arguments sake that it was £300,000. This means that even if there were mortgage deals at HSBC where you could get a 90% Mortgage with a 10% deposit and the property we sought after was £450,00, we would have to cough up £150,000 and not the simple 10% deposit of £45,000 that the product suggests. This is due to what we were “worth” and the maximum HSBC was happy to lend to us based on our salaries, credit score etc.

I hope this makes sense.

Here’s where Mortgage Brokers come in to play…

There are numerous High Street Lenders, and I suppose my finance and I could of gone up and down the streets from various bank to the next getting a rough idea of what they’d lend us, but this is extremely tedious and time consuming.

Our next point of contact was a Mortgage Broker which my finance found on Google – Alexander Hall.

We got in touch with a Mortgage Broker who was amazing! He offered an amazing service and until this day, I still remember his name.

The Mortgage Broker took more or less the same information we provided to HSBC and sourced which lender would give us what we were looking for.

“Source” the phrase used to describe the action taken on a system similar to Google for lenders. Most lenders are on this system and the great thing is that some Mortgage Brokers get exclusive rates and deals from lenders. For example the lowest rate at TSB if you were to walk in to a High Street Bank could be say 2.04% however with a broker, they have access to exclusive interest rates like 1.69% for TSB opposed to the 2.04% High Street rate. That’s a huge difference!

To cut a long story short, the Broker found us a lender that was willing to lend us way more than HSBC and we were able to then look for an affordable property, make an Offer and secure a Mortgage.

Round up.

The 3 Major difference between a High Street lender and a Mortgage Broker are:

1. Time

High Street Lender

They tend to have a 2 week wait for you to be able to secure an appointment with a Mortgage Advisor.

Application to Mortgage Offer can take anything from 1 Month – 6 Months.

Broker

For many no appointment is needed. You can get in touch with your Mortgage Broker over the phone/on email with the option to book in a face to face meeting if that’s your preference. However some brokers require face to face interaction like Capricorn Financial and Alexander Hall due to verification etc.

You also have the option to do everything online and through a chat window. Convenient and no need for any face to face interaction or time consuming meetings. Brokerages like Habito and Mojo operate in this kind of manner.

Application to Offer can take anything from 3 working days to 21 days. (I’ve seen case where a full Mortgage Application was submitted and an Offer followed immediately after due to the lender being able to verify the applicants electronically and carrying out a desktop valuation) – rare but possible.

2. Interest Rates

High Street Lender
What you see is what you get.

Dependent on the Bank of England base rate.

Not many options

Broker
Options galore.

You can play with the term length and Mortgage features (E.g cash back, free legal representation, split terms, payment holidays)

The Broker will be aware of when new rates are going to be introduced/when old rates are going to be pulled off of the market.

3. Convenience

High Street Lender
They will require hard copies of documentation

Proof of ID

Proof of Address

Bank Statements etc.

Broker
Hard copies of documentation not required

PDF copies acceptable

The convenience of being able to email across any additional information required from you.

Some people don’t like the idea of using unpopular lenders like “The Mortgage Works” or “Atom”, but if getting value for your money is important to you, I highly suggest using a Mortgage Broker.