Tag: LTV

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.

Buy-to-Let Mortgages for First Time Buyers & First Time Landlords | Q & A Series

Ashanta Charm2 Comments

For the remainder of the year I will be dedicating all posts to answering Questions from our readers. Have you got a question or would you like me to cover something I haven’t written about in the last few weeks? Scroll down to the bottom of this post and reach out to me via any of the listed channels. 

“I live at home with my parents, but I want to buy a property and rent it out. Is this possible?”

Reading Time: 5 mins

Yes, this is called a Buy to Let property and you’ll need a 15% deposit. However, you cannot buy these kind of properties using a Government scheme.

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Today we are going to focus on the Buy to Let Mortgage, but you also have the consumer buy to let and consent to let route.

Here’s a quick breakdown of the other two types of letting routes which we are not going to discuss today:

Consumer Buy to Let – you lived in the property, bought another place/moved back home, got consent to rent out your property from your mortgage provider and eventually remortgaged with another lender on a consumer buy to let mortgage.

Consent to Let – You have a residential mortgage, for whatever reason, your lender gives you permission to let your property for a specific amount of time (e.g 1 Year) or indefinitely. Once you’ve come to the end of this agreed time, you move back in to the property, sell the property or get indefinite permission to Let and Remortgage elsewhere on a consumer buy to let Mortgage product.

How to guide – It’s fairly simple:

  1. Find a property
  2. Find out the average monthly rental income in that area
  3. Agree a purchase price
  4. Deposit – have you got at least 15%? **
  5. Apply for a Mortgage
  6. Understand that once the valuation takes place, the surveyor isn’t only valuing the property, but giving a figure for your expected rental income
  7. You get your Mortgage Offer
  8. Touch base with your solicitor and continue the Post-Offer process with them. ..

 

** Some lenders offer 90% LTV (this means a 10% deposit) products for Buy to Let Mortgages. However for a first time landlord, you will have to find the right Broker and search high and low for the right lender as not many lenders lend to First-time buy to let buyers – the common trend is that you have to have your residential property for at least 6 months before buying a BTL.

 

Tax – Something else to think about.

No income goes unnoticed and this is particularly the case for rental income.

The income tax rates for the 2019/2020 tax year are as follows:

  • Higher rate tax band (taxable income of £46,351 to £150,000) = 40%
  • Additional rate taxpayer (taxable income of over £150,000) = 45%

Tax bands are slightly different in Scotland

If you earn £15,000 from renting out your property, for example, the first £11,850 is tax-free, so you will only pay 20% tax on the remaining £3,150, which comes to £630.

However, bare in mind you may also have a full-time job, your rental income will be added to your annual salary, which may increase what you pay in tax.

In any case, the HMRC will work this out for you when you declare your income.

Things to consider:

1.Tax Return – Make sure you do one online before 31st January (or a paper return by the 31st October)

This is important, so that when you remortgage or buy another property, your rental income can be evidenced and used for affordability. Even if your income is below the threshold and your rental income is not taxed, your Tax Return will still need to be done evidencing £0. You also don’t want to get in trouble with the law! 

2. Do you want the property in your name? Limited Company maybe? Explore your options and benefits.

3. Extra income is great, however remember to take unexpected expenses in to consideration. Have an account solely for your rental income and Mortgage payments and leave all miscellaneous money/profit in there. Why? If your tenant doesn’t pay the rent, you need to replace the boiler or an unfortunate event takes place that your insurance doesn’t cover, you don’t want your property to become a devouring burden. The aim of the game is to make your property pay for itself and then some…

4. Managing Agent. Are you going to have your property run by an Estate Agent and simply collect your income at the end of the month? They will respond to any call outs, ensure you get your rent on time even if the tenants don’t pay, deal with your insurance and gas safety certificate etc. Explore your options – remember nothing in life is free, you have to pay the agency.  The management of your property could cost you 10% of your rental income. Are you wiling to take this deduction for peace of mind?

I hope this has helped! I would love to hear your thoughts.

Comment below, get in touch via my various platforms.

Remember if you have a question, the next 4 Mondays could feature yours – just ask!

LinkedIn Ashanta Charm

Twitter  @AshantaLC

Instagram  @Ashanta_

Help to Buy: Equity Loan

Ashanta Charm2 Comments

Help to Buy

Reading time: 3 mins

In this month of October, we have been solely talking about the various Help to Buy schemes available.

The Help to Buy initiative was a way of assisting young first-time buyers acquire their first home. At a time where it almost seemed impossible for the millennial to own a property in the ever changing and increasing property market, the government stepped in to lend a hand.

However, there is a catch. Nothing in life is free and that’s why it is important to know the pros and cons of any scheme you commit to.

These scheme consist of the following:

Help to Buy ISA

Lifetime ISA Post due 29th October

Equity Loan

Shared Ownership

Mortgage Guarantee Scheme Withdrawn November 2016

 

What is a Help to Buy Equity Loan?

 

The Government lends you up to 20% of the cost of your newly built home, so you’ll only need a 5% cash deposit and a 75% mortgage to make up the rest.

This scheme is available to First-time buyers and Home movers.

For example:

Purchase price: £200,000

Your contribution to the deposit: £10,000

The Governments contribution to the deposit: £40,000

Mortgage Amount: £150,000 75% LTV

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You won’t be charged loan fees or interest on the 20% loan for the first five years of owning your home, however you will have to pay £12 management fees each year.

After 5 years, you will have to start paying back the 20% you initially borrowed, plus interest and your monthly Mortgage payments

ALERT

Things to bare in mind:

  1. Interest kicks in after five years, and could amount to a chunky sum over time.
  2. The Government will take the same percentage of the sale price as you opted for when you took out your equity loan (regardless of how much the loan was originally for) when the property is sold.
  3. You can repay part or all of the loan early, but the Government will only accept this if it’s a minimum of 10% of the property’s current value.

The Process: Standard Mortgage

Ashanta Charm1 Comment

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Reading Time: 5 mins

What’s more important to you? Getting on to the property ladder or telling people that you are on the property ladder?

If the latter fits, then a standard residential mortgage isn’t for you.

Social media can be deceiving and make one extremely anxious, cut corners and end up in debt or an uncomfortable situation for the sake of reputation, likes and pride – Property and debt is not a game, think about the long term…

All the other mortgage schemes will get you on the property ladder a lot quicker and give you bragging rights, but is it worth it?

Today we’ll be speaking about the standard residential mortgage.

If you read last weeks post, you should be full of knowledge and understanding regarding the Help to Buy: Shared Ownership scheme.

The difference between a standard residential mortgage and the various schemes is: You own the property, there’s no second charge or interest from the government. The property is 100% yours and with planning permission, you are free to extend and edit your property as you wish. Leasehold properties are slightly different to freehold properties as you pay a ground rent and service charge for the communal areas etc but there’s still an element of freedom you wouldn’t otherwise have with your remortgage and maintenance options via a scheme.

The process:

  1. A Conversation

Whether you pop in to a bank or speak to a broker, a conversation needs to take place so that both parties are aware of the needs and objectives.

     2. Documents and facts

This is where you prove the above. You’ve said your salary is £75,000 per annum, this is where you prove that. Provide your latest 3 months payslips, latest 3 months bank statements that evidence the salary credit/general expenditure and contract if you’ve been in the role less than a year.

Do you have any debt? Loans, lease agreements, credit card balances, overdrafts, defaults, CCJ’s, maintenance payments? Now is the time to disclose these so that an accurate potential borrowing amount can be calculated.

If you hold back on any of the above debts, later on in the mortgage process, your application can be declined as the lender will do various credit checks on you. Any extra commitment or debt may be out of the banks lending appetite and your overall affordability

  3. Deposit – Where is this coming from? Savings? Gift? Oversees?

Majority of lenders do not accept funds that are not in GBP. If you suddenly received a £50,000 deposit in to your account a week ago, the bank will want to know where this money has come from and evidence of it’s trail. Funds that were given to you in the last 6 months – a year are still counted as a gift. You will need your friend/relative to provide a gifted deposit letter which evidences that these funds are a gift, which they do not expect you to repay and that they will have no interest in your property.

Savings, stocks, shares and the like are accepted. A statement that evidences your bonds maturity date or current market value of your shares is acceptable.

***Make sure you have enough funds outside of the deposit to pay for legal fees, stamp duty, general expense of moving and miscellaneous money for unforeseeable expenses.

  4. Product – LTV

In-order to submit a mortgage application, a product with a lender will have to be chosen.

Example of a Mortgage product:

2 year fixed 1.89% 90% LTV first time buyers only – This means that the 1.89% interest rate is fixed for 2 years, after the 2 years, you are free to remortgage and go to another lender/switch products or you go on the variable rate which sometimes has an interest rate as high as 3%. Your monthly mortgage payments will increase considerably by £200-£300. (Some products also come with a free valuation, free legal representation, cash back etc.)

LTV is an abbreviation of the term, “Loan to Value”. To make it quite simple, lets say you’re purchasing a £290,000 house and have a £29,000 deposit, this would be a product with a 90% loan to value. The higher the LTV, the more you borrow, the more interest you pay and the higher your monthly Mortgage payments.

 5. The Application

Whether you are a first time buyer, home mover or simply remortgaging, in order for your application to be as accurate as possible, you need to provide all requested information to the bank/broker. The more transparent a Mortgage Application, the quicker a Mortgage Offer is released.

A valuation is carried out to ensure that the lender is lending on a property that is worth that level of risk.

Once the supporting documents have been signed off/accepted and the valuation report is back, the application will either go straight to Offer or products, deposits and loan amounts may need to be revisited if the property is down valued.

  6. Mortgage Offer

Once your Mortgage Offer is released, the ball is now in your Solicitors court. This is where you need to run a tight ship and make regular contact with your solicitor.

  7. Completion

Be courteous, leave your bank/broker some feedback, after all, they did just help you secure your first home, second home or saved you some money by helping you with your Remortgage.

Do you have a question or want a particular part of the process to be explained in more detail?

Contact me via
Twitter @AshantaLC
Email AshantaLC@hotmail.co.uk
Instagram @ashanta_

Step-by-Step Guide: Purchasing A Property

Ashanta Charm2 Comments

The Timeline

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Reading Time: 5 mins

So you want to get on the property ladder…

Please find a few things below that you’ll need to consider

1. What kind of property can you afford?

There are a range of websites and tools you can use which will tell you how much you can borrow in relation to your salary and savings. Most people buy a property via a Mortgage (which is basically a large loan to buy a house) alternatively, some people buy a property out right and they are known as cash buyers.

You use something called an affordability calculator. It will require your salary, debts/monthly outgoings and how much you have saved that you’d use towards your deposit.

Here are a few simple and extremely helpful calculators below:

Natwest Affordability Calculator
https://personal.natwest.com/personal/mortgages/mortgage-calculators/how-much-can-i-borrow.html

Habito Affordability Calculator
https://www.habito.com/mortgage-calculator

LTV Calculator
https://www.landc.co.uk/calculators/loan-to-value/

At this point, you can also approach a Mortgage Broker to advise you through your options. There’s nothing worse than making an Offer on a property you can’t afford! 1. You lose out on your dream home 2. It’s embarrassing, you don’t want to give an agent or a vendor the run around. Protect your name.

Do not be disheartened, remember the above results are not the be all and end all of your home buying dreams, there are various schemes that will enable you to own a property with as little as £2,500 deposit. You can find out more about those various schemes here.

2. Find your dream home

Now that you know how much you are “worth” and will be able to borrow, go and find your dream home. Remember to research the area. What will the commute be like in to work? How close are the local schools? Is the train station within walking distance from your house? What kind of reputation does the area have? Will your car be safe?

Sign up to various Estate Agencies for email alerts when properties within your desired area and price range are put on the market. Set up some viewings, go and view properties and get a feel for the area. Just because a property looks nice in pictures, doesn’t mean it’s right for you.

Tip: If you view a property in say the afternoon/morning, before you seal the deal and make an offer, drive through the area on a Friday/Saturday night to get a real feel for the vibe of the area.

3. Make the right Offer

Go online and google the area, right down to the road you are purchasing your property on. Use Zoopla to see how much similar properties to yours have been sold for.

Do not spend more than you can afford. Remember all of the other external costs – legal fees, stamp duty, the actual move, furnishing.

Has the vendor agreed to leave anything behind? Is there anything you’re not sure about? Get this all in writing! You have to be assertive, not all sellers are nice and compliant. You don’t want to exchange contracts, complete on your purchase and then find out that the kitchen has been gutted or the air vents have been removed – be very specific! Don’t depend on the agent or the solicitor, go to the property and do your own inventory.

4. Your Offer is accepted

MAJOR PROGRESS – Celebrate a little, but not too much…

Remember no-one is bound by any contractual legal agreement at this point.

Don’t get carried away.

5. Find a Conveyancer, also known as a Solicitor. 

Find a solicitor you can trust and has a good reputation. Sometimes a purchase is delayed or falls through because a solicitor is not chasing the other side or following up on their searches. If you’re not consistently checking in with them, they don’t push on. It’s also important that your solicitor is on the panel for most lenders.

Some Mortgage products come with free legals and some brokers can offer you the services of conveyancers for as little as £250.

6. Be Careful

At this point you and the seller are not legally bound to complete on the purchase until the exchange of contracts.

At this stage, someone could offer the seller more than you.

The seller can also decide that they don’t want to sell anymore

7. Secure a Mortgage. 

This shouldn’t take longer than 3 weeks.

Go through a Mortgage Broker or directly to the bank. At this point you will need to provide the property details, the contact details for your solicitor, contact details for the agent/vendor as the lender will want to arrange a valuation appointment. Also be aware of some Mortgage criteria related requirements. You will need to have at least 3 months payslips, 3 months Bank Statements and an up to date figure of any debt you currently have in your name. If your deposit is part savings and part gifted, be prepared to get the family member/friend to sign a gifted deposit letter. If you are in your current job for less than 3 months, be prepared to provide contact details of someone in HR as the lender may require an employment reference. If you’ve been in your current role for less than a year, be prepared to provide the details of your previous employer, job title and salary.

Remember: Just because you’ve supplied the broker/bank with an abundance of information, doesn’t mean that there won’t be any further questions. When your Mortgage application is submitted, it goes to a place called underwriting where credit checks are run, your documents are picked apart and further questions can arise. E.g “Why does applicant 1 send £500 to a Mr Sharp on the 3rd of every month? What is this for and will it continue after completion?” At this point, your Mortgage Broker will get in touch with you as they won’t have these answers, especially if it’s not a credit card/loan/hire purchase payment that you’ve already disclosed. Don’t be frustrated, just cooperate and provide answers.

8. Valuation

The lender will carry out a valuation on your property. Sometimes they will do a drive by valuation, sometimes they will go in to the property and analyse each room, the quality of the walls etc.

Sometimes a desktop valuation is done and the lender doesn’t actually have to physically go to your property.

If your property is too small, the lender will not lend (This is only a worry for studio flats).

Something to watch out for:

Your offer on a property has been accepted at £550,000
You are applying for a £400,000 Mortgage (75% max LTV product)
You have a £150,000 Deposit

Unfortunately…

Your property is valued at £530,000 once the valuation has been carried out

The property is undervalued by £20,000, therefore theres a shortfall.

You now have 4 options

  1. Increase your deposit to make up the 20K difference
  2. Go back to the vendor and renegotiate the purchase price
  3. Remain on the 75% max LTV product and rejig figures
    – £530,000 Price, £135,000 Deposit, Make up 20K from own resources due to valuation and mortgage shortfall.
  4. Pull out of the purchase, find a new property and update the lender once you have a Mortgage Offer to get the property details amended

 

9. Now that you have a Mortgage Offer, your Solicitor comes in to play

Your solicitor will carry out relevant searches and enquiries.

These include local authority searches, land registry etc.

Feel free to check in with your solicitor and apply respectful pressure if your purchase and move is time sensitive.

10. Dates – Negotiate the exchange of contracts and completion date

Your solicitor will liaise with the sellers solicitors to negotiate the above. If the sellers have already moved in to their new home, this can be swift, if your sellers are currently waiting for the sellers of their onward purchase to move out, this could delay your completion – this is also known as a chain.

11. Exchange date agreed, what’s next?

It’s time to get half of your deposit funds over to your solicitor. Anything over 10K will cost you £25 to transfer from any UK bank account. This is known as a CHAPS payment. Be very careful! Make sure you have confirmed and confirmed again the account details with your solicitor to avoid being defrauded. Personal advice, confirm via email, over the phone and then ask for payment details to be sent to you in the post if you’re not completely comfortable.

11a. If you are purchasing a freehold property, you will be required to have building insurance in place at the point of the exchange of contracts – this is a legal requirement. If you’re purchasing a leasehold property, this is not necessary as your service charge and ground rent covers this insurance requirement.

12. Get completion statement from your solicitor and deeds to sign

Your solicitor will send you a completion statement which outlines the remainder of deposit owed, stamp duty figure, what you owe for their services. You pay these expenses on the day of completion or a few days before.

At this point you also sign the transfer of ownership deed. This deed means that you accept ownership of the property. Your solicitor will send this to the sellers solicitor.

13. Completion

Your solicitor will draw down funds from the lender. The lender will send the funds to the solicitors account where the remainder of your deposit is. Your solicitor will then send all of these funds to the sellers solicitor and receive the title deeds.

14. COMPLETION. CONGRATULATIONS! You are officially the owner of your new home.

You receive the keys and can now move in to your new home.

15. The aftermath

Paying your stamp duty – Your solicitor has 30 days to pay this. You would of transferred your solicitor this money at stage 13

Your details will be registered with land registry

The title deeds will be sent to you by your solicitor

16. It’s all over. Sit back, relax and make sure you stay on top of your monthly Mortgage payments 🙂