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Jade Buswell
Can I Rent Out My Home to Buy Another?
How does renting a home affect property purchase eligibility? What’s the deal with let-to-buy finance, and how difficult is it to qualify for let-to-buy mortgages?
Perhaps the best way to get to grips with this surprisingly common scenario is to consider the let-to-buy concept in a typical working example.
Let-to-buy in practice
Let’s say you and your partner currently occupy a property you purchased five years ago at a price of £200,000. Over the years, the market value of the property has increased to approximately £350,000. For whatever reason, you’ve decided to relocate, and you’ve got your eye on a smaller property on the market for around £160,000. You’d like to maintain ownership of your current property and let it out, but you’re concerned that doing so may affect your ability to get a new mortgage.
You have plenty of equity tied up in your property, but you have no idea where to start when it comes to investing in a second property.
What next?
While taking ownership of two properties by way of a second mortgage can be a little complex, it’s more than feasible.
Known as a “let-to-buy” transaction, it’s a case of converting your current home into a rental property and purchasing a second property to call home. The mortgage on your original property then becomes a buy-to-let mortgage, which you will cover with the income you receive from your subsequent tenants. In the meantime, a new mortgage is required to cover the costs of your new home, which you will pay with your income and/or savings in the usual way.
In order to qualify for a buy-to-let mortgage, for which you’ll need to transform your current home into a rental property, lenders typically expect the property to generate a monthly rental income of 125% of the required monthly mortgage payment. If the monthly mortgage payment was £1,000, this would mean you’d need to charge a monthly rent price of at least £1,250.
If you’re able to comfortably cover the buy-to-let mortgage repayments by way of your tenants’ monthly rent payments, you’ll almost certainly qualify for the loan you need.
Mortgaging your new home
Your previous home has been converted into a rental property, which, under the terms of a buy-to-let mortgage, is no longer habitable for you personally. Hence, you need a place to live; you also need a new mortgage.
The process of obtaining a mortgage on a new property when letting out a previous property is similar to any standard mortgage application. Assuming the lion’s share of the rental income on your previous home is used to pay your buy-to-let mortgage, it won’t have much impact on your official overall income.
Instead, your eligibility will be assessed in the usual way. Your combined household income, any outstanding debts and commitments, your credit score, employment history, CCJs, and so on Simply owning and renting out a second property won’t necessarily influence your subsequent mortgage application.
Independent support and advice
Due to the inherent complexities of the let-to-buy process, it’s important to seek independent support and advice at the earliest possible stage. Along with helping establish your eligibility for such a move, an independent adviser or broker will help you find the best funding solution available.
It’s important to remember that traditional mortgages aren’t the only home finance solutions available. Bridging loans, auction finance, and specialist secured loans should also be considered. Likewise, an imperfect credit score may bring additional complications into the equation, but it doesn’t necessarily count you out of the running.
I’m Too Old for Property Finance!
Living as a pensioner with a great deal of equity tied up in your estate represents the ultimate catch-22 situation. You may be sitting on a small fortune in combined assets, but this doesn’t mean you’ll be lent a hand when in need of financial support.
Or at least, not by the vast majority of major lenders.
The problem with property finance for pensioners
In a typical scenario, you may own a house worth more than £1 million, land with a market value of £300,000, and plenty more. You’re 72 years old and have an average annual income of around £35,000. You’ve got your eye on a £700,000 property you’d like to buy and move into; you’ve even got around £200,000 available in cash.
Unfortunately, the only two things the average high-street lender is interested in are your age and your income. A 72-year-old application with a £35k per-year income is not coming close to satisfying the qualification criteria for this kind of residential mortgage.
Exploring the alternatives
On paper, the figures above simply don’t add up. After all, if the prospective borrower owns multiple assets that vastly exceed the cost of the loan, why wouldn’t they qualify for an affordable mortgage?
This is just one example to illustrate the problems inherent in property finance for pensioners. Not to mention the importance of looking beyond the High Street to explore the alternative options available.
Even if such a candidate were able to qualify for a mortgage, they’d almost certainly be ‘penalised’ with elevated interest rates and higher overall borrowing costs. This, is despite their incredibly strong financial position and wealth. In order to avoid paying over the odds unnecessarily, such cases should be taken directly to the doors of specialist lenders.
Bridging loans for over-65s
In instances like these, conventional mortgages are not the only option. Neither are they the most accessible, affordable, or convenient option. When sitting on this kind of equity, there’s nothing to gain by complicating things with long and drawn-out mortgages. Or, for that matter, wasting time on applications guaranteed to be rejected.
As an alternative, bridging loans represent a fast, flexible, and affordable way to borrow substantial amounts of money on the basis of collateral. For pensioners in particular, bridging loans can offer a welcome lifeline for covering short-term gaps in their financial dealings.
In this particular scenario, the individual in question could use their current property to secure the funds needed to buy their new home. Bridging loans are typically available up to a maximum of 75% of the property’s value, meaning around £750,000 is accessible for the applicant. The new home is purchased, the buyer’s previous home is sold a little further down the line, and the bridging loan is repaid in one lump-sum payment.
As an alternative, bridging loans represent a fast, flexible, and affordable way to borrow substantial amounts of money on the basis of collateral. For pensioners in particular, bridging loans can offer a welcome lifeline for covering short-term gaps in their financial dealings.
In this particular scenario, the individual in question could use their current property to secure the funds needed to buy their new home. Bridging loans are typically available up to a maximum of 75% of the property’s value, meaning around £750,000 is accessible for the applicant. The new home is purchased, the buyer’s previous home is sold a little further down the line, and the bridging loan is repaid in one lump-sum payment.
Comparing bridging loans for pensioners
Due to the specialist nature of bridging loans for pensioners, it pays to work with a specialist broker. Consult with an independent specialist and organise a whole-of-market comparison, incorporating dozens of dynamic lenders beyond the UK High Street.
It can also be helpful to use an online bridging loan calculator in order to get a good idea of the various options available.
New Builds – Why So Many Complaints?
Taking the plunge and buying your dream home shouldn’t turn into an unmitigated nightmare. Particularly if you’re buying a new-build property, which you’d expect to be in mint condition inside and out. Nevertheless, new-build complaints are stacking up from disgruntled buyers across the UK. In fact, new-build home complaints recently hit an all-time high.
Disappointment with a new home isn’t a case of simple inconvenience and frustration. For those affected, it can be a distressing and costly situation to face, often with very little help available.
Some builders and developers hide terms and conditions in contracts that negate responsibility, while others simply ignore letters and calls to their offices. Often, they are under the knowledge that if they wait long enough, the buyer’s warranty will expire, assuming they were provided with one in the first place.
In any case, the average homeowner simply doesn’t have the time, the expertise, or the energy to chase and challenge builders when things go wrong. Complaints about new builds are flooding local and national government offices like never before, but is there really anything that can be done about it?
Or, more importantly, why is it happening in the first place?
No Isolated Incident
Research from the Homeowners Alliance suggests that those filing complaints about new-build homes aren’t in the minority. For whatever reason, there’s been a distinct uptick in the number of people reporting serious defects with their new homes shortly after purchasing them. To such an extent that less than two-thirds of those who buy and move into new homes are happy with the way initial imperfections are addressed by their respective builders and developers,
Even more alarmingly, the number of new homebuyers reporting defects of any kind after moving into a new property stood at 93% in 2015. As of 2018, the number of buyers filing complaints about new-build homes had hit an astonishing 99%.
All of which suggests that next to no buyers are comprehensively satisfied with their newly built homes when they move in.
What’s more, evidence also suggests that buyers aren’t simply filing new-build property complaints about basic snags and minor shortcomings. Instead, they’re talking about the kinds of major structural issues that pose a direct threat to their health and safety. The problem is that even when such issues are reported, they’re often addressed with little sense of urgency or priority.
Experience and expertise
As far as some industry experts are concerned, the issue may be the result (at least in part) of a widespread lack of experience and expertise among builders. Generally speaking, the UK has a global reputation for the quality of its construction workers. However, some argue that, as it takes less than two years of training to become a qualified bricklayer, plasterer, or tradesperson in the UK, there are far too many builders in business with very little experience behind them.
In addition, there’s absolutely no legal requirement for builders in the United Kingdom to obtain a licence to offer their services. They’re able to sign up on a voluntary basis with registered bodies like the NHBC or the Federation of Master Builders, but there is no requirement for them to do so. It’s a legal requirement for all properties constructed to meet certain health, safety, and practicality requirements, but carrying out such checks isn’t always easy for potential buyers inspecting the properties.
For the time being, therefore, there’s little that can be done on the part of the buyer other than to organise meticulous and intensive inspections prior to purchasing a home. Where problems are encountered after the purchase, developers or builders are required to fulfil their contractual obligations or may be brought before the courts for legal proceedings to take place.
Repayment of bridging finance with another bridging loan
Our client was looking to borrow against an inherited property to repay an existing bridging loan secured on his own property which was arranged to consolidate debt.
The repayment strategy for the initial 12-month bridging loan had failed as the estate agents were unable to sell the property in the intended timeframe, hence the need to repay this loan as it had come to the end of its term and the current lender was needing repayment. Our client also wanted to raise additional funds to pay for medical costs and to repay money owed to family members which had accumulated during the term of the current loan, following a bereavement.
Finance raised on an inherited property
The inherited property was unencumbered and had to be transferred into our clients name as part of the transaction. UK Property Finance were able to arrange a new loan for our client whilst we used our vast industry contacts to keep in constant communication with their existing lender and solicitors to ensure they remained abreast of the situation and knew the client was doing their utmost to arrange repayment of the loan.
On agreement of the new loan the solicitor provided an undertaking to the lenders solicitors confirming that when the new loan was advanced, the inheritance duty was paid and our clients interest became listed on the property deeds as owner. The clients’ solicitor also confirmed that they would ensure the remaining advance was used to repay the existing bridging loan secured on our clients current property and the medical bills accrued.
The exit or repayment of the new bridging loan was still via sale and due to the extended timeframe agreed our client was able to sell his property without further stress and once the sale was complete our client took up residence in the inherited property which was now owned free of any loans.
What’s the Best Way to Buy Land?
Buying land for the first time can be a daunting and challenging process. Even if you’re more than familiar with traditional property procurement, buying land is an entirely different experience. From deciding where to buy land in the first place to finding the perfect land loan for your needs, there’s much to take into account along the way.
As for the ‘best’ way to buy land, the short answer is simple – as strategically as possible. In terms of where you buy the land, why you’re buying it and your chosen land financing option, it’s entirely up to you. But there are nonetheless some universal pointers to consider, which could help you make the right decision.
Examples of which include the following:
- Your main reason for buying the land
You could be looking to buy a plot of land to sell at a later date for a profit. Alternatively, you could be considering building your dream home, or even an estate of properties to rent or sell. Your ultimate intentions for the land should be factored into every decision you make from start to finish.
- The different types of land available
The type of land you buy will determine if and to what extent you can do anything useful with it. So rather than just buying a plot you liked the look of in a high-demand area, it’s worth first considering its usefulness and versatility or otherwise.
- Funding solutions
Addressing the issue of how to finance land investments, there are myriad options to explore. From specialist land loans to development finance to bridging loans to agricultural loans, it depends on your current financial circumstances and intentions for the land.
- Compare the market
How much is agricultural land per acre to buy? How long is a piece of string! The answer will vary significantly from one area to the next, in accordance with both demand and the capacity for the land to generate healthy returns. Hence, it can be useful to compare the market and consider a variety of locations where possible.
- Consider planning permission requirements
Assuming you plan on developing the land you purchase in some way or another, it’s worth factoring in any planning permission requirements you may need. Depending on the type of land you purchase, it could be easy, difficult or impossible to receive formal permission to develop or build on it. Always better to find out before you go ahead and commit to the purchase.
- Organise a reliable survey
As with any property you intend to purchase, it’s important to have the land meticulously and professionally inspected from top to bottom. From flood risks to boundaries to potential hazards of all shapes and sizes, it’s impossible to evaluate the value and potential of a plot of land with a fleeting glance.
- Focus on future demand
Rather than considering what the plot of land is worth today, think carefully about its ongoing growth potential. For example, if the area is scheduled to benefit from improved public transport links or the development of an industrial park in the near future, this could have a marked impact on the value of your investment.
- Secure professional representation
Last but not least, it always pays to have the experts on your side when considering an important investment. So rather than going it alone, secure professional representation from the earliest possible stage from a reputable independent specialist. Even if you know what you’re doing, an additional objective viewpoint could prove invaluable.
Mortgages Brokers vs Bridging Specialists
Comparing mortgage brokers to bridging specialists is a little like comparing apples to oranges. They both exist for a reason and have their own benefits, but they are nonetheless very different entities.
The popularity of bridging finance continues to grow at its fastest-ever pace. Nevertheless, the vast majority of borrowers in need of sizeable sums for property purchases turn instinctively to mortgage brokers. The problem is that the vast majority of mortgage brokers in the UK lack the knowledge and experience to advise on alternative funding solutions.
In fact, it is estimated that less than 20% of mortgage brokers in the UK have no idea what bridging finance is or its intended applications. Let alone the expertise required to advise on bridging financial options.
The traditional mortgage broker
As the name suggests, a traditional mortgage broker is usually an independent adviser for current and prospective mortgage borrowers. They take into account the requirements and preferences of the applicant, consider their available budget, and scour the market for appropriate mortgage deals. Some work exclusively with major High Street banks, while others also consider loans from specialist lenders across the UK.
However, no allowance is typically made for the consideration of alternative funding solutions. Dozens of conventional mortgage and remortgage products may be analysed, evaluated, and presented to the client, but that’s all. If an entirely different funding solution (such as a bridging loan) represented a better option for the client, a typical mortgage broker may be unable to advise on it accordingly.
Bridging specialists
In a similar vein, alternative funding specialists work closely with major high-street names and independent lenders across the UK. They’re also able to offer comprehensive support and objective advice on all aspects of mortgage borrowing.
The difference is that a bridging specialist can also provide access to an extensive range of alternative funding solutions. From traditional bridging loans and development finance to a variety of accessible and flexible secured borrowing options, there’s far more on the table than traditional mortgages alone.
As a result, the borrower stands a much better chance of finding the perfect funding solution to suit their requirements and budget.
Accessible and affordable
The market for mortgages in the UK has traditionally been somewhat restrictive. In a working example, an individual with a poor credit score or no recent proof of income may be counted out of the running, irrespective of their current financial status.
One of the biggest differences with bridging loans (and other alternative funding solutions) is the consideration of all cases by way of individual merit. So even those who may have been turned down by multiple major High Street names could still access the financial support they need with the help of an independent specialist broker.
For more information on the potential advantages of working with an established bridging specialist, contact UK Property Finance today for an obligation-free consultation.
Bridging Loan Offer in 2 Days and Completion in Less Than 7
Having been rejected for a mortgage, our client was now looking for a bridging loan to buy a new residential property before his current one sold. The loan was to be secured on the purchase property only, as it was of enough value to borrow the loan required and because the client’s current first charge lender would not allow a second charge consent on the current residential. The rest of the purchase price was made up of savings.
UK Property Finance has access to all the main premium rate lenders in the market, which also allows us access to many special rates starting at below 0.4%.
“This was no ordinary house”
The client was looking to exit the loan by mortgaging his purchase property. However, the finance was not available at this stage due to the client’s lack of the first full year’s accounts from his new business venture. The mortgage had been declined, leaving him short of time to complete the purchase of his desired property. This was no ordinary house, as was soon revealed; it was once owned by the client’s parents and was where he had spent much of his childhood. The considerable sentimental value to our client spurred the team to find a resolution.
“The dream team quickly assembled into action”
Indeed, due to the time taken before contacting UK Property Finance, the vendor had now threatened to pull out of the sale if completion did not occur within one week. We were told of the urgency during our very first contact with the client and following an initial fact-finding process.
The dream team quickly assembled into action and instantly provided a quotation for the client’s requirements. The client wanted to proceed, so within 2 hours we had obtained an agreement in principle at the most competitive rate in the market. UK Property Finance also negotiated with the lender to allow an automated valuation, which would make the process much quicker. The team immediately created the finance pack and uploaded it to the document collection company, which met the client at 8 p.m. that evening, by upgrading to a premium service. By the time we opened for business at 8 a.m. the next morning, the finance pack had already been scanned and emailed back, so it could be rapidly submitted to the lender.
By liaising closely with the lender, who lost no time in completing the underwriting and automated valuation, this enabled an offer to be received on the same day of submission. The offer also went to the lenders and the client’s solicitors, who had been warned about the urgency of the case. Even with some minor delays, UK Property Finance continually chased this regulated bridging loan to complete within a week of initial client contact. Continued support for our client meant UK Property Finance could arrange a mortgage for the client to repay his bridging loan within 3 months of funding.
UK Property Finance is not just a bridging loan specialist and can offer many different lending solutions. To find out how we can support you, please contact us at 0116 402 7982.
The Myth of Bridging Loans Unveiled
It is fair to say that buying property since 2013 has become more of a sellers’ market. Open houses and block bookings for viewings are the chosen tactics for estate agents on Saturday mornings. If you have been in this scenario recently, you will recall the anguish of telephone tennis between offers being rejected and other interested parties increasing their bids, making the process of securing a property much more difficult. This makes the prospect of investing in property with this much competition slightly terrifying. Time is of the essence when offering an advantage against first-time buyers with no chain. The eager purchasers are at the mercy of their chosen lender to package, offer, and raise funds in a process that can vary between 8 and 12 weeks. Mortgage lenders in most cases are often large organisations, and with the amount of transactions going through, the process can sometimes take time, with the average decision from the underwriters taking 7 working days. Brokers up and down the country have been listening to their clients concerns and have pulled rank to diversify their offerings with a quiet revolution in property finance.
Bridging is a term that surrounds a lot of mystery to most buyers. It is difficult to ignore bridging loans because the number of customers taking up the products has more than doubled. You can put into Google ‘what is a bridging loan?’ but you will still be left none the wiser. This article hopes to debunk the jargon on bridging, adding another string to the bow when competing for property investments.
Firstly, it would be best to address what a bridging loan means. They are short-term loans for larger amounts of money needed quickly. You wouldn’t want a bridging loan for longer than 12 months because they have a higher annual rate of interest than the high street. If speed is what motivates you, then this type of finance can be packaged in as little as 24 hours.
Bridging loans can be used in a variety of scenarios, including:
- Buying a property without having sold your own.
- Helping in between pension payments in lump sums.
- Looking to refurbish a property to sell on for profit.
There are several types of bridging finance to consider because there are so many different uses. Selecting the right loan type can determine interest, loan value, and the security raised.
Understanding the difference between an open and closed bridging loan is essential when selecting the right bridging finance:
- A closed loan is when a deadline is given with an exact date to repay the loan and the lender knows how you intend to repay; this is known as an exit strategy. The lender will need evidence that you can repay the loan within the time limit. Typically, lower interest rates are available with closed bridging loans in contrast to open loans due to a lower-risk exit strategy.
- An open-bridging loan, on the other hand, is ideal if you don’t have a clear exit strategy. The loan, like a closed bridge, will still need to be paid back by the deadline but won’t have a clear proposition for repayment. Naturally, open bridging finance is deemed more risky, so to compensate the lender, the interest rates are higher than for a closed bridging loan.
The minimum you can borrow with bridging finance is £10,000 with no maximum limit, but some lenders set their own restraints on how much they are prepared to lend.
Interest rates are not just dependent on the type of loan taken but also the loan-to-value ratio. Loan-to-value (LTV) is the ratio of the amount of the loan to the value of the asset purchased. Most bridging loan specialists will have a calculator on their websites to work out the average cost of interest and fees. This will make shopping around slightly more informative for the savvy borrower. As a guideline, the monthly rates can start at 0.44% and reach 1.5%, but remember that this will ultimately change based on your circumstances and requirements.
Whether it’s a regular mortgage or specialist financing options that suit the current project, the ability to tailor borrowing has never been more versatile. If you’re interested in learning more about the choices readily accessible, please contact our consultants at UK Property Finance.