Dax McLean, Author at Mortgageable

Reasons Why a Mortgage Could be Declined on Affordability

by Dax McLeanPosted on 14th January 2021 | Updated 20th January 2023

Unfortunately, even after receiving a mortgage in principle, a mortgage application could be declined at a later stage of the process.

In this post, we will discuss the many reasons that could lead to a mortgage application being declined, including those linked to affordability.

Reasons Why a Mortgage Could be Declined

Over recent years, following a mortgage market review, the lending criteria has been tightened and therefore there has been an increasing trend of mortgage applications being declined due to affordability.

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Even if a lender issues a mortgage in principle, this is not a guarantee that the applicants will pass the rigorous checks that are now undertaken by the lender’s underwriting team.

These checks will include background checks on the applicant’s finances, a thorough review of the applicant’s credit history, as well as checks on the property that will be linked to the mortgage, including surveys confirming the property’s condition and value.

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One lender declining a mortgage application does not mean that it would be the end of the journey to take that first step onto the property ladder or to re-mortgage and move, as another lender may have differing criteria. However, should a mortgage application be declined, it is important to establish the reasons why so that actions can be put into place to rectify the concerns.

There are many reasons why the outcome of affordability checks may not be sufficient for a lender. These often are due to the applicant’s current credit score, their credit history, income levels and the property itself.

Let’s discuss the common issues further below:

• High debts – When reviewing a mortgage applicants credit file, the lender’s underwriting team will be able to assess how much debt the applicant has. Each lender will have their criteria of acceptable debt levels, however, many factors will be reviewed including; the number of credit accounts open as well as the level of current debt versus the total available credit limits. In addition, the percentage of income that would be spent on debt repayments each month would be of interest to the potential lender as this would have an impact on the level of disposable income available to the applicant following all bills being paid.

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Lenders will be concerned that an applicant with high debt levels may struggle to keep up the repayments on both the current debts and the new mortgage

• Credit Score and Credit History – A credit report will be requested for the mortgage applicant which will state their current score as well as detailed credit history.

A mortgage lender could decline an application should it find something disclosed on the credit score that it doesn’t like including a County Court Judgement (CCJ), a filed bankruptcy or previous home repossession.

Should there be a history of any of the above within the personal circumstances of someone seeking to obtain a mortgage it would be advisable for them to liaise with a specialised mortgage broker for further advice on lenders who are willing to accept applicants in such a position. The timing of the negative event on an applicant’s credit history will also be key. For example, a CCJ will remain on a credit report for six years following the event.

• Affordability concerns due to high monthly expenditure – As briefly discussed under the high debt concern, a potential lender will review all monthly expenses of an applicant, either by scouring through the bank statements supplied or reviewing the submission of monthly expenses that an applicant was requested to complete for their application.

The expenses themselves may not be the issue, however, the percentage of the disposable income after all the outgoings will be under scrutiny and each lender will set an acceptable level of this against which the applicant will be reviewed against.

Mortgage lenders will also review transactions that may be deemed as irresponsible spendings such as regular gambling or payday loan repayments.

• Mortgage deposit insufficient – The level of deposit required will be known from the beginning of the application process, however, if an applicant’s deposit is later found to be insufficient a mortgage application can be declined.

Also, in some situations, a lender can revise their mortgage offer so that the potential homeowner needs to find a higher level of deposit due to the risk factors involved.

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Again, this may not be the end of an applicant’s property ownership dreams, they may need to find an alternative approach to funding a property purchase including exploring many of the government schemes that can help fund deposits.

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Such schemes change over time by the governments objectives however currently there are quite a few options including:

Lifetime ISA – A type of savings account that the government will provide a bonus of 25%. The maximum savings to qualify for the bonus is £4,000 a year.
Help to Buy ISA (No new accounts are available) – Another type of savings account that the government will provide a maximum bonus of £3,000 if the account holder saves £12,000. The bonus depends upon the savings amount.
Help to Buy equity loan – Another type of borrowing providing up to 40% of the property value as a 5-year interest-free equity loan. Interest is currently payable on the equity loan at 1.75% after the fifth year and 1% plus RPI for every year afterwards.
Shared Ownership schemes – A staged ownership scheme enabling the applicant to purchase between 25% and 75% of the property initially via a specialised shared ownership mortgage. Following this, further percentages can be purchased as earnings increase and affordability factors improve over time.
Salary Concerns – Often high street lenders specifically apply an income multiplier to calculate the total amount of money available to an applicant to borrow. Should this calculation not be sufficient for the property purchase proposed it is likely that a mortgage application would be declined. In this case, it would be highly advisable to seek independent financial advice to see if other options are available such as specialist lenders, who in certain circumstances can offer a higher multiplier.
Concerns with the Property – Some types of property are not eligible for a mortgage, for example, uninhabitable properties, properties with structural concerns, issues such as damp or invasive weeds, low-value properties or those with a history of flooding

Related guides:

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Reasons Why a Mortgage Could be Declined Summary

Should there be any concerns regarding mortgage affordability or if the mortgage application has been declined due to affordability criteria, it would be worth seeking specialised financial advice to discuss other options available.

There are now more methods of purchasing property than ever before, including government schemes and mortgage products and therefore one lender’s decision to decline an application will usually not have to be the end of a property ownership journey.

Call us today on 03330 90 60 30 or contact us. One of our advisors can talk through all of your options with you.

Further reading:

How Reliable is a Mortgage Agreement in Principle?

by Dax McLeanPosted on 14th January 2021 | Updated 20th January 2023

A mortgage in principle, or otherwise known as an agreement in principle, is a written document issued by a lender, providing a provisional indication of how much money may be able to be borrowed.

The provision of a document is part of the mortgage application process which will be discussed throughout this article in addition to; clarifying exactly what a mortgage in principle is, how to secure such agreements are, as well as the effect that mortgage in principle has on credit scores.

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What is a Mortgage in Principle?

As briefly mentioned, a mortgage in principle is issued by a lender and advises in writing, an estimated total value that can be borrowed by the mortgage applicant or joint applicants.

The document is produced as part of a mortgage application process and can be provided to vendors, estate agents or home building companies to prove that the applicant is serious about purchasing a property and can (in principle) obtain a mortgage.

How is a Mortgage in Principle Obtained?

A mortgage in principle can be applied for online, over the telephone or in within the branch of a high street lender. In addition, a mortgage broker can source a mortgage in principle for applicants.

Personal information will be requested in order to complete the initial checks required to produce a mortgage in principle including:

• The applicants’ names, date of birth, and current address.
• Previous addresses if applicable, covering at least three years.
• Income details.
• Information regarding current expenditure and credit agreements.

The process of obtaining a mortgage in principle should be free and at this point does not commit either party to continue with the mortgage application. Should the mortgage application process proceed. Additional supporting documentation may be required to support the mortgage application.

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Does a Mortgage in Principle Affect a Credit Score?

A lender will need an applicant’s permission to undertake a credit search to be able to produce a mortgage in principle.

The search may be a ‘soft search’ that would not be visible via other lenders and not leave a mark on your credit records, however, a ‘hard credit’ check would leave a ‘footprint’ on an applicant’s credit file that other lenders could see.

This credit search could also affect an applicant’s credit rating in future and therefore it is advisable to be strategic regarding mortgage in principle requests.

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How Reliable is a Mortgage in Principle?

A mortgage in principle can be withdrawn as at this stage several deeper checks, otherwise known as underwriting, have not taken place, including background checks on applicant’s finances, a thorough review of the credit history, as well as checks on the property that will be linked to the mortgage, including surveys confirming the property’s condition and value.

Some types of property are not eligible for a mortgage such as properties that are uninhabitable or derelict, properties with structural concerns, issues such as damp or invasive weeds, low-value properties, or those with a history of flooding.

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It is not a mortgage offer.

A mortgage lender could decline the borrower’s mortgage application and withdraw a mortgage in principle due to an array of reasons such as:

• Failing additional financial affordability checks.
• Considerable changes to financial circumstances.
• A subsequent drop in credit score following the mortgage in principle being produced.
• An employment change deemed not acceptable by the lender, such as a move from a permanent to a temporary contract.
• The discovery of a County Court Judgement.
• Insufficient duration of self-employed income.
• Findings of the dishonesty of fraudulent claims during the initial application process.
• Concerns regarding rights to live in the UK.
• Other mortgage application criteria may not be met such as the applicant has a birthday and therefore is older than the maximum age that the lender is prepared to lend to.

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Should an application be declined for a mortgage, this doesn’t necessarily mean that other lenders will not be willing to make a mortgage offer to the applicant.

However, specific advice would be required from an independent financial adviser before undertaking any next steps so that further marks are not made against a credit file before investigations are undertaken.

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How Long is a Mortgage in Principle Viable for?

Typically, a mortgage in principle will be valid for 30 to 90 days from the date of being obtained. It may be possible in certain circumstances to seek an extension to the mortgage in principle.

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What Happens After the Mortgage in Principle Stage?

Following the receipt of a mortgage in principle, the property hunt can begin. Should an offer be accepted on the desired property, the next step would be to apply for a mortgage offer.

As already discussed, a mortgage offer is not guaranteed following receiving a mortgage in principle however should all the checks be completed sufficiently, this would naturally follow.

The property purchase would then proceed to exchange contracts, following by the completion stage.

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A mortgage in Principle Summary

A mortgage in principle is an initial stage of a mortgage application enabling potential buyers to explore the property market to find their dream home however it is not a grantee of a mortgage offer.

Throughout the underwriting process, the mortgage will be firmed up and confirmed by the potential lender issuing a formal mortgage offer. At this stage, the likelihood of reliability has increased.

Call us today on 03330 90 60 30 or contact us. One of our advisors can talk through all of your options with you.

Further reading:

Equity Release Companies to Avoid – 2023 Review

by Dax McLeanPosted on 14th January 2021 | Updated 20th January 2023

Equity release has risen in popularity over the past few decades, however, it has also received some negative press regarding consequences years down the line following taking out such a financial policy.

In this guide, we will explore what equity release is, the types of equity release as well as the pros and cons of this type of financial product.

What is Equity Release?

Equity release is the method of withdrawing the equity owned from property to turn it into a cash lump sum, a source of regular income, or a combination of both.

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Following undertaking an equity release, the homeowner can continue to reside in the property up either until the sale of the property, the move into a care home, or death.

Usually, the capital plus interest due to the equity release financial product is repaid by selling the property.

Equity release is usually only available to those over 55 years old and a mortgage does not need to be fully repaid on a property to be able to explore equity release as an option.

There are no repayments due on the financial product until the sale of the property which can be appealing however there can also be disadvantages of this type of financial decision.

Legislation of Equity Release Financial Products

Following a period of negative press regarding equity release products, the market was tightened and a regulation body, The Equity Release Council, was established. Following this change, the reputable companies offering equity release products have become members of the council.

Types of Equity Release

There are two types of equity release products available on the market:

Lifetime mortgage – A lifetime mortgage is the most common type of equity release product. It is the process of obtaining a secured mortgage against the main residential property. The lifetime mortgage holder continues to own the property and often continues to live within the property until the sale or death, whichever comes sooner, at which point the mortgage capital and interest due is settled.
Home reversion – This option involves part or all of the property being sold to a home reversion provider in exchange for a lump sum or regular payments. The person concerned continues to live within the property however there is an agreement to maintain and ensure the dwelling. A percentage value of the property can be ring-fenced for later use, such as inheritance, however, once the property is sold, the home reversion company will receive the proceeds of their share.

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Advantages of Equity Release

Equity release is continuing to see a sharp increase in popularity due to the many advantages it offers, these include:

Tax-free Cash – Any money released with an equity release plan is tax-free. It enables you to gain access to a lump sum of money, a regular income, or support your pension.
You can stay in your home – One of the main benefits of equity release is that you are able to stay in your property, this beats the typical route of having to sell and downsize. This is a perfect option for those who want to avoid the inconvenience and stress of moving.
Fixed interest rates – The interest rates on equity release loans are fixed for the entire term of the loan, which provides the security that you will know exactly how much you owe at the end of the loan period.
No monthly repayments – If you want to avoid monthly repayments, you can with equity release. The total amount is paid off in full when your property is sold after you pass away, move into a full-time care facility, or sell the property.

What are the Disadvantages of Equity Release?

Although very popular, equity release can have negative consequences such as:

Negative equity – Consequences of utilising an equity release product before tighter regulation of such products was introduced was that some homeowners found themselves in a negative equity situation. Negative equity occurs when the total amount owed to lenders is higher than the property value. This can occur during periods when property prices have crashed. However, following the establishment of the Equity Release Council, the member companies now offer a no negative guarantee to remove this risk.
Cost – The costs involved with equity release products can vary between equity release lenders, however, depending on the duration of time that the financial product is in place for, and the option is chosen regarding either paying accruing interest regularly or rolling the interest liability up until the end of the policy, the costs can escalate. Due to the variables involved it is always worth calculating the total costs of equity release products before committing to ensure that it is viable. It would also be worth seeking independent financial advice to discuss the costs involved against other options to ensure that an informed decision is made before committing.
Income Tax – Depending on the amount drawn from equity release products, as well as other personal circumstances, there could be income tax implications and therefore it is important to seek independent financial advice or specialist tax advice to establish any possible tax liabilities before committing to an equity release product.
Loss of means-tested benefits – Depending on the personal circumstances of the applicant and the amount of equity release that they are seeking to draw upon, they could lose access to means-tested benefits. Should there be any concerns regarding benefit access and eligibility, exploring the government website or seeking advice through citizens advice would be the best approach to find out more information?
Loss of Inheritance – The amount of inheritance available to pass onto family members from a property with an equity release policy secured to it will be reduced. The level of the reduction will depend on; the amount of loan taken through the equity release, the interest rate and the method chosen to repay the interest, as well as the property prices at the time of sale. Not all of these factors can be planned for although some equity release products allow a percentage of the property value to be ring-fenced for passing onto family through inheritance. Due to the nature of the ramifications for other family members, it is strongly advised that homeowners seek independent financial advice ahead of any equity release applications.

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Equity Release Companies to Avoid

Should an equity release product be the most appropriate financial option and a homeowner is ready to apply, a check should be undertaken to ensure that the chosen lender is a member of the Equity Release Council.

There are many companies on the market offering equity products however for the most protection, always avoid those who are not members of the Equity Release Council and therefore do not offer:

A ‘no negative equity’ guarantee.
Protection to vulnerable customers.
Sensible, competitive interest rates.
Sensible early settlement fee structures.
Fixed interest rates.
The right to remain on your property for life.
The right to move to a different property.

Equity Release Companies to Avoid Summary

Although the equity release sector has faced significant tightened legislation over recent years, there are still many factors to be considered and fully understood before committing to such a financial product.

In addition, other lending options may wish to be explored and compared before selecting a choice, and therefore it is always worthwhile to seek independent financial advice for support in researching and pricing the various options available.

Give Loanable a call today on 01925 988 055 and they will provide you with the best deals available to meet your circumstances and consider any credit history you may have. With their expert advice, they can guide you through the process and give you the knowledge and confidence it takes to acquire a secured loan that is right for you.

If you have read all the information on secured loans carefully and feel that you want to proceed with a secure loan, get in touch with one of Loanable’s secured loan experts by emailing hello@loanable.co.uk who can work with you to find the best deal for your needs and circumstances.

Equity Release Companies to Avoid – 2024

Kristian Derrick

by Dax McLeanPosted on 14th January 2021

In this guide, we will explore what equity release is, the types of equity release as well as the pros and cons of this type of financial product.

What is Equity Release?

Equity release is the method of withdrawing the equity owned from property to turn it into a cash lump sum, a source of regular income, or a combination of both.

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Following undertaking an equity release, the homeowner can continue to reside in the property up either until the sale of the property, the move into a care home, or death.

Usually, the capital plus interest due to the equity release financial product is repaid by selling the property.

Equity release is usually only available to those over 55 years old and a mortgage does not need to be fully repaid on a property to be able to explore equity release as an option.

There are no repayments due on the financial product until the sale of the property which can be appealing however there can also be disadvantages of this type of financial decision.

Legislation of Equity Release Financial Products

Types of Equity Release

There are two types of equity release products available on the market:

Lifetime mortgage – A lifetime mortgage is the most common type of equity release product. It is the process of obtaining a secured mortgage against the main residential property. The lifetime mortgage holder continues to own the property and often continues to live within the property until the sale or death, whichever comes sooner, at which point the mortgage capital and interest due is settled.
Home reversion – This option involves part or all of the property being sold to a home reversion provider in exchange for a lump sum or regular payments. The person concerned continues to live within the property however there is an agreement to maintain and ensure the dwelling. A percentage value of the property can be ring-fenced for later use, such as inheritance, however, once the property is sold, the home reversion company will receive the proceeds of their share.

Check Today's Best Rates >

Advantages of Equity Release

Equity release is continuing to see a sharp increase in popularity due to the many advantages it offers, these include:

Tax-free Cash – Any money released with an equity release plan is tax-free. It enables you to gain access to a lump sum of money, a regular income, or support your pension.
You can stay in your home – One of the main benefits of equity release is that you are able to stay in your property, this beats the typical route of having to sell and downsize. This is a perfect option for those who want to avoid the inconvenience and stress of moving.
Fixed interest rates – The interest rates on equity release loans are fixed for the entire term of the loan, which provides the security that you will know exactly how much you owe at the end of the loan period.
No monthly repayments – If you want to avoid monthly repayments, you can with equity release. The total amount is paid off in full when your property is sold after you pass away, move into a full-time care facility, or sell the property.

What are the Disadvantages of Equity Release?

Although very popular, equity release can have negative consequences such as:

Negative equity – Consequences of utilising an equity release product before tighter regulation of such products was introduced was that some homeowners found themselves in a negative equity situation. Negative equity occurs when the total amount owed to lenders is higher than the property value. This can occur during periods when property prices have crashed. However, following the establishment of the Equity Release Council, the member companies now offer a no negative guarantee to remove this risk.
Cost – The costs involved with equity release products can vary between equity release lenders, however, depending on the duration of time that the financial product is in place for, and the option is chosen regarding either paying accruing interest regularly or rolling the interest liability up until the end of the policy, the costs can escalate. Due to the variables involved it is always worth calculating the total costs of equity release products before committing to ensure that it is viable. It would also be worth seeking independent financial advice to discuss the costs involved against other options to ensure that an informed decision is made before committing.
Income Tax – Depending on the amount drawn from equity release products, as well as other personal circumstances, there could be income tax implications and therefore it is important to seek independent financial advice or specialist tax advice to establish any possible tax liabilities before committing to an equity release product.
Loss of means-tested benefits – Depending on the personal circumstances of the applicant and the amount of equity release that they are seeking to draw upon, they could lose access to means-tested benefits. Should there be any concerns regarding benefit access and eligibility, exploring the government website or seeking advice through citizens advice would be the best approach to find out more information?
Loss of Inheritance – The amount of inheritance available to pass onto family members from a property with an equity release policy secured to it will be reduced. The level of the reduction will depend on; the amount of loan taken through the equity release, the interest rate and the method chosen to repay the interest, as well as the property prices at the time of sale. Not all of these factors can be planned for although some equity release products allow a percentage of the property value to be ring-fenced for passing onto family through inheritance. Due to the nature of the ramifications for other family members, it is strongly advised that homeowners seek independent financial advice ahead of any equity release applications.

Check Today's Best Rates >

Equity Release Companies to Avoid

There are many companies on the market offering equity products however for the most protection, always avoid those who are not members of the Equity Release Council and therefore do not offer:

A ‘no negative equity’ guarantee.
Protection to vulnerable customers.
Sensible, competitive interest rates.
Sensible early settlement fee structures.
Fixed interest rates.
The right to remain on your property for life.
The right to move to a different property.

Equity Release Companies to Avoid Summary

5 Times Salary Mortgage Lenders – Who Offers them?

by Dax McLeanPosted on 14th January 2021 | Updated 20th January 2023

There could be an array of reasons why someone may seek to maximise the amount that they can borrow including the high house prices of the desired location of a property purchase or low salaries for an initial house purchase to get onto the property ladder.

How to Access Higher Loan to Income Mortgages

The traditional high street lenders may not be able to offer higher borrowing limits to mortgage applicants and therefore often the best approach to explore such options would be to liaise with a specialist mortgage broker.

A mortgage broker will have access to the wider financial markets to be able to advise on the current market conditions, pass on knowledge of recent lending history, as well as compare deals tailored to the individual borrower’s requirements.

Need more help? Check our quick help guides:

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Any highly recommended mortgage broker should be able to seek and advise on the requirement of higher value mortgages for a range of circumstances, such as:

• Homeowners seeking to trade up their property within an expensive property area.
• Professional first-time buyers earning at least £40,000 a year.
• First-time buyers with low deposits, within certain career categories.

As with any financial product application, the credit score of the applicants, the value of the property and the level of deposit or equity will all play big parts in the calculations that determine the levels that lenders will be prepared to offer for mortgages. Criteria can vary from one lender to another.

Lenders are keen to do business with professionals who are deemed to be high earning, insecure roles, who are also set to progress up their career path fairly promptly and therefore continue to make regular mortgage repayments.

Therefore, some of the usual risks of unemployment or mortgage default are less likely, and consequently, lenders can be prepared to offer higher loan to income borrowing to those deemed professional workers.

Related guides:

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5 times salary mortgage

Historically, the mortgage market has been based on a salary-multiplier calculation restricting borrowers to 4 or 4.5 times their annual salary.

However, following an industry review in 2014, there was a shift from maximum loan values to affordability calculations and therefore more information is reviewed throughout the application process to ensure that other expenses can be factored into the monthly household budgets.

Also, when lenders are reviewing an applicant’s affordability, they must factor in a buffer to accommodate changes such as inflation of bills and interest rate rises.

• Maximise earning status and income – Mortgage lenders will look favourably at an applicant with a permanent contract over a temporary staff member, and therefore in advance on a mortgage application it would be advisable to secure a permanent employed role. Also, exploring the options of a pay rise with a current employer will bolster lending power

• Getting organised – A mortgage application will require the collection of a range of documents to prove identity, confirm an applicant’s address, undertake employment checks and provide a record of regular expenses. Getting such documentation organised ahead of an application can save time and delays later on.

• Streamline debts and cleanse expenditure – Along with affordability checks, lenders can also review everyday payments. Certain transactions can raise alarm bells such as debt repayments to multiple credit cards or store accounts, as well as gambling payments

• Review credit report– Ahead of a mortgage application is it advisable to undertake an audit of all accounts as well as request a free credit report to check it for errors.

A credit history report contains many pieces of information including details of missed payments, details of financial related links such as previous partners, as well as ratios of borrowing levels.

The output from a report often provides a credit rating which will be used by lenders when reviewing a mortgage application and therefore is vital that all of the information underpinning a credit score is correct. Always ensure that there is plenty of time to log any queries with the credit referencing companies before an application.

• Improve credit scores – Following the process of checking a credit report, should the score be less than perfect, some steps can be taken to boost it up.

After any queries have been resolved, there are a few options to improve a credit score including; registering on the electoral roll, de-linking from previous partners, using rebuild cards to build credit history and ensuring that all bills are paid on time.

Once the groundwork has been put into place to be in the best position for an application, it would be worthwhile approaching a mortgage broker to review an applicant’s eligibility, the objectives of higher borrowing and search the market for the most appropriate competitive options.

Related reading:

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Mortgages 5 Times Salary Summary

As with any financial decision, it’s always recommended to seek independent financial advice before committing, ensuring that all terms and conditions are fully understood.

Independent brokers will also have access to the whole of the market, rather than just high street lenders and therefore will often be able to compare a wide range of options.

It is worth noting that all secured lending will have consequences to owned assets if the repayments are not kept up.

Call us today on 03330 90 60 30 or contact us. One of our advisors can talk through all of your options with you.

Further reading:

Loans for Pensioners with bad credit & the Retired UK

by Dax McLeanPosted on 14th January 2021 | Updated 20th January 2023

Exploring finance options later on in life can be tricky, especially direct from the high street lenders, as they often deem those over 60-year old to be at higher risk.

The risk element is often due to two factors; an assumption of limited income and age. Therefore the terms offered on loans are often not very competitive compared to standard mortgages available to the younger age groups.

Should a retired person find a secured finance option and be successful with an application, often the duration of the loan could be considerably shorter depending upon age and income.

However, the financial market has been diversifying over recent years and is also more understanding that each case is unique, with every borrower having different requirements and backgrounds.

Benefits of Loans for Pensioners

At retirement age, it’s relatively common for individuals to have a lot of their finances locked up in assets.

In these circumstances, it’s common to want cash for the likes of holidays, home improvements or maybe a new car, which is where a secured loan can come in incredibly useful.

Equity release is another potential option, yet the terms of a loan are often more favourable, especially if you have a good credit history.

If you do have poor credit, you may also be interested in reading our guide on instalment loans for bad credit.

However, when applying for a loan, you need to demonstrate that you can pay it back. This is typically done by showing proof of income, but what do you do if you’re no longer employed? What else do lenders accept?

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What income is accepted?

Thankfully, there are many different forms of income that are accepted when applying for a pensioner loan, these include the following:

State pension
Personal pension
Employer retirement benefit
Rental income from a buy-to-let property
Dividends
Income from a part-time job

As you can see, there are many forms of income that can be used as part of your application and you can use a combination to demonstrate your ability to repay the loan.

If you are in receipt of disability benefit, this can also be used, but housing benefit is not recognised as a suitable form of income.

Read our complete guide on how do secured loans work?

How to Apply for a Pensioner Loan

When you want to make an application, it makes sense to compare all the latest loan deals available that meet your eligibility criteria. There are many ways to make an application and it can be done over the phone, in person or online.

You can apply for a loan today and receive assistance from a loan broker by using this form.

In order to make an application, the loans broker will ask for some personal information, this will include the following:

Personal details
Proof of income
Information on any current debts you have

Related quick help guides:

Homeowner Loans for Retirees

A retired person may wish to consider a secured homeowner loan for many reasons such as; to undertake developments within a property or to make other investments that would have a higher return than the cost of the borrowing.

It is often recommended to retired people that instead of dipping into retirement savings, other options of financing should be explored, especially during times of low-interest rates.

However, always be mindful that secured loans are held against current assets such as property, and therefore should the repayments not be kept up, the asset could be at risk from possession by the lender.

Specialist lenders are often approached to explore the wider market.

Considerations Before Applying

As with any financial decision, it is recommended to ensure that plenty of research is undertaken before committing to an option.

As mentioned, typically the high street may not be the most competitive lending market to the older borrower and therefore by approaching a broker, all options can be explored to find the most suitable option and the best prices.

Before applying for any suitable financial product it is worth considering the following:

Ensure the accuracy of a credit report – Request a free report to check it for errors. This credit history report will be used by lenders when reviewing an application and therefore is vital that it is correct.
Consider how much borrowing is required – It is advisable to only borrow what is needed for the project or purpose of the lending, over the shortest duration affordable to keep interest payments down. This also will allow a financial review period sooner, following a shorter duration of the loan.
Check the chosen option for age restrictions – Each lender will set their age restrictions on borrowing, so it is worth checking this before applying.
Accurately calculate living costs – During the application process, a lender is likely to request the living costs and other expenses that an applicant has outgoing each month to ensure the loan is affordable. Having this information in advance will save time later on.

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Lenders Criteria for Retired Persons

Specialised lenders may consider a secured loan application from a retired person on a case by case basis, reviewing each applicant against its borrowing criteria within the following elements:

Age – The applicant’s age both at the time of the loan application as well as the age at the planned end of the loan
The credit score of the applicant
Income and affordability – The total monthly income of the applicant, which can be from multiple sources such as a pension and a part-time wage or rental income and dividends
Equity – The amount of property equity or the total value of other assets

Each lender will have its loan eligibility criteria for all of the above elements including a maximum age that they will lend to, to commence a loan, as well as the age when the loan is due to be repaid.

Other Financial Options for Pensioners

As well as secured loans, an array of other unsecured financial products are available for the older borrower including credit cards, mortgages, equity release mortgages or car finance.

However, often the interest rates offered on unsecured borrowing are higher due to the risks borne by the lender.

The suitability of any of the above options would depend on the purpose of the desired borrowing, the duration of the financial agreement and the costs involved. Seeking independent financial advice may assist with streamlining the relevant option and comparing the best deals available.

In addition to lending options, a pension drawdown could be possible. However, any drawdown taken from a pension pot will affect the overall value of the pension, and subsequently the income that the pension pot could provide.

Therefore, any considerations of such options should be discussed with an independent financial advisor to ensure that this is the right approach for the pensioner and that the consequences are fully understood before committing.

Secured Loans for Pensioners Summary

As with any financial decision, it’s always recommended to seek independent financial advice before committing, to ensure that all terms are fully understood.

Independent brokers will also have access to the whole of the market, rather than just high street lenders which will often reveal a range of options and competitive prices.

Should you be seeking a secured loan within the following categories, approach a specialised broker for personalised service and to discuss the options available:

Loans for those up to age 85.
Loans accepting pensions as acceptable income.
Loans accepting benefits and disability living allowance as approved income types.
Alternative equity releases financial options.

However, remember that all secured homeowner loans will have consequences to owned assets if the repayments are not kept up.

Further reading:

Family Assisted Mortgages Explained

by Dax McLeanPosted on 26th November 2020 | Updated 20th January 2023

Mortgage lenders are continuously adapting to the challenges facing the property market including increased property prices, which have led to the creation of various government schemes to assist home buyers.

Lenders have also acknowledged that in many cases family members provide assistance by helping the younger generation get into the housing ladder and therefore some lenders have different family assisted mortgages to assist this.

Throughout this article, we will explore some of the mortgages available including their criteria and purpose.

What is a family assisted Mortgage?

A mortgage product enabling borrowing for the purpose of purchasing a property with the help of family members.

The mortgage enables the utilisation of family savings to enable the purchase of a house and can be suitable either for first time buyers or existing homeowners looking to move.

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How Much can be Borrowed via a Family Assisted Mortgage?

As with most financial products, the terms offered will depend on many factors including the applicant’s financial background. If there are two applicants, both salaries are included within the calculations.

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What are the Typical Mortgage Lending Rates?

The mortgage interest rates offered will usually depend on the product and applicants’ credit history as well as the market conditions, however, there will also be some differences between lenders and therefore it is always useful to shop around to compare lending rates.

Currently family assisted mortgage rates are typically between 2% and 4%. The rates are generally higher than standard mortgage interest rates as the lenders ultimately are providing 100% loan to property value products that carry more risk.

Differences between Family Assisted Mortgage Terms and Conditions

In addition to differences in interest rates between lenders, terms and conditions can also vary. For example, Halifax have been known to offer a reduced duration of time that family members would need to secure their savings to the mortgage for, down to three years compared with the usual five.

This may be useful in some personal circumstances although the mortgage repayments tend to be higher to ensure that enough provision is being made to cover the savings over the shorter term.

Wondering how much buying a house costs? Read all about the fees involved in buying a home.

Some lenders will only offer assisted mortgages to existing mortgage customers, such as Nationwide. In this case, savings are not required to secure a family mortgage as the equity is used from the family member’s home instead.

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The Post Office currently offer similar family mortgage terms to Nationwide named a ‘family link mortgage’, however, they are slightly stricter in the sense that the helper must be a family member rather than a friend, and also, that the helper’s property must be mortgage-free.

The Post Office does not differ from the five-year minimum term, and also prescribe that the mortgage applicant must earn a minimum of £20,000 salary to be eligible for their family link mortgage product.

Lloyds currently offer a ‘lend a hand mortgage’ product which provides slightly more flexibility than its competitors. They can offer the reduced fixed-term option of locking away savings for three years instead of five, as well as providing an option to the applicant of putting down a 5% deposit in addition.

Also, Lloyds appear very generous with incentives offered to the helper, providing a 10% reward as well as interest payable for securing the savings linked to the mortgage product.

In addition to the terms mentioned above, some lenders may also provide other incentives to encourage applicants to sway towards borrowing with them. The incentives could include cashback or a slight reduction in rates offered depending on the circumstance of the relationship between the parties and the lender or the credit history of the applicant.

Types of First Time Buyer Mortgages

For a more in-depth look into some common types of first time buyer mortgages, check out our following guides:

Family Assisted Mortgages Summary

There are many benefits of family assisted mortgages, including helping younger family members get onto the housing ladder without saving such large deposits that can otherwise be required for standard mortgage applications, however, there are considerations too such as locking away large sums of money for a set period of time.

Obviously, with all these types of mortgages, a lot of trust is required between all parties as either the savings or any additional property secured to the family mortgage are at risk should the loan repayments not be made.

Therefore other options may wish to be considered such as the use of a guarantor for a mortgage application, acting as the security for the lender.

Other traditional methods such as gifting a cash sum towards a deposit can also still be useful however in some circumstances inheritance tax may be applicable.

Each case is unique depending on the individual circumstances and therefore it’s is often worth seeking specialist financial advice before committing to any decision or the financial avenue.

Call us today on 03330 90 60 30 or contact us. One of our advisors can talk through all of your options with you.

Best Part and Part Mortgages (Part Interest & Part Repayment)

by Dax McLeanPosted on 26th November 2020 | Updated 20th January 2023

A part and part mortgage, allows you to pay off some of your mortgage over time, but not all of it. When the mortgage term ends, there will still be some money left to pay off.

Part and part mortgages are considered to be in the middle of repayment mortgages and interest only mortgages.

A part and part mortgage is also referred to as a “part repayment and part interest mortgage”, or a “part capital and part interest mortgage”.

This guide will explore what part and part mortgages are, including their purpose and key advantages as well as alternative mortgages that may be worth considering depending on the borrowers’ circumstances.

What is a part and part mortgage?

‘Part and part mortgage’ are the term for when different types of mortgages are combined such as an interest only and a repayment mortgage.

An interest only mortgage is defined as a property loan where the borrower only pays the interest due on the financial product, for either part or all of the mortgage term, resulting in the capital balance remaining the same.

Interest only mortgages have strict lending criteria and have reduced in availability following the 2008 financial crisis.

Whereas throughout a traditional repayment mortgage, each monthly repayment value covers both the interest due and a part payment towards the capital, decreasing this balance over the duration of the mortgage term.

Need more help? Check our quick help guides:

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Part and part mortgages are often researched with the objective of minimising the monthly repayment.

It is rare that interest only and traditional repayment mortgages are combined however it is possible. It is strongly advised that borrowers must inform themselves of the differences between the mortgage types and the consequences of financing property in this way.

For example, when an interest only mortgage comes to the end of its term, the principal balance is still due, you must have something in place to repay this outstanding capital.

Advantages of Part and Part Mortgages

In the short term, a combination of the two types of mortgages can reduce the monthly repayment values.

In contrast to a sole interest only mortgage, the combination of the part repayment mortgage ensures that some payment against the capital is being made. Therefore, looking ahead to the end of the mortgage term, there will be less capital to pay as a lump sum.

Also, in comparison to an interest only mortgage, there is less interest to pay with a part and part mortgage as the interest reduces over the term in association to repayments against the capital loan.

Often part and part mortgage lenders are flexible allowing the borrowers to set the ratio between the two mortgage types, however, the amount is likely to depend on the personal circumstances of the borrower and the repayment vehicle available.

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Disadvantages of Part and Part Mortgages

Although there are no specific disadvantages of combining two types of mortgages, it is stressed that specific financial advice should be sought to ensure that there is a full understanding of the part and part set up and any later financial considerations have been taken.

For example, a plan would need to be considered for the repayment of the capital sum left at the end of an interest only mortgage, no matter the proportion within the part and part combination, otherwise financial pressures could simply be delayed until the end of the mortgage term.

In a like for like comparison, a part and part mortgage will cost the borrower more in interest versus a repayment mortgage and therefore the reasons why a borrower would enter into a part and part, and the ratio of the split between mortgage types must be fully explored.

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How does a Part and Part Mortgage Work?

No part and part mortgage is the same and the exact and how much capital you pay off over time and at the end of the mortgage period will be discussed and decided upon with your lender.

However, the majority have maximum amounts that can be interest only. Typically, this is linked to the loan-to-value ratio of your mortgage, or LTV.

Therefore, even though a part interest, part repayment mortgage can offer flexibility, you will be required to pay back a considerable amount of the mortgage on a regular basis.

Paying Back the Interest Only Part

When you apply and accept the terms of a part and part mortgage, you will need to prove to your lender that you’ll be able to repay the money remaining at the end of the period. This would be the case if you had an interest only mortgage.

As a result, it’s important to put together a plan, also called a repayment strategy. It’s normal to be asked a lot of questions about your strategy, so ensure you are well prepared when you apply.

The Application Process for a Part and Part Mortgage

A part and part mortgage application follow a similar process as to that of a standard mortgage where; the applicants’ income is confirmed, the loan to value rate is reviewed considering any deposits or previous equity percentages within the property, and credit checks are undertaken.

Evidence of a repayment strategy for the capital outstanding at the end of the mortgage term would also need to be submitted for review by the lender.

Any other criteria would be set by each lender, for example, some lenders will have a maximum level that they would offer as the interest only mortgage element.

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Re-Mortgaging Mid-term

Personal financial circumstances change over time and often these changes do not always align with a mortgage term break. Therefore, re-mortgaging may be considered at any point.

In some circumstances, if the previous repayment plan to cover the outstanding principal balance at the end of an interest only term is no longer viable, one option may be to switch to a repayment mortgage.

This option may also be considered should income increase and therefore borrowers can afford to make higher monthly payments, resulting in a reduced cost of interest over the longer term.

In other situations where financial circumstances take a negative turn, depending on the scale and duration of the changes, it may be difficult to re-mortgage on the open market as application criteria may no longer be met.

Therefore, depending on the full details of each individual situation, it may be possible to enter into a negotiation with the existing lender to establish options, such as if a repayment mortgage is in place, can a change be made to a part and part mortgage. As with all financial decisions, it is highly advised that specialist financial advice is sought before making any changes.

Related reading:

Part and Part Mortgages Summary

Due to the very nature of part and part mortgages, the ratio between the different mortgage types, and the suitability for borrowers will depend entirely on the personal circumstances of the borrower and therefore specialised tailored financial advice is always recommended.

Experienced financial advisors provide many service benefits from being able to share an insight into the market conditions, as well as lender traits to evaluate the likelihood of applications being successful.

In addition, advisors will compare viable options and will seek to find the most cost-effective option for the borrower, saving them money over the term of the mortgage and therefore the advice can be invaluable in many ways.

Give us a call on 03330 90 60 30 to speak to an advisor, or contact us for mortgage advice that’s personal to you and takes your credit history into account. That way you’ll know where you stand in the mortgage market and we can guide you on your route to securing a suitable loan.

Further reading:

HMO Mortgage Broker Guide – For Buy-to-Let Landlords

by Dax McLeanPosted on 26th November 2020 | Updated 20th January 2023

HMO properties are more common than ever before, and a trend has been noted with landlords increasingly often choosing to apply for HMO mortgages.

Rental properties are in high demand across the UK and whilst interest rates are low, landlords are keen to continue to reap the rewards of the current market conditions.

Houses in Multiple Occupation (HMO) can earn landlords increased rental income compared to traditional buy to let properties and therefore have become increasingly more common.

This guide will explore the purpose of HMO mortgages as well as the differences between traditional buy to let mortgages.

What is HMO?

As already mentioned, HMO stands for Houses in Multiple Occupation which means that a property is occupied by more than one tenant. Another common term to describe this time of property is ‘multi-let’.

Landlords can divide the property and charge rent per room or per flat or section of the property for example. The benefits to the landlord are increased rental income per property as well as reduced risk of unoccupancy.

Often HMO landlords pay the utility bills for the property and increase the individual rents accordingly to cover the utilities.

However, if the property is converted into separate flats with individual title deeds the utility bills are the responsibility of the individual tenants.

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Is an HMO licence required?

Although HMO properties are very attractive to landlords due to the increased rental income possible, they can be complicated to set up and, in some circumstances, will require the landlord to seek an HMO licence.

Local councils manage the HMO licence process and therefore the relevant council will be the first port of call for any licencing queries.

Some councils will only require HMO licences for larger setups if all three of the following conditions apply:

1) There are more than five tenants within an HMO property
2) The property has a minimum of three storeys
3) Tenants share facilities such as bathrooms or kitchens

However, the licencing rules do vary across the UK and therefore it is strongly advised that any landlord considering an HMO property contacts the relevant local authority directly.

If an HMO licence is required, an application will be required per property, rather than per landlord.

The local authority will review an HMO licence application and will evaluate the proposed living conditions for tenants within the property as well as assessing the landlords themselves, checking they have not previously breached landlord laws.

If an HMO licence application is rejected, there may be a number of requirements that need adjusting before granting a licence, such as changes to the proposed property set up.

However, if the landlord disagrees with the reasons why a licence application is rejected, they can appeal via an appeal process via the Residential Property Tribunal.

If an HMO application is approved, the licence is valid for five years.

Related guides:

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Differences between an HMO and a Traditional buy to let

With a traditional buy to let property, a landlord would purchase a property with the intent to let it to either an individual or a family. The tenant would pay rent either on a weekly or monthly basis and would usually pay the associated utility bills and council tax.

With an HMO property, each bedroom could be rented out separately, and any spare reception rooms could also be converted to additional bedrooms. Often this set up is best suited to single working professionals or students, depending on the location of the property. As previously, discussed the landlord often covers the utility bills and ensures that the rent per room is set at a rate to cover these costs.

In some occasions it is calculated that an HMO property can generate three times the rental value as a standard buy to let property, rented to a family, for example, however, this is not always the case! Read onto the next section to investigate the reasons why.

HMO income and expenses

There are several considerations in relation to income and expenses that should be reviewed when a landlord is debating which methods of renting out a property is most suitable.

The first matter is the utility bills associated with the property. With an HMO often the landlord is responsible for covering these bills and if the rate added to the rent is not correct and therefore does not cover the annual utility bills, the landlord could be left out of pocket.
Also, the landlord does not have control of the usage of utilities and therefore this is a risk area.

The next consideration is that the running costs of an HMO property can be higher, for example, there are increased health and safety guidelines to comply with for an HMO property as well as security matters to cover, such as locks on each room.

There will also be increased admin involved with HMO properties as there are more tenants to reference check and set up individual rental agreements with. If the landlord undertakes the legal checks themselves, it can be very time consuming however if this is outsourced, the charges are often per tenant and therefore will wrack up.

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The risk of unlet periods between the two rental types is also to be considered. With a traditional buy to let, there is a higher risk to the landlord should a family move out, as the landlord would need to cover all costs during unlet or void periods.

However, these are often not as frequent as sometimes a content, the settled family could remain as tenants for many years. With an HMO property, often the risks of unlet periods are divided between tenants (depending on how the lease agreements are set up), which is favourable to the landlord.

In addition, the higher rental income from other individuals within the property is likely to be able to cover the property overheads such as a mortgage, should one tenant move out, however turnover of tenants are generally higher on shared properties due to the nature of them such students finishing their course or professionals moving jobs or location. Also, there can be more disputes between the tenants resulting in tenants wishing to leave.

Also, HMO properties may be rented on a fully furnished basis and therefore the set-up costs are higher.

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Location of the HMO property

As already briefly mentioned, the location of the HMO property is likely to have an important impact of the type of tenants required such as students and single professionals. City centres and university towns are often the location of choice for HMO properties. External factors are also highly important to the success of an HMO such as transport links.

HMO Mortgages

Often lenders will require several criteria to be met before accepting an HMO mortgage, including that the landlord is already experienced with letting property.

Although there has been a surge in the popularity of HMO properties recently, the HMO mortgage market remains fairly specialist. Access to HMO mortgages is usually via specialist mortgage brokers, seeking the most favourable terms and mortgage rates on the market.

Often HMO mortgage rates tend to be higher than standard buy to let mortgages due to the reduced availability of HMO lenders, however usually this is covered by the increased rental income.

HMO Mortgage Summary

An HMO is a method of renting out property maximising the rental returns. Although the higher rewards are often very tempting, there are other factors to consider, including additional compliance and maintenance costs.

Due to the specialist nature of HMO’s is vital that the advice of a specialist financial advisor is sought to ensure that as HMO is the most suitable approach to renting out a property.

Call us today on 03330 90 60 30 or contact us. One of our advisors can talk through all of your options with you.

Mortgage for a Concessionary Purchase

by Dax McLeanPosted on 26th November 2020 | Updated 20th January 2023

Although there are many challenges faced by first time buyers, there are also more options than ever before to help enable the first steps onto the property ladder from government assistance schemes to an increased range of financial products enabling help from friends and family members in different ways.

Mortgage lenders are continuously adapting to the property market conditions, offering various methods of borrowing finances to purchase a property.

This guide will explore everything in connection with concessionary purchases including the finance options available.

What is Concessionary Purchase?

A concessionary purchase occurs when a property is purchased for less than the market value. Another term used to describe this scenario is below market value or BMV.

Therefore, a concessionary mortgage is a financial product used to purchase a property at less than the market value.

There may be a variety of reasons why a property would be sold at less than the market value, for example;

Discounts may be offered due to the property transaction due to take place between family members.
There may be an existing relationship between the vendor and purchaser such as previous landlord or employer and therefore a discount may be offered.

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Benefits of Concessionary Purchasing

Purchasing property from family has a variety of benefits including family providing assistance with financing property, as well inside knowledge of the property history, reducing surprises than can occur with property ownership such as broken boilers or planning permission issues.

Also, this option provides a method of retaining property within the family for sentimental reasons.

How do Concessionary Mortgages Work?

Instead of alternative methods such as a family assisted/guarantor mortgage or cash gifts from relatives to help towards deposits, a concessionary purchase could be undertaken by a parent, for example, offering to sell their property to their child at a reduced rate.
The difference between the market value and the reduced price, therefore, acts as a gifted equity deposit.

Some lenders will be willing to offer mortgages at 100% of the property value however, others will also require a deposit of between 5% and 10% of the property value. Most mortgage terms offered will depend on the mortgage applicants’ credit record as well as other factors such as market conditions and competitiveness between lenders.

Interest rates on concessionary mortgages

Concessionary mortgage interest rates often do not differ from interest rates on standard market-wide mortgages, however alike most financial products, the actual rates offered are usually dependent on the applicants’ credit history.

In addition, the rates offered on a concessionary mortgage can vary due to the following factors:

The level of discount that the property was purchased for against the market value.
If an additional deposit is being put down towards the mortgage.
Affordability factors of the applicants.

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Buying a house from a family member at a discount

Some lenders may require that the property transaction related to a concessionary mortgage is between close family members only such as between parents, grandparents and children. Whilst other lenders may have more relaxed definitions of the family members to include Aunts and Uncles.

There are other factors to consider when reviewing methods of purchasing a property with the help of family members. For example, some lenders will not allow for the parents to live within the property once it is sold, and therefore funding additional property for the parents to reside within then becomes a supplementary concern.

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Should a lender allow parents to remain living within the property that has been sold, often a condition is added to the mortgage that the parents must sign a ‘waiver of rights’ which, if their circumstances change, later on, it may leave them in a vulnerable position?

Therefore, it is strongly advised that all parties seek both independent financial and legal advice before committing to a concessionary property transaction.

Other Considerations in Relation to Concessionary Mortgages

Obviously, with all family-related transactions, a lot of trust is required between all parties concerned. It has been known that later on down the line following concessionary purchase issues have been raised regarding disputes over ownership and rights to the property.

Therefore, it is vital that the legal side of the property transactions are covered entirely, not leaving any doubt of the intent of the transaction.

It is worth noting that stamp duty works in the same way as standard property purchase and therefore this tax may be payable depending on the purchase value and the government rules and tax band levels at the time of purchase.

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Concessionary Mortgages between Landlords and Tenants

After many years of living within a rented property, tenants may wish to purchase it, and in certain circumstances, landlords may be willing to accept such requests.

By transacting between known parties, there can be time and money saved but also reduced the stress involved as both intent and often affordability factors are more known of the purchasers/tenants and therefore property purchase chains are less complicated and less likely to breakdown.

Landlords can save money by not using estate agents, and therefore may be willing to sell the property to the tenants at a reduced rate. There are common conditions that landlords must meet to sell directly to tenants, at a below market value rate such as:

Discounts usually should not exceed 10% of the property price.
The tenants may be required to also pay a deposit.
Tenants must have lived within the property for at least one year.

Wondering how much buying a house costs? Read all about the fees involved in buying a home.

However, some lenders may be more lenient regarding these conditions depending on other factors such as affordability and cash deposit level of the mortgage applicants.

Concessionary transactions between Landlords and Tenants are fairly rare and therefore there are fewer mortgages offered in this way, however, a mortgage advisor would be able to advise on the lenders that are most likely to offer such terms.

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Types of First Time Buyer Mortgages

For a more in-depth look into some common types of first time buyer mortgages, check out our following guides:

Concessionary Purchase Summary

There are many benefits of concessionary purchasing including family members providing financial assistance enabling the purchase of property, however, there are considerations to review such as the legal position of the parents involved as well as where they will live once the transaction is complete.

Each case is individual and therefore its is strongly advised that specialist financial advice is sought during the investigation stage before any decisions are made.

Call us today on 03330 90 60 30 or contact us. One of our advisors can talk through all of your options with you.