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Author: Kristian Derrick

Getting A Mortgage on A Flat Above a Shop

Glenn Westwood
by Kristian DerrickPosted on

A flat above a commercial premises like a shop can be an attractive location with certain benefits.

It can give you great value for money since they’re usually available at lower prices than other flats in the area.

They appeal to renters who like central locations near amenities and can be a good option for landlords.

Here’s everything you need to know about getting a mortgage on a flat above a shop, how to submit a robust application, and how to ensure you get a good offer.

Can You Get a Mortgage on A Flat Above a Shop?

Yes. Many lenders, although not all, will approve your application for a mortgage on a flat above a shop. Various specialist and mainstream lenders will consider this type of home loan.

However, you’ll have a limited pool of potential lenders since most will be concerned about the property’s saleability in the event of repossession.

Lenders ideally want properties that can sell quickly and easily to recover their investment if you default, which can be hard to do if the property is less desirable.

Factors that can make flats above commercial premises harder to sell include

  • High risks of loud noises
  • Smells
  • Unsocial operation hours
  • Drunken behaviour in case of takeaway shops or drinking establishments
  • Increased risk of fire from commercial properties like restaurants

Some lenders reject applications for such properties because they fear the property will lose value.

Most flats above shops also feature leaseholds. The lender would need to invest additional time and money examining the lease terms to pre-empt possible changes, so they simply choose not to lend on such properties.

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How Much Can You Borrow with A Mortgage on A Flat Above a Shop?

The amount you can borrow will depend on your income and expenditure. Since the property is above commercial premises, it can also indirectly impact how much lenders are willing to offer.

Lenders usually offer up to 4.5 times your income for residential mortgages, with some offering as much as six times your income.

However, you may be limited on the income multiples you can access for a flat above a shop since there will be fewer lenders for such properties than a standard residential mortgage.

Different lenders have their way of calculating income and affordability to determine how much you can borrow.

Some will consider any supplementary income you have, while others will only consider your regular income or self-employment accounts.

What Are the Eligibility Factors for Getting a Mortgage on a Flat Above a Shop?

Each lender can have different eligibility criteria, but most usually consider factors like:

  • Your employment status
  • Your credit status – Lenders can view you as a riskier borrower if you have bad credit, limiting those willing to lend to you.
  • Your deposit level

Most lenders will require a deposit of at least 15% for a flat above a shop due to the resale value concerns.

The deposit can be higher for other commercial premises like cafes, offices, bars, and restaurants.

Lenders will also look at other factors, including:

  • Access and security of the flat
  • The location of the flat. Some locations are more desirable than others.
  • Whether there is at least one floor between the flat and the shop or if it’s directly above it.
  • The types of shops adjacent to the one underneath the flat.
  • Whether the shop and the flat have separate title deeds.
  • Whether the property is self-contained.
  • The length of the lease.
  • The operating hours of the shop.

Can You Get a Mortgage for the Flat and Shop?

Yes. If you’re looking to purchase both the flat and shop below it, there are a couple of options you can consider.

These include:

  • Semi-commercial Mortgage – Also called mixed-use or hybrid mortgages, semi-commercial mortgages can help purchase or refinance any building or land used for residential and commercial purposes. Applications for such mortgages are assessed on their own merits and the operating profit the property will generate.
  • Taking out two mortgages – If you plan to let out the shop and live in the flat upstairs, you may want to consider getting two separate mortgages. You can get a residential mortgage for the flat and a commercial mortgage for the shop. It can be a complex process involving splitting the title deeds and affordability calculations. You’ll want to consult an experienced mortgage advisor or broker to help manage the applications and offer guidance on your options.

Related reading: 

Can You Get a Second Home Mortgage for A Flat Above a Shop?

Yes. Getting a second home mortgage for a flat above a shop should be similar to any other residential second home mortgage.

However, lenders consider second homes as a higher risk.

They may require you to put down a higher deposit or interest rate if you’re still paying a mortgage on your primary home.

This is because people are more likely to default on the mortgage for their second home if they face financial difficulties.

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Can You Get a Buy-to-Let Mortgage for a Flat Above a Shop?

Yes. A buy-to-let mortgage will be necessary if you want to mortgage a flat above a shop as a rental opportunity.

Most buy-to-let mortgages are interest-only.

This means you pay the interest on the loan monthly and pay off the original loan amount at the end of the term.

Lenders will determine your affordability for the buy-to-let mortgage by looking at the projected rental income of the property.

The lender will require an estimation of the rental income to determine whether you can afford monthly payments.

Most lenders require the rental income to be between 125% and 145% of the monthly interest payments.

They also examine your non-rental income and conduct stress tests to determine if you can cover any fluctuations.

Final Thoughts

A mortgage on a flat above a shop is similar to a standard residential mortgage.

However, it can be more challenging, depending on your circumstances. Working with an experienced mortgage broker can increase your chances of finding the best deal possible from a suitable lender.

Call us today on 01925 906 210 or contact us to speak to one of our friendly advisors.

How to Get Finance for an Auction Property

Ellie Chell
by Kristian DerrickPosted on

Auctions are naturally fast-paced and competitive, so finance options must be quick and efficient when buying a property at auction.

Standard mortgages don’t work for auction finance since they take too long, typically a few months, to arrange, process, and finalise.

Auction finance is more suitable for buying a house at auction since it’s usually quicker to arrange.

Here’s everything you need to know about how to get finance for an auction property.

What Is Auction Finance?

Auction finance is a bridging loan that can help you buy a property at auction. It’s usually quick to arrange and can be faster than a regular bridging loan agreement.

Auction finance offers a much quicker turnaround, making it ideal for buying at auction where timing is crucial.

The sale is usually agreed upon when the hammer falls if your bid is successful, meaning you’ll not have much time to raise the necessary funds.

When buying an auction property, you must immediately put down a 10% deposit and pay the remaining 90% within 28 days.

It would help if you had your finances in place before the deadline to avoid losing your deposit. Auction finance is well suited to meet these deadlines.

How Does Auction Finance Work?

Lenders offer auction finance on a short-term, monthly, interest-only basis.

You can get a decision in principle within 24 hours when you apply and have the funds in your account within 7 to 14 days.

You can arrange the funding in advance so you know how much your budget is before the hammer falls.

Auction finance lenders will require you to have another asset or property as security or enough deposit and evidence of a clear exit strategy.

An exit strategy involves how you plan to repay the debt at the end of the loan term. It can include selling the property or remortgaging.

The term for auction finance is usually shorter than a standard mortgage and can range from 1 to 24 months or up to 36 months among some lenders.

What Interest Will You Get with Auction Finance?

Auction finance usually features higher interest rates than mortgages, but they can be similar to what you’d get on a regular bridging loan.

The exact interest amount will depend on how the lender charges interest and the quality of your auction finance application.

Lenders offering auction finance can charge interest in various, including:

  • Rolled up – The lender can tally up the monthly interest and add it to the loan amount at the end of the term. You’ll then pay the cumulative total in full at the end.
  • Monthly – You pay the interest monthly, and the total debt is due at the end of the term.
  • Retained – At the beginning of the term, the lender adds the monthly interest payments to the loan amount to calculate how much you will owe. You’re then required to pay for everything at the end.

How Can You Get the Best Deal on Auction Finance?

You can take various steps to put yourself in the best position to secure auction finance.

These include:

Getting Your Documents in Order

Lenders will need to see various documentation as proof, including:

  • Proof of ID – A passport or driver’s license and proof of address or residency.
  • Proof of Exit Strategy – You’ll need an agreement in principle if you plan to remortgage. If you use a non-standard exit strategy like inheritance or investments, the lender will require proof that the funds will enter the account in a set timeframe.
  • A Valuation Report – Getting the property valuation in advance may not be necessary, but some lenders may require you to pay for the costs.

Checking Your Credit Profile

Download your credit report to correct any inaccuracies and have outdated information removed.

Bad credit isn’t a significant issue, provided it doesn’t interfere with your exit strategy. However, improving your credit can increase your chances of getting a good deal.

Speaking to a Specialist Auction Finance Broker

Consulting a broker specialising in auction finance can help boost your chances of success. The broker can offer bespoke advice, help you find the best lender, and negotiate the best deals.

They can guide you on the proper steps, including making a winning application.

What Are the Eligibility Criteria for Auction Finance?

Lenders will assess your eligibility based on the following factors:

  • The deposit – Most lenders will require you to put down at least 10-25% of the loan amount as a deposit. The larger your deposit, the lower the interest rates you will have to pay.
  • Your exit strategy – A strong exit strategy will increase your chances of getting an excellent auction finance deal. Lenders will want to see evidence of the value of the property you’re buying, its saleability, or an agreement in principle from a mortgage lender as proof that you have a viable exit strategy in place.
  • Your credit rating – Your credit rating won’t affect an offer as long as any outstanding debts or adverse credit doesn’t impact your ability to repay the loan. However, good credit can boost your chances for a good deal with lower interest rates.
  • Your experience in property – Having experience with similar property purchases and a strong track record can boost your eligibility. However, you can still qualify for auction finance as a first-time buyer. You can also use any other property you own as security to increase your creditworthiness.

You can still qualify even if you don’t meet all the above criteria. Lenders offering auction finance are very flexible and can assess applications on a case-by-case basis.

Related reading: 

What Properties Can Buy with Auction Finance?

You can use auction finance to buy various property types at auction, including:

  • Commercial
  • Residential
  • Unmortgageable properties
  • Mixed-use
  • Land (with and without planning permission)
  • HMOs
  • Agricultural properties

Final Thoughts

Once you’ve identified a property you want to bid on, consult a qualified and experienced auction finance broker.

They can assess your needs and circumstances and have the expertise to help you land a good deal.

Call us today on 01925 906 210 or contact us to speak to one of our friendly advisors.

Getting A Self-Employed Mortgage Using Net Profits

by Kristian DerrickPosted on

Getting a mortgage when you’re self-employed can be challenging, but it isn’t impossible.

One way of proving your income in the mortgage application is using your net profit amount.

You can apply for a larger mortgage if your net profit exceeds your income and dividends.

Here’s everything you need to know about getting a self-employed mortgage using net profits.

Can You Get a Self-Employed Mortgage Using Net Profits?

Yes. Some lenders allow you to apply for a self-employed mortgage using the net profit you generate as a sole trader or business owner.

They’re usually called net profit mortgages and differ from standard mortgages based on how the lender determines your affordability.

Instead of using your salary or other income source, the lender uses the net profit from your business to determine how much you can borrow.

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Can You Get a Self-Employed Mortgage Using Gross Profits?

Some lenders offer gross profit mortgages or self-employed borrowers, but they’re harder to find.

Most lenders will assess your affordability based on net profits because they provide a more accurate picture of the funds you have at your disposal after accounting for all expenses.

If you’re a sole trader or are self-employed, the gross profit is the total revenue or income minus the cost of goods or services sold.

However, it only gives an initial snapshot of your financial health before accounting for all other costs and expenses like rent and utilities.

The net profit considers all operating expenses, taxes, and interest paid on loans. Lenders use the net profit figure to determine how much they can afford to borrow.

Who Can Qualify for a Self-Employed Mortgage Using Net Profit?

You can qualify for a self-employed mortgage using net profit if you earn an income from a business you own outright or a business your share that generates profit.

Lenders will calculate affordability differently based on the nature of your self-employment. Eligible applicants can include:

Sole Traders

If you’re a sole trader, you can calculate your net profit by totalling all the income for the year and deducting your business expenses and operating costs.

If you plan on applying for a mortgage in the next few years but want to invest heavily in your business, professional advice can help you make an informed decision.

Partners

You can qualify for a net profit mortgage if you have at least a 25% interest in the partnership.

Your net profit as a partner will be calculated in much the same way as a sole trader and will involve deducting costs and expenses from the total income earned by all partners combined.

The profits are then distributed based on each partner’s contribution, so it’s crucial to ensure you keep accurate records.

Some lenders also require all partners to be signatories to approve loan applications.

Related reading: 

Company Directors

Most lenders will only consider a director’s salary and dividends toward affordability calculations.

If you’re a director of a company and have decided not to withdraw all your profits (retained profit), most lenders will limit your borrowing to the income you have drawn.

This is based on the argument that you should only borrow based on the actual personal earned and taxable income.

If you’ve technically not drawn the income, then it belongs to the company and not you.

However, not all lenders are the same. Some allow directors to use the retained net profits to count towards income when assessing affordability.

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What Income Evidence Do You Need to Get a Self-Employed Mortgage Using Net Profits?

Most lenders require at least two years of accounts as proof of income to qualify for a self-employed mortgage using net profits.

It’s still possible to get a mortgage if you’ve been trading for less than two years, but you’ll have a restricted number of lenders and products you can access.

In most cases, lenders use an average of two years’ accounts to assess affordability.

Some lenders can use the figure of your most recent income if it’s higher than the average, while others can use the lower of the two.

Mortgage providers prefer certified accounts, but they’ll also accept SA302 tax returns and recent bank statements, usually from the last three months.

How Much Can You Borrow with a Self-Employed Mortgage Using Net Profits?

The amount you can borrow will depend on the net profit, with many lenders using income multipliers for affordability assessments.

The lender takes your annual net profit and multiplies it by a set figure, typically ranging from three to five times your income.

For example: £60,000 income x 3 = £180,000 mortgage.

Most lenders allow you to borrow up to 4.5 times your income. Others limit it to three times, while some can go as high as five times.

How Much Deposit Do You Need?

The deposit requirements for a self-employed mortgage using net profits are similar to other types of residential mortgages.

Most lenders will expect you to put down at least 10%, but this could rise depending on the level of risk.

For example, if you only have a trading history of one year or less, the lender might ask for a 15% deposit to offset the risk. Some flexible lenders can also offer low deposit deals.

The terms available are usually restricted by the small pool of lenders who consider applications based on net profits.

You can access a higher number of mortgage lenders by having a deposit of 20% to 25%.

What are the Eligibility Criteria for a Self-Employed Mortgage Using Net Profits?

Lenders apply specific eligibility criteria, which can include:

  • Credit history – Bad credit can make it challenging to access a mortgage, but you can find a suitable lender through a broker.
  • Loan to value (LTV) ratio – This will determine the amount of deposit you need.
  • Age – Some lenders impose age restrictions, such as requiring the mortgage not to exceed your 75th birthday.
  • Profession
  • Property type

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Final Thoughts

Consulting an experienced, whole-of-market broker can help you secure the best deal on a self-employed mortgage using net profits.

Such mortgages are a specialist type of home loan, so you must approach the right lender who can approve the application based on your circumstances.

Call us today on 03330906030 or contact us to speak to one of our friendly advisors.

What Are Chancel Repair Searches?

Chris Taylor
by Kristian DerrickPosted on

A chancel repair search is essential if you’re considering buying a property in England or Wales.

It ensures you’re aware of any obligations that may affect the property and can help protect you from legal issues or unexpected costs that can run into hundreds or thousands of pounds.

Here’s everything you need to know about chancel repair searches.

What Is a Chancel Repair Search?

A chancel search, also called a chancel repair liability check, allows you to know whether a property is liable for contributing towards repairing the chancel of a parish church.

The chancel is the space around the altar at the east end of the church.

Chancel repair liability originates from an ancient medieval law that made property owners, instead of monasteries, responsible for church repairs.

Under the law, parishes in England and Wales can demand money from owners of particular properties on former monastery land to fund repairs, with costs reaching thousands or millions of pounds.

For example, in 2009, a couple was found liable for £230,000 worth of repairs to the church.

A chancel repair search is a crucial due diligence step that can help protect you from significant and unexpected costs linked to this ancient liability.

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Which Properties Are Liable for Chancel Repair?

Chancel repair liability places an obligation on the owners of specific parcels known as glebe lands. These are parcels within an ecclesiastical parish initially granted to support a parish priest.

Although the liability was forgotten or overlooked over the centuries as the land was sold, bought, and divided, it can resurface during modern conveyancing processes.

Around half a million properties in England and Wales can be liable, even if it’s not mentioned in the title.

It’s relevant to old and new properties since it applies to the land on which the property sits, and homeowners may be liable if a local church is nearby.

Such homeowners are called lay rectors, and whether they know it or not, are responsible for repairs and upkeep of the chancel.

Can Non-Parishioners Be Liable for Chancel Repair?

Even if you’re not a parishioner, you can still be liable as long as you’re the land or property owner.

Liability is joint and several, meaning you can be responsible for the total cost of repairs to the local church as a landowner.

The liability is still enforceable unless it has been expressly abolished by statute or substituted for an annual payment. The church can claim the full payment from one or any number of liable property owners.

Homeowners facing such a claim are also legally entitled to claim contributions from other liable property owners in the parish.

Who Can Enforce Chancel Repair Liability?

Before 1932, the liability was only enforceable through the ecclesiastical courts.

Today, the jurisdiction of ecclesiastical courts is in civil cases concerning church buildings and cases where clergymen are accused of ecclesiastical crimes.

The Chancel Repairs Act 1932 abolished the jurisdiction of ecclesiastical courts to enforce the repair of chancels.

The legislation passed the responsibility to the county court and named the authority responsible for enforcing the liability as the parochial church council of the parish church.

Related reading: 

How Did Chancel Repair Liability Change in 2013?

Some people think the chancel repair liability was abolished in 2013, but it wasn’t.

The chancel repair liability only ceased to be an overriding interest, meaning it’s no longer automatically enforceable against property owners and their successors in title.

For the liability to continue to affect a property, it must be registered at the Land Registry and stated on the title as a potential liability to homeowners.

The new status doesn’t abolish the liability because the church can still protect its right to enforce chancel repair liability by registering a notice at the Land Registry against affected properties. Once it is registered, the right is protected forever.

In addition, the right to register a notice still exists after 13 October 2013 against properties with no change in ownership since that date.

Even if a notice has not been registered at the Land Registry, the chancel repair liability still binds the property owner after 13 October 2013 until the property is sold ‘for value’ to a new owner (when the liability falls away).

The term ‘for value’ means that property transfers by way of gift, inheritance, divorce settlement, or at undervalue may not qualify for exemption.

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When Should You Order a Chancel Repair Search?

You should order a chancel repair search when you appoint a conveyancing solicitor. The solicitor can commission one of two chancel searches:

  • A Chancel Check Search – This search reveals whether the property is located within a parish that could charge for repairs to the chancel. However, it doesn’t show whether or not the actual subject property is located on land with this responsibility. This type of search can show you whether there is a certain level of risk.
  • A Full Chancel Search – This search is much more expensive but will reveal whether the actual subject property is liable. The solicitor must register this liability with the Land Registry if it is.

What Can You Do to Protect Yourself?

If a potential liability exists on the property, it’s highly recommended that you take out chancel liability insurance from a reputable insurer.

Although the premiums vary, you can expect to pay a one-off premium of around £25 or more depending on the circumstances for a standard residential property.

It will cover you against claims for up to 25 years after you’ve purchased the property.

Some policies last for however long you own the property, while others can last forever, even if the property changes hands.

Generally, the cost of the policy required for the property will depend on the level of cover required, the amount of land involved (from less than 1 acre to 10 acres), and whether the policy is for 25 years, 35 years, or in perpetuity.

Final Thoughts

A chancel repair search is an affordable way to determine whether the property you’re buying in England or Wales is liable for chancel repairs.

It can provide you with peace of mind against unexpected large bills and help you take appropriate action like insurance to protect you from legal and financial issues.

Call us today on 03330906030 or contact us to speak to one of our friendly advisors.

Sources and References

https://www.legislation.gov.uk/ukpga/Geo5/22-23/20/section/1

What Happens If You Pay Off Someone Else’s Mortgage?

Colin Prunty
by Kristian DerrickPosted on

Most lenders can allow you to pay off someone else’s mortgage. You don’t need to be related to the homeowner to pay off their mortgage or make a mortgage payment.

You can pay someone else’s mortgage to help them out when they’re in a tight spot or simply because you’re in a giving spirit.

You can even do it anonymously with the correct information.

But what happens when you pay off someone else’s mortgage, and are there any implications? Read on to find out.

Can You Pay Off Someone Else’s Mortgage?

Yes. Lenders will not prevent you from paying off someone else’s mortgage.

However, they’ll ask you a few questions before they accept the funds for repayment for due diligence reasons.

These can include questions like why you’re doing it, the relationship between you and the mortgage owner, where the money comes from, and how you accumulated it.

The lender is responsible for determining why the transaction is happening to satisfy anti-money laundering guidelines and checks.

They must establish the source of any funds, especially significant funds, that they receive into the customer account from third parties who aren’t adding their name to the mortgage.

What Do You Need to Provide to Pay Off Someone Else’s Mortgage?

The lender can request a copy of your recent bank statements before finalising the repayment and closing the mortgage account. The bank statements can help clarify the source of the funds.

They’ll also ask for your passport or driving license to verify your identity and a written statement from you as the payer outlining the circumstances of why you’re making the payment.

Most times, it can be a signed letter outlining the following:

  • Your name
  • Your relationship with the homeowner
  • The value of the payment
  • Confirmation that the payment isn’t a loan and the payee doesn’t need to repay it.
  • Confirmation that you don’t have any interest in the property

Sometimes, lenders can refuse to accept the payment or complete the transaction.

For example, if there appears to be a strenuous link between you and the payee or if they suspect any fraudulent activity.

However, most lenders will comply with your request provided there’s clear evidence of where the money is coming from and a valid relationship between you and the mortgage owner.

Related reading: 

Are There Any Tax Liabilities When You Pay Off Someone Else’s Mortgage?

Yes. Although it’s very generous to pay off someone else’s mortgage, the recipient could face some inheritance tax (IHT) implications in the future.

In the UK, the HMRC allows each person an annual gift allowance of £3,000 for IHT purposes.

You can give any number of people this amount annually, and it won’t count toward the value of your estate when you die.

However, any money gifted above this amount is considered a potentially exempt transfer (PET).

A PET is tax-free only if you live for seven years after giving the money.

The recipient may have to pay inheritance on some of the money if you die sooner, depending on when you die.

How Much Tax Will Be Due on A Potentially Exempt Transfer (PET)?

Inheritance tax is charged at 40% on the total value of your estate and above the nil-rate band allowance.

The Inheritance Tax Act currently sets the nil-rate band at £325,000.

For any amount considered a PET, the tax charge decreases by 20% each year on a sliding scale during the seven years.

Here’s how much inheritance tax might be due on PETs:

Years Between Gift and Death

Tax Rate on PET

0-3 years

40% charge

3-4 years

32%

4-5 years

24%

5-6 years

16%

6-7 years

8%

0-3 years

40% charge

There will be no tax liability if the value of your estate is below £325,000 when you die.

Ensure you speak with a professional and experienced mortgage broker or tax advisor before paying off someone else’s mortgage.

They can ensure the process goes smoothly and correctly and help you understand the tax implications.

For example, let’s assume you had agreed to pay off your son or daughter’s mortgage as a gift or to assist them during a period of financial difficulty.

If the outstanding balance owed is £200,000, the amount, once paid, would be classed as a PET for IHT purposes.

If you died within four years, and your total estate – including the PET – was higher than the nil rate band, your child would have a 24% IHT tax liability to pay for this gift (£200,000 x 24% = £48,000).

How Can I Minimise Inheritance Tax when Paying Off Someone Else’s Mortgage?

When paying off someone else’s mortgage, you can use various strategies to minimise the potential inheritance tax. These include:

  • Using other gift allowances – If you’re a parent or grandparent, you can use other gift allowances that will not affect inheritance tax. These include giving up to £2,500 for a grandchild’s wedding or up to £5,000 for a child’s wedding.
  • Using a trust – You can also set up a trust to manage mortgage payments and reduce the impact of inheritance tax. Trusts are legal agreements that allow you to transfer assets to a separate legal entity, which a trustee manages for the benefit of the trust’s beneficiaries.
  • Making regular payments – Consider making regular contributions towards the mortgage instead of a lump sum if you can afford it. Such payments can be exempt as they’re considered part of normal expenditure.

How Can You Pay Off Someone Else’s Mortgage Anonymously?

You can pay off someone else’s mortgage anonymously if you have the right information.

You only need to find the mortgage company and account number through public records and make the payment.

To stay anonymous, you can make the payment using a money order mailed with no return address.

The name of a mortgage holder’s lender and the mortgage holder’s account number are generally publicly available.

Final Thoughts

Paying off someone else’s mortgage is a very generous gesture, but it can have tax implications you need to be aware of.

Ensure you consult an experienced tax advisor who can explain the potential tax implications for you and the recipient.

Sources and References

https://www.gov.uk/government/publications/inheritance-tax-nil-rate-band-and-residence-nil-rate-band-thresholds-from-6-april-2026/inheritance-tax-nil-rate-band-and-residence-nil-rate-band-thresholds-from-6-april-2026-to-5-april-2028

Buy to Let Stress Test

Kristian Derrick
by Kristian DerrickPosted on

According to Statista, the majority of landlords surveyed in 2022 said that they intended to purchase UK property on a buy-to-let basis with the intention of renting it out for profit.

That’s many buy-to-let mortgages that will need to be approved in the upcoming years. How do applicants apply for and qualify for buy-to-let deals?

Most first-time buyers expect to merely prove their income and their expected rental earnings when applying for a buy-to-let mortgage, but that’s not always the case.

In some cases, you may need to pass a buy-to-let stress test. 

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Benefits of a Buy-to-Let in UK

There are several reasons why landlords apply for buy-to-let mortgages and wish to pass the associated stress test.

These include:

  • A buy-to-let ensures you can secure stable monthly income through tenant rent. 
  • The property you own will likely increase in value over the years and will be a worthy investment.
  • You can get onto the property ladder and build a portfolio of properties if you succeed with your first property.
  • You can write off some of your property costs against tax. This includes maintenance/wear and tear, mortgage interest and so on.

What is a Stress Test?

A stress test is also called a SICR (stress income cover ratio) and is a calculation carried out by a lender to ascertain if an applicant can afford the buy-to-let mortgage they’re applying for.

This compares the amount you’re requesting with the rental income you intend to charge. It also considers the interest that will be charged on the mortgage.

If you pass the buy-to-let mortgage stress test, you will most likely be approved for your mortgage application. 

Why Do Lenders Carry Out a Stress Test for Buy to Let Mortgage Applications?

Residential mortgages and buy-to-let mortgages are two very different products. As it turns out, buy-to-let mortgages pose more of a risk to the lender and so come with higher interest rates.

How much you can borrow with a buy-to-let mortgage will depend on how much rental you’re expected to earn on the property and what your current earnings are form your regular job.

The Prudential Regulatory Authority introduced stricter terms for buy-to-let borrowers in 2017 that now apply. These include:

  • The rental amount you intend to charge on the property must be at least 125% or 140% of your mortgage instalment. The surplus income should be used for things like repairs and maintenance. 
  • The SICR determines if you can pay interest rates between 5.5% and 6%, which ascertains affordability if rates fluctuate during the term of your mortgage.

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How Tax Affects Buy-to-Let Mortgage Applications in the UK

Income tax must be considered when an individual applies for a buy-to-let mortgage.

This is legally required according to the Prudential Regulatory Authority.

The SICR is determined according to your tax rate status. In most instances, UK mortgage providers apply a stress income cover ratio of around 125%.

This is because there’s less anticipated stress on your rental income in a lower tax bracket. 

Higher tax brackets can expect a higher SICR to apply, usually around 145%, with additional rate taxpayers expecting SICR percentages of around 167%.

Essentially, the test notes that if you’re paying more tax, you must collect a higher rental income to cover the costs. 

I’ve Failed the Stressed ICR Test – Now What?

If the mortgage provider decides that your property and application doesn’t pass the stressed IC test, it doesn’t automatically mean that your mortgage application will be rejected.

There are several specialist lenders that may be able to assist with covering ICR shortfalls. 

Top Slicing is one approach that may help. This is when a mortgage provider assesses all your forms of income and then notes that you could still afford the monthly instalments if your financial situation changes or there are fluctuations in charges.

UK mortgage providers who offer top slicing are rare but if you work with a professional mortgage broker or advisor, they often have good relationships with mortgage providers who may be able to assist. 

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Another way around the stressed ICR test is if your loan to value amount is low. Increasing your deposit amount will reduce your LTV amount, which lenders view favourably.

Most applicants put down a 20% to 25% deposit, but if you can put down a 35% deposit, this could push you into good favour with lenders. This essentially reduces the stress rate. 

In some instances, mortgage providers could view your entire property portfolio instead of individual properties.

For instance, if you have five properties in one portfolio and only one has a low rental income expected, some lenders may be willing to overlook this. 

What You Need to Know About Stressed ICR Tests

One thing to note is that credit score plays a major role in passing stress tests as it determines what interest rate you’ll be charged. 

Another thing worth noting is that self-employed applicants may find it challenging to pass stress tests unless they can provide 2 years of positive accounts. 

Some retired landlords may also struggle, even if they have a good pension in place and decent savings. 

And, if you have a family member or friend living in one of your existing rental properties, the mortgage providers may view this as risky. 

Buy to Let Stress Test Conclusion

At the end of the day, the best way to ensure that you pass the stressed ICR test and get your application genuinely considered on merit, is to acquire the services of a professional mortgage broker or advisor.

These professionals understand the finer intricacies of stress tests for buy-to-let properties and can also ensure that your documents are perfectly in place to ensure that your application is quickly processed without hiccups. 

Call us today on 01925 906 210 or contact us to speak to one of our friendly advisors.

Mortgage Rate Predictions 2025: Will Rates Keep Falling?

Kristian Derrick
by Kristian DerrickPosted on

People all over the UK are feeling the strain of the cost-of-living crisis caused by economic turbulence and rising inflation.

Since last year, interest rate forecasts in the UK have gradually risen as the Bank of England tries to curb inflation, leading to fears of higher mortgage rates and more pressure on homeowners’ budgets across the UK.

But what is the forecast for interest rates in the UK this year, and how will it affect homeownership?

This guide explores the current and predicted interest rates in the UK and how they affect the mortgage market.

UK Mortgage Interest Rate Forecast – Will They Go Down?

The Bank of England provides a forward-looking perspective on the trajectory of UK interest rates, projecting a peak at 5.25% in 2024, with a potential slight increase to 5.5% if inflation persists higher than expected.

Forecasts suggest that rates may begin to fall by the end of 2024 to around 4.65% and continue to decrease to approximately 4% by 2025, where they are anticipated to stabilise for the following years.

This trend mirrors international expectations, where similar rate cuts are forecasted for the US and EU from summer 2024 onwards.

What Are the Interest Rate Forecasts for the UK?

In 2022, the Bank of England (BOE) raised the Base Rate nine times, with the last increase occurring on February 2, 2024, when it went from 3.5% to 4%. This was the highest level in 14 years.

The rate hikes aimed to tackle the high annual inflation rate, which was at 10.1%, well above the 2% target. Contrary to earlier predictions, the Base Rate rose more than expected, sparking concerns of further aggressive hikes to combat inflation.

Forecasts for 2023 initially suggested the Base Rate could reach 4.25% to 4.75% by mid-year and stabilise around these levels.

However, as of June 2024, the Bank of England has maintained the Base Rate at 5.25%, reflecting ongoing economic considerations and inflationary trends.

The next Monetary Policy Committee meeting is scheduled for June 20, 2024, which might provide more insights into future adjustments.

The rate hikes aimed to tackle the high annual inflation rate, which peaked at 11% in late 2022, well above the 2% target. Contrary to earlier predictions, the Base Rate rose more than expected, sparking concerns of further aggressive hikes to combat inflation.

Forecasts for 2023 initially suggested the Base Rate could reach 4.25% to 4.75% by mid-year and stabilise around these levels. However, by mid-2024, the Bank of England has maintained the Base Rate at 5.25%, reflecting ongoing economic considerations and inflationary trends.

What Are The Forecasts For The Next 5 Years?

According to the latest forecasts by financial analysts, UK interest rates are expected to stay around the current level of 5.25% until summer 2024. There is a possibility of a slight increase to 5.5% if inflation remains high.

By the end of 2024, rates are projected to decrease to around 4.65%, and further decline to approximately 4% by the end of 2025, where they are anticipated to stabilise.

The predictability of UK interest rates becomes more challenging beyond this horizon, influenced by global economic conditions, domestic fiscal policies, and unforeseen events.

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Why Are There Increases in Interest Rate Forecasts UK?

One of the main jobs of the MPC is to control inflation and ensure it comes down to various targets.

The current target is 2%, and interest rates are used to manage inflation.

Although the BOE can’t stop inflation from going higher or lower than the target, they can try and bring it back to the target by increasing or decreasing the Base Rate.

When inflation is low, and the BOE wants to encourage spending and borrowing, it lowers the base rate, which makes loans more affordable.

When they want to reduce inflation, they raise the base rate, which increases overall interest rates in the UK economy.

Increasing the interest rates makes it more expensive for people to borrow money and buy things.

It encourages people to save rather than spend in the overall economy.

When more people spend less on services and goods overall, the prices of commodities will tend to rise more slowly, trans

What Is the Impact of the Predicted Interest Rates UK on Mortgage Rates?

The Base Rate usually influences other rates in the UK, including those you might have for a loan, mortgage or savings account.

Tracker mortgages directly follow the base rate, and customers can expect mortgage rates to go up in line with the increase.

However, mortgage experts state that despite the interest rate increases by the BOE, not all mortgage rates will go up.

Interest rates for fixed-rate mortgages have gradually declined for the past few months since the mini budget in September 2022.

The current or predicted interest rates in the UK are not expected to impact this trend.

This is because mortgage providers tend to adjust their rates ahead of time to account for worst-case scenario increases.

Most mortgage lenders likely adjusted their rates after the economic turmoil that followed the mini-budget.

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Therefore, the knock-on impact of the base rate increases will not affect fixed-rate mortgages in the same way as tracker mortgages.

If you’re on a fixed-rate deal, your mortgage rate will stay the same for the duration of that deal.

With standard variable rates, the rate you automatically move to when your fixed term expires, there is no direct link with the base rate.

However, you’ll be at the lender’s mercy throughout the mortgage’s lifetime.

They can increase or decrease with the base rate or according to the whims of your mortgage provider.

Recommended guides: 

What Should I Do with the Increased Forecast for Interest Rates in UK?

An increased forecast for interest rates can be scary for borrowers, especially with soaring food prices, energy bills and other increases in outgoings associated with the cost of living.

A few actions you can take include:

Fixing Your Mortgage

A fixed-rate mortgage can protect you from future rate rises and ensure your mortgage repayments don’t change because of interest rate changes.

A fixed-rate mortgage offers a fixed interest rate for a certain period, and you’re guaranteed to pay the same amount every month.

Fixed-rate mortgages allow borrowers to know exactly how much they pay each month without worrying about unexpected changes.

With rising interest rates and inflation still high, more interest rate rises are likely, resulting in higher mortgage rates that cause your monthly repayments to go up if you don’t fix your mortgage beforehand.

You can choose to fix your mortgage rate for 1, 2, 3, 5, 7, 10, or 15 years.

Two-year fixes are cheaper and usually provide more freedom and access to the best rates.

They’re suitable if you want to switch deals regularly or are considering moving home soon.

Consider how long you want to commit to an agreement and whether your circumstances are likely to change soon.

Lock in a New Rate

You can lock in a new rate if you’re due for a remortgage in the next six months, then switch when your deal ends and avoid early repayment charges (ERCs).

Most lenders set an initial lower fixed interest rate for some time as an incentive to encourage you to apply.

If you can get a new incentive period or deal at substantially lower rates than you currently pay, you can save money by remortgaging.

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UK Interest Rate Forecasts Final Thoughts

With increases in the base rate and rising UK interest rate forecasts, now is a great time to consider fixing your mortgage and locking in lower rates.

Consulting a qualified mortgage broker can also help you navigate the current climate and get the best mortgage rates for your circumstances.

Call us today on 01925 906 210 or contact us. One of our advisors can talk through all of your options with you.

Mortgages for Part-Buy Part-Rent

Kristian Derrick
by Kristian DerrickPosted on

What is a Shared Ownership Property?

When searching the property websites, there will be Shared Ownership properties which catch your eye as they are often very reasonably priced compared to similar properties within that area.

Read that property advert in a little more detail and in fact you see in the write-up that the price advertised on the property is for “Shared Ownership” and the sale price will be for a percentage share. Usually between 25% and 75%.

The remaining percentage will be owned by a housing association.  It’s a kind of somewhere in between buying and renting which appeals to some people who want to get on the property ladder.

The property may very well be a new build property where the developer is working in conjunction with a housing association and offering the Shared Ownership properties as a way of affordable housing.

There are also re-sale Shared Ownership properties, in other words, used or 2nd hand properties.

Who can buy a Shared Ownership Property?

Shared Ownership properties are often attractive to people who may not be able to afford to buy a property in the usual way with a deposit and a mortgage and own the property outright.

You will still need a deposit though and I will go through this a little further on.

The Government set out guidelines for local housing associations as to who is eligible to purchase a Shared Ownership property. The current guidelines are as follows.

The Household income is £80,000 or less.  (This is different in London where this figure is £90,000 or less).  In addition to this earnings cap, the following also applies.

You are either a First Time Buyer or a current non home-owner who cannot afford to buy a new home in the standard way.

You are an existing shared owner.

If you are over 55 there is a slightly different scheme called the Older Persons Shared Ownership Scheme.  The difference with this scheme is the maximum percentage you can own of the property is set at 75%.

If you’re wondering how long a mortgage application takes to be approved, the answer is that it depends, you can improve your chances by ensuring you meet your lender’s credit score requirements.

It’s also a good idea to familiarise yourself with the different types of mortgages and the fees involved with buying property.

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:

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Can I buy a bigger percentage of the property?

Yes, you can! This is known as “Staircasing”. However, you will have needed to have had your Shared Ownership property for a specific amount of time before you can look to buy a further percentage.

This qualifying time period will be set out in the terms of your lease. If you want to buy an additional share in the property, the share value will be based on the current market value of the property.

Each time you want to buy a bigger share, you are likely to incur the cost of the valuation fee. Your mortgage requirements are likely to change also so you will need to get advice from your mortgage adviser on this.

Of course, one benefit of buying a bigger share is that your rent will reduce with the housing association.

If you get to the stage where you own 100% of the property, then you will have no rent to pay at all and you will be a fully-fledged homeowner!

Pros and Cons of Shared Ownership?

If you are fed up with renting or the prospect of owning your own home seems a million miles away, then it can help you get on the property ladder.

Also, as it is just a share of the property you will own, then your mortgage amount will be much smaller, your deposit amount is likely to also be smaller.

You do have the option to buy the property outright as I mentioned earlier by Staircasing, so as your financial position changes this can be something that is achievable in the future.

Although you do not own 100% of the property, you are responsible for the full maintenance costs of the property, whereas if you rented you are likely to have your landlord to deal with these.

As mentioned earlier the valuation fees incurred should you wish to increase your percentage share can be seen as a downfall.

The staircasing share will depend on the market value of your property at that time, which may mean it is beyond your affordability to buy that extra share.

The rent charged by the housing association can also mean, in addition to your mortgage payment – it could work out less attractive cost-wise as you initially thought.

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How does a Shared Ownership Mortgage work?

You will own a percentage of that property using your deposit and a mortgage to purchase it and you will pay rent to a housing association on the remaining amount.

The percentage share that you own is usually between 25% and 75%.

An example being:

  • Property advertised £75,000 which is a 50% shared ownership property. (Full value of the property being £150,000).
  • You have 10% deposit to put down (10% of your share price) £7,500
  • Your mortgage borrowing amount is £67,500
  • You will pay a monthly mortgage amount to your mortgage lender and in addition, you will pay a rent to the housing association.

It is worth noting, the rent can differ greatly on property to property and it is set out by the housing association. One of the first questions you should ask when considering a Shared Ownership property is the monthly cost of this rent.

Also, as the property is likely to be leasehold you will also need to know how much the ground rent and the cost of any service charges applicable.

How do I look into a Shared Ownership mortgage?

Not all lenders offer Shared Ownership Mortgages, so this is another area where a Mortgage Broker will offer added value and save you lots of time.

We will discuss your requirements and very early on in the process discuss your deposit, the percentage share you are looking to obtain a mortgage for and assess your affordability.

To accurately do this and to avoid disappointment further down the line we will need to include accurate costs such as rent, ground rent and any service charges so the more information you can obtain from the housing association the better as it helps us paint the clearest picture to the lender with the aim of getting your mortgage accepted.

These will all be included as monthly commitments and will form part of the affordability check.

There are some lenders that will require a larger deposit than others so this is certainly one key factor that we will look at to ensure we place you with the right lender for your individual circumstances.

Should you have any further questions about a shared ownership mortgage, please get in touch and we will do our best to help.

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Bankruptcy With A Mortgage UK

Kristian Derrick
by Kristian DerrickPosted on

Contrary to belief, it is possible to get a mortgage even if you have been declared bankrupt and had your house repossessed in the past.

Although many mortgage lenders will decline applications from bankruptcy clients, there are lenders in the market that are more understanding and will happily consider you for a mortgage.

However, do expect to front a larger deposit to qualify. Lenders will look at your personal circumstances including your credit history when making their assessment.

A record of bankruptcy shows that you present a higher risk to the lender and as a result, some may decline the application at this point.

You can also expect to be offered mortgage deals with higher interest rates.

How long after bankruptcy can I get a mortgage?

During a period of bankruptcy, it isn’t unusual to have restrictions imposed on your borrowing.

Bankruptcy terms dictate that you cannot apply for a mortgage until you have been officially discharged. This usually takes up to 12 months depending on the court’s decision.

The more time that has elapsed, the more chance you have of a lender approving you for a mortgage.

Post-bankruptcy, the point at which you will become eligible to apply for a mortgage differs lender to lender.

If you apply for a mortgage immediately after the point of discharge then you will need to meet very strict criteria, have a substantial deposit, and find yourself subject to higher fees and rates.

As more time passes, the bankruptcy becomes less relevant from the perspective of a lender.

After 4 or 5 years, a lender will most likely see you in the same light as everyone else but more so if your credit history has been clear of any issues since discharge.

You will also find that more lenders in the market will consider an application at higher loan to value rates, the longer you have been discharged.

For example, if you have been discharged over 4-5 years and have kept a good credit record, you may be able to borrow up to as much as 90-95% LTV. If eligible, these lenders may be able to offer you more competitive rates too.

If you have been recently discharged, then you will find it significantly harder but can still obtain a mortgage though at least 25% deposit will be required in a lot of cases.

If you’re unsure about your eligibility, please get in contact with one of our specialist advisors to discuss your situation.

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Tips for applying for a mortgage after bankruptcies

If you are in a position whereby you want to apply for a mortgage post-bankruptcy, then there are a few things you can do to help get approved:

  1. Check your Credit Reports

First and foremost, we recommend checking your credit score. It is important to regularly check your credit file.

This is where all your financial irregularities are recorded, and it will give you an overall picture of your financial profile as seen by lenders.

Some credit files contain discrepancies which can be detrimental to your mortgage application.

It is important to check that dates etc are accurate on your credit file, especially where bankruptcy is listed.

Irregularities like this can be a result of basic admin error but could make your mortgage approval very difficult.

Fundamentally, it can be the difference in being accepted or declined for a mortgage after bankruptcy. 

  1. Check your Eligibility

Once you have checked and corrected any discrepancies on your credit file, it’s time to check if you are eligible to apply for a mortgage.

Some lenders can decline applications even after they have passed a credit check, based on the bankruptcy.

This is where specialist lenders come into the equation. Contact us to speak to an expert bankruptcy mortgage adviser today.

  1. Rebuild your Credit Profile

One of our financial advisors can guide you to take the steps you need to repair your credit file, as offer you advice on mortgages with bad credit.

National Hunters Report

If 6 years have passed since your discharge, then relatively speaking there should be no trace of bad credit on your file.

Most assume that it is therefore easy to apply to any lender and get accepted for a mortgage, but this is not the case. This due to the National Hunters Report.

The National Hunters Report is a register that contains the names of anyone ever made bankrupt in the UK, even if you were discharged over 6 years ago.

So, although you may get through a bank credit check at the initial application stage, you can be declined at a later stage when the Hunters Report brings your bankruptcy to light so ensure that you declare this.

Although this can be very disappointing and frustrating for many applicants, fear not, there are still several lenders that may consider your application at this point.

Note: Are you looking for commercial property but have a bad credit history? Bad credit commercial mortgages may be an option for you.

Credit behaviour since the bankruptcy

If there are other credit issues on your credit file before the bankruptcy such as arrears, defaults, late payments, CCJs or a debt management plan, then the bankruptcy itself should effectively wipe them off and they should appear on your credit report as settled.

The credit file is reset and after a year passes, discharged customers can attempt to rebuild their credit profile from scratch.

However, if you have experienced credit issues after the bankruptcy, lenders will consider you a high risk.

Lenders will want to see that you have successfully learned to manage your finances in a responsible manner since the bankruptcy.

It is important that your bankruptcy default is marked up to date on your credit file before making your application.

Which lender can I apply to with bankruptcy on my file?

There are a few discharged bankrupt mortgage lenders in the market.

Whilst some are mainstream lenders offering high rates and overlooking discharged bankruptcies of over 4 years, there are other specialist lenders who can take on applications for bankruptcies discharged less than 3 years ago but these do tend to have higher rates and fees attached to them.

Get in touch with one of our experts and we will help establish the best lender for you.

Can I get a buy to let mortgage after bankruptcy?

Depending on your circumstances, it may be possible for you to obtain a buy to let mortgage if you have been declared bankrupt in the past.

However, you will often need to meet the criteria outlined below:

  • have saved a deposit of over 15% (amount varies).
  • have a personal income.
  • have been discharged from bankruptcy for at least 3 years.
  • have a clean credit file since bankruptcy.
  • own at least one other property.

Even if you don’t meet the criteria above, we may still be able to help.

A mortgage after bankruptcy requires specialist knowledge.

Remember, you can contact our expert advisors for advice.

I had an IVA. Can I still apply for a mortgage?

Just like bankruptcy debt, IVAs can come as a deterrent to many lenders but there are specialist providers who focus on applications containing credit issues.

These providers tend to take a more formative view of your mortgage application.

Just like other issues, IVAs stay on your credit file for 6 years, however, if the debt has been listed as settled for more than 3 years, there are a small number of lenders who will accept an application from someone with a current IVA.

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Residential Self Build Mortgages UK

Kristian Derrick
by Kristian DerrickPosted on

More and more people are deciding to build their own homes, both to save money and to create a unique living space that is perfectly tailored to them.

Before you get swept up in the planning of your perfect kitchen or dream bathroom, you need to know how your self-build will be financed.

Whether you will be doing most of the work yourself or will be putting the project in the hands of a surveyor and architect, etc., you need to be aware that you won’t be able to get a standard residential mortgage.

What are Self-build Mortgages?

To finance the build of your property you may need a specialist loan, known as a self-build mortgage.

This niche loan is designed to help those building their own homes, by releasing funds in stages, as opposed to one lump sum once the property is completed.

This article will take you through everything you need to know about the self-build mortgage, so you can be fully aware of any issues that may affect you.

Need more help? Check our quick help guides: 

What are the Funding Stages of a Self-Build Mortgage?

Whilst it may vary between projects and from lender to lender, there are usually five stages during the entire process where funding will be released. They are as follows:

  1. The purchase of a suitable plot of land.
  2. The completion of the foundations and footings.
  3. Completion of the walls up to roof level (eaves height).
  4. Weatherproof and watertight roof completed.
  5. The completion of the interior to habitable condition and the final fixes.

By releasing funding for the self-build in stages, planning for the costs of each stage can be done in the knowledge of knowing how much money will come through, and when.

The money can then be paid to the necessary contractors, architects, etc. in a timely manner as the work is ongoing.

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Types of Self-build Mortgages

There are two types of self-build mortgages, which primarily differ on when the money is released at each stage in the building process:

Arrears Self-build Mortgage

With an arrears self-build mortgage, the funds are released when each stage of the process is completed and a valuer has assessed the construction.

This type of mortgage is suited to those who have a lump sum of their own money to invest in the building.

To be eligible for this type of self-build mortgage, loan providers will usually expect you to be able to pay for the first 20% of the project yourself.

Advance Self-build Mortgage

With an advanced self-build mortgage, the funds are released at the beginning of each stage of construction.

This option is better for those who don’t have a significant amount of their own cash to get the building project off the ground.

The money will be in your bank in advance and therefore available to pay for labour and materials when it is needed.

Related guides: 

Advantages and Disadvantages of Self-build Mortgages

There are a number of advantages and disadvantages to a self-build mortgage, which should be carefully considered before deciding whether to go ahead with your application.

Some of the advantages that come with a self-build mortgage include:

  • You get to create your dream home, from the foundations to the finishing touches. Everything can be tailored to your own specifications and decorated to your own personal taste.
  • Usually, it works out significantly cheaper to build your own home than it is to buy the equivalent property that has already been built.
  • You can save thousands of pounds in Stamp Duty as you only pay if the price of your plot of land exceeds the threshold for stamp duty (not including building costs).
  • You could make a large profit if you sell your self-build and they tend to be worth significantly more than they cost to construct.

As with any type of mortgage, self-build mortgages come with a number of disadvantages that should be weighed up with the potential advantages.

They include:

  • The interest rates tend to be higher than those for standard residential mortgages and you are likely to need a larger deposit too.
  • There is a lot more paperwork that needs to be handled than with a standard mortgage – not only will you need all the usual paperwork, but you will need the likes of building plans, cost projections, etc.
  • There is a lot of planning involved and you will need to keep close track of your finances throughout the process otherwise your spending may exceed the funding from your self-build mortgage.
  • The potential cost of alternative accommodation, whilst your new property is being constructed.
  • There is always the possibility of unforeseen extra costs and there could be time delays.

How Much Can I Borrow?

The amount of money you are eligible to borrow will inevitably vary from lender to lender, being based on their own affordability and eligibility criteria and your personal & financial information.

The majority of mortgage providers will loan you up to 4x your annual income, some will go up to 5x your income, and even a few may go up to 6x your income in certain circumstances.

Some lenders will also take into account the likes of bonuses, overtime, commission, etc.

A self-build mortgage provider will complete an affordability assessment by looking at your income and current financial commitments and determining the amount of free income you have for mortgage repayments.

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How Much Deposit Do I Need?

As self-build mortgages fall under the category of a niche loan, lenders may require a large deposit to offset the risk that comes with borrowing for a property that is not completed.

Whilst the amount of deposit will vary from lender to lender, generally speaking, the amount you will be eligible to borrow is between 60% to 80%  Loan to Value (LTV).

If you have no deposit at all, you would find it difficult to even be approved for a standard residential mortgage, never mind a self-build mortgage. However, there may be a lender out there that will offer a 100% LTV self-build mortgage, but they are highly likely to require some other form of security to act as a deposit.

This other form of security can be the land you are planning to build on if you already own it. Some lenders will allow you to use a percentage of the land’s value as a deposit, but the percentage required as collateral will vary from lender to lender.

Whatever deposit you have, get in touch with a mortgage advisor who has access to the whole market to discuss your situation further and find the best self-build mortgage deals for you.

Self Build Mortgage

What Documentation Do I Need for a Self-build Mortgage

For a self-build mortgage, you will need all the usual documentation that you need for a standard residential mortgage, such as identification, proof of income, bank statements, etc. Additional documents you may require include:

  • A copy of planning permission.
  • Copy of the estimate of the total cost of the project.
  • Copy of the building regulations approval.
  • Construction drawings and specifications.
  • Site insurance and structural warranty.
  • If required, your architect’s professional indemnity cover.

Self –Build Mortgage Interest Rates

The rates of interest for a self-build mortgage, tend to be higher than the standard residential mortgage. The amount of time you are locked into a deal will also vary between providers.

Once your new build has been certified as habitable by an RICS-qualified surveyor and has been issued a Building Control Completion Certificate.

Related reading: 

Can I get a Self-build Mortgage with Bad Credit?

Bad credit or no credit history can certainly be an issue with some providers of self-build mortgages.

The amount a mortgage provider will be willing to loan you will very much depend on the type of bad credit, whether it has been resolved, and how long ago it was registered on your file.

The less severe the credit issue and the longer ago it was registered the better.

Furthermore, if a lender does accept you for a mortgage with bad credit or no credit history, you are likely to require a larger deposit and may have to pay a higher interest rate.

There are lenders that specialise in mortgages for individuals and businesses with bad credit.

A mortgage advisor with access to the whole market will be able to determine which lenders will consider your eligibility and hopefully find you a good deal.

Contact us today to see how we can help you secure a self-build mortgage. Alternatively, you can call on 01925 906 210 to speak to an advisor.

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