Mortgages Archives - Page 18 of 23

Essentials of Mortgage Retention

by Dax McLeanPosted on 2nd September 2021 | Updated 20th January 2023

Don’t worry if you’re ready to purchase your new home but have been surprised that the lender is withholding some of the promised funding – this is just a temporary thing and is called “mortgage retention.”

Although the term “mortgage retention” feels intimidating, you can still buy your dream home.

Below you will find a complete guide on what mortgage retention is, how it impacts your ability to buy a property, and the impact it can have on your mortgage application.

What is Mortgage Retention?

Mortgage retention occurs when a lender approves the loan but does not release all the money right away. Instead, a portion of the funds is held by the lender until specific criteria are met.

A lender typically offers this when their valuation survey reveals that the property needs some work to match its condition to the current asking price.

However, that is only required mainly for structural issues, not minor repairs.

If the lender imposes mortgage retention, the buyer must find other ways to access the retained money. Sometimes the vendor may get the work done.

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Mortgage Retention Survey

The process of buying a house requires surveyors to conduct a valuation to determine whether the property’s value matches the listing price (this is called state value). Mortgage lenders use the results of this valuation survey to decide how much you can borrow.

Lenders sometimes accept the value of a house in principle but then impose mortgage retention after the survey is complete. The mortgage retention ensures that the property provides adequate security for the loan.

This isn’t a bad thing, but it can feel like a bad thing to you when you’re faced with the challenge of purchasing a home with less money than is needed.

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The catch

You must make up the difference if you decide to carry on with the purchase even after the mortgage retention. The difficult part is that you will need money to complete the necessary work.

In most cases, the amount retained depends on how much value the work will add to the house.

If, for instance, fixing a leaky roof would increase a property’s value by £5,000, the lender could offer a mortgage with a £5,000 retention. The amount will be credited to your account once the new roof has been installed.

Possible Solutions

You might be wondering if there’s a solution. How can you get the sale to go through with retention that’s withholding funds?

One thing to consider is that the seller might be open to negotiating to a lesser selling price or they will get the work done.

You may be able to renegotiate the mortgage retention with the lender if you find a contractor ready to begin the work as soon as the home purchases are complete as specialist reports may indicate a lower cost of works.

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Common Causes for Mortgage Retention

Damp and mould are common causes of mortgage retention. Mortgage retention amounts and work required to rectify the issue will ultimately depend on how severe the problem is.

There are other reasons for a lender to retain your funds, such as:

Structure defects
Electrical rewiring
Asbestos removal

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What is a 100% Retention Mortgage?

In some cases, a surveyor might recommend a 100 per cent mortgage retention until the property’s issues — often structural — are fixed.

For example, you may come across full mortgage retention if the property you are about to buy needs significant renovation. A lender may not consider releasing funds to a property that is utterly uninhabitable in its current condition.

Before you buy a house that has significant issues, it’s recommended that you do a full structural inspection.

If your lender imposes full mortgage retention, this will likely keep happening to other potential buyers who try to purchase the same property.

However, if the seller cannot sell the house under current conditions, you can negotiate with them. Also, seek expert advice and weigh all pros and cons before making a decision.

In case you decide against purchasing the property, you may withdraw your mortgage application.

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Mortgage Retention

Your lender will conduct an affordability assessment and check your credit history, employment status, and other factors to determine your eligibility.

Once that’s done, they will review the results of legal searches and the valuation report.

As mentioned before, if that valuation report shows significant issues to the property, the lender will issue an offer of advance listing all conditions for the mortgage, including the portion retained.

Lenders may:

Provide the total mortgage sum when you buy the property if specific work is completed within a specified timeframe.
Initiate only part of the loan and pay off the remainder after the work has been completed.
Retain the entire mortgage pending a structural engineer’s report.

Getting to the next step in the mortgage application process will require you to accept.

Call us today on 01925 906 210 or feel free to contact us. One of our advisors will be happy to talk through all of your options with you.

Mortgages for Airbnb Properties

by Dax McLeanPosted on 5th August 2021 | Updated 20th January 2023

The letting market over recent years has developed not only by covering medium-term property rentals via estate agents but also via online platforms such as Airbnb.

If you are interested in exploring this area of the property rental market, you may wish to find out what the financial options could be for purchasing a buy to let within this sector.

If so, this article may be of interest, as we will be discussing the financing options for buy to let properties and other considerations that may need to be reviewed.

Can a Mortgage be Obtained on a Property That is Planned to use Airbnb to Generate Rentals?

There are buy to let mortgages available on the market that allows the mortgage holder and property to become Airbnb hosts within the UK, however, there are a number of considerations that need to be thought through before approaching a lender including:

Will the entire house be available for let via Airbnb or just certain rooms?
Is the property already within a fixed mortgage term? If so, permission from the current lender is likely to be required in order to offer the property or even part of it for let.
What proportion of each year will the property be available to rent via Airbnb?

The answers to the above questions will be useful in order to establish which type of mortgage would be most suitable.

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Would I need a Buy to Let Mortgage for an Airbnb Property?

Often a buy to let mortgage is the most appropriate type of finance when renting out a property via Airbnb or any other platform.

Buy to let mortgages are specifically targeted at those who plan to let out a property, rather than live within it.

Some lenders will set specific time durations that they will allow a property to be let via Airbnb such as 90 days or even up to six months, however, any such limits would be set out within the mortgage terms.

There are various different types of buy to let mortgages available on the market, however, most investors will prefer interest-only mortgages, which keep the monthly repayments down as only the interest is due each month, leaving the capital balance remaining at the end of the mortgage term

Each lender will set their own lending criteria and mortgage terms for their buy to let mortgage products, and therefore some enquiries will be required and a comparison exercise was undertaken before proceeding with an option.

In a very few circumstances, commercial mortgages may be appropriate for Airbnb rented properties however often these would be for established landlords with a large property portfolio.

Should you have a specific query in relation to the type of mortgage that would be most suitable for your Airbnb venture, please do get in touch with our expert team of brokers to make an appointment.

Could I use my Existing Mortgage if Renting my Property via Airbnb?

As briefly mentioned, there must be a conversation with the current lender regarding any plans to let out the property, as without permission any rental could be a breach of the current mortgage terms and conditions.

If the current lender agrees to enable a switch to a buy to let mortgage, this could be the simplest option to facilitate prompt Airbnb rentals, however, be aware that this option may not provide the most competitive terms.

Should the mortgage lender decline the switch request, or if you wish to explore the mortgage market anyway to find the best deal available, be aware that the current residential mortgage may have early redemption penalties within the terms and conditions.

In order to explore both of these options, please seek advice from an independent financial advisor or mortgage broker who would be best placed to advise and explore the whole of the mortgage market.

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Can I Utilise Rental Income towards my Monthly Mortgage Repayments?

Airbnb rental income can possibly be used to cover the monthly mortgage repayments however it would depend on the circumstances.

Most lenders would require proof that income levels exceed the mortgage repayments in order to cover other costs such as property maintenance, fees to the Airbnb platform, insurances and any applicable taxes.

Each lender’s criteria may vary however most would require a record of rental income for a minimum of two years, as well as the standard vetting of potential mortgage applicants to ensure that other income is available to meet the mortgage repayments.

How can I Obtain the Best Mortgage Rates for Airbnb Properties?

As with the standard mortgage market, the best mortgage rates and terms are often reserved for those with a strong credit rating, large deposits and those who comfortably meet the affordability checks.

However, in addition to these elements, lenders willing to offer mortgages for Airbnb properties will also need to be satisfied that sufficient income levels can be achieved from the property and Airbnb platform.

How can I Access an Airbnb Suitable Mortgage?

Due to the specialised nature of an Airbnb mortgage, we would strongly advise that a mortgage broker is used in order to locate the most suitable mortgage product for the circumstances as well as finding the most competitive rate and terms by searching the whole market.

Mortgages for Airbnb Properties Summary

In this post, we have explored what Airbnb mortgages are, when they may be suitable and how a buy to let mortgage differs from a standard residential mortgage.

There are many factors to be considered before rushing into renting a property in addition to the financial product required such as the likely rental income that could be achieved as well as the other costs including the property maintenance, landlord insurance and commission fees due to Airbnb.

Also as briefly mentioned, the mortgage holder would also need to consider tax planning both on the initial investment of the property and the income generated from the rental.

Business planning would need to be undertaken in order to plan for the long-term success of the venture, as well as for settling the capital at the end of the mortgage term if an interest-only mortgage product is selected.

For more information on any of the matters covered within this article, please do get in touch with our friendly team.

Call us today on 01925 906 210 or feel free to contact us. One of our advisors will be happy to talk through all of your options with you.

What Stops You Getting a Mortgage?

by Dax McLeanPosted on 5th August 2021 | Updated 20th January 2023

It can feel like there are many hurdles to cross in order to obtain a mortgage these days, especially following the UK’s financial crisis in 2008, which resulted in a number of lending rules being tightened up, and extra requirements that applicants must meet.

Each stage of the process can often be simplified and overcome, however, there are a number of common potential larger issues that may halt the progress of obtaining a mortgage.

In this guide we will discuss the common issues that can cause a mortgage application to be declined at worst, or even if the application is approved, the impact could be a significant cost increase of the financial product due to the lender considering the factors as increasing the risk of lending.

If any of the matters discussed could be relevant to your personal situation, it is highly recommended that independent financial advice is sought ahead of making a mortgage application in order to protect your credit record.

The Common Issues That Could Stop An Applicant Obtaining a Mortgage

High street lenders in particular can be very selective regarding the applicants that they are willing to accept for mortgages.

The factors below are the most common reasons as to why a mortgage application could be declined in the UK:

Deposit Too Low

Post financial crisis, the high loan to value mortgage products were mostly removed from the market and since then, potential mortgage applicants will often require at least a 10% deposit which can be quite a task due to the increasing trend of property prices over the past few years.

The best mortgage rates available will be reserved for those with a higher deposit and therefore a lower loan to value percentage rate.

If the mortgage applicant does not have a sufficient deposit for the specific mortgage that has been applied for, the application may be declined or if the lender is willing to make an offer, the terms are likely to be very different to those advertised.

However, there may be other options if the mortgage applicant does not have a sufficient deposit including a guarantor mortgage or providing a different type of asset as collateral with a specialised lender.

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Failing Affordability Checks

As briefly mentioned within the introduction, following the financial crisis, a number of additional checks were brought into the mortgage application and underwriting process including affordability checks.

Lenders are now obligated to ensure that potential mortgage applicants can both afford the mortgage they are applying for within their current personal circumstances, as well as applying a ‘stress test’ in order to check that an applicant could afford the repayments of a chosen financial product should interest rates rise.

Bad Credit History

A history of bad debt can impact a potential mortgage applicant’s ability to obtain a mortgage, however, each negative scenario could have a different level of impact on an application.

For example, previous property repossessions or bankruptcies would be a severe issue for an applicant if the incident occurred within the past seven years.

However, some lenders may assess even more minor offences such as late financial payments as high risk as they could be deemed as mismanagement of personal finances.

Should you have a history of bad credit, it is highly recommended that a specialised mortgage broker is approached in order to assess the impact on your credit record and the ability to obtain a mortgage.

Brokers can also advise which lenders are more likely to assess a mortgage application from an applicant with a bad credit history, as well as advising methods of improving your current position ahead of an application for the best chances of success.

Self-employed without proof of Income

Another common issue facing those potential mortgage applicants who are self-employed is to obtain sufficient proof of income in order to support their mortgage application.

Often lenders require a minimum of two years’ worth of accounts to prove self-employed income, which can be a hurdle to those who have not been trading for that long.

If you are self-employed without the necessary financial records to provide proof of income to a lender, it is recommended that advice is sought from a mortgage broker who can seek specialised lenders who are willing to access levels of income via other methods.

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The Property Doesn’t meet Lender Requirements

There is a range of properties that do not meet the criteria of typical lenders and therefore a mortgage will not be offered in those cases.

Properties with a flat roof, history of subsidence or flooding, or that have non-standard construction are often deemed riskier to lenders and therefore a specialised lender would be required.

Specialised lenders are accessed via the use of a mortgage broker who can access the whole of the market.

Age Restrictions

Many lenders have both minimum and maximum age limits that they are prepared to lend to. If you are a more mature potential mortgage applicant it is highly recommended that the terms of the lender are checked before making an application.

Should you require a mortgage and are approaching retirement age or have already retired, you may require a specialised lender.

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What Stops You Getting a Mortgage Summary

We have discussed throughout this article the common factors that may impact potential mortgage applicants obtaining a mortgage via mainstream methods including a low deposit, history of a bad credit record or not having sufficient proof of income.

Whilst there are some lenders on the market that do appreciate unique personal situations and properties, commonly there are not found on the high street or from mainstream lenders and therefore a specialised lender may be required.

Therefore, if any of the scenarios are familiar to you, it is highly recommended that the use of a specialised mortgage broker is sought ahead of making any applications.

This will allow tailored advice to be received and that the whole of the mortgage market can be searched to find the most appropriate financial product at the most competitive prices.

Brokers can also assist in preparing an application as well as liaising with the lender through the process, which can ease the stress of the process.

Call us today on 01925 906 210 or feel free to contact us. One of our advisors will be happy to talk through all of your options with you.

Non-Standard Construction Mortgage

by Dax McLeanPosted on 5th August 2021 | Updated 20th January 2023

The term non-standard covers many things, however typically, the terminology is reserved for those properties that are not made of the standard bricks and mortar.

In this post, we will discuss the various types of financial products that can be used to purchase properties or develop properties in some circumstances, and the application process in order to obtain a non-standard construction mortgage.

What is a Non-Standard Construction Mortgage?

A non-standard construction mortgage is a specific financial product that enables the purchase of a property that is constructed with materials other than bricks and mortar, has a tiled roof and concrete foundations.

Typical elements of a non-standard constructed property are as follows:

Thatched roof properties.
Properties with steel or timber frames.
Single brick constructed properties.
Prefab properties are made of concrete.
Listed properties.
High rise flats.

The above is not an extensive list, however, provides some examples of properties that are deemed as ‘non-standard’ for the purchases of obtaining a mortgage.

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Can a Mortgage be Sought on an Unusually Constructed Property?

Although there are a number of specialist lenders that offer non-standard construction mortgages, it is assumed that non-standard property types are riskier and therefore finance options can be limited.

Each lender will have their own process in order to assess the construction of the property, the property’s current condition, value and the risks involved with lending on a non-standard property, and therefore the application process can be more complex than that of a standard mortgage against a typical brick and mortar property.

What Should be Considered in Relation to Non-Standard Construction Mortgages?

There are a number of factors that should be considered before opting to purchase a non-standard property as follows:

The Property Maintenance – With non-standard properties there could be specialised maintenance or treatments that are required, for example, a thatched roof requires regular inspections in order to monitor the condition it and the roof ridge will require replacing every eight to ten years, with a full thatch roof replacement often required around every thirty years.
Insurance – Building insurance for non-standard properties may also be expensive and therefore specialised insurance brokers may be best placed to find the most competitive deals.
Re-selling ability and price – As we have discussed, there are additional factors to be considered when deciding whether to opt for a non-standard construction mortgage and the ability to re-sell the property could be hampered due to the specialist nature of the property, as not everyone will be prepared to jump through the extra hurdles.
The Valuation Report Findings – Lenders who do not have a set process for reviewing non-standard construction properties may rely on the comments within the valuation report and therefore this can result in delays while the lender analyses the report findings or, requests further surveys or information.

There also may be scenarios where a potential mortgage holder would seek to convert a non-standard property in order to obtain a standard mortgage.

This could involve reinforcing steel frames, for example, however, any improvements would require certified companies to be used in order to provide the relevant evidence to the mortgage company.

Should this scenario be of interest, it may be worth seeking the advice of a mortgage broker as the initial finance to purchase the non-standard property and undertake the building modifications may be undertaken via a range of finance options.

Other than a non-standard construction mortgage. Examples of more flexible, short-term, cost-effective borrowing for such purposes could be construction finance.

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Non-Standard Construction Mortgage Application Process

The application process for a non-standard construction mortgage will often vary between lenders, on a case-by-case basis.

As we have briefly mentioned, the lender will undertake due diligence on the property to establish the current construction and the levels of risks of granting a mortgage on a non-standard property.

Due to the nature of the non-standard property type, each case will usually be unique and therefore will take additional time to manually analyse as well as requesting further details if needed such as further professional advice or valuations or details of the development plans if changes are proposed.

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As with standard mortgages, the lender will also require details of the applicant’s personal circumstances, financial background and in some cases, their experience within the building and construction industry, in order to complete the necessary background and credit checks.

Due to the complexity of non-standard construction mortgages, the timeframe to undertake the underwriting process may be a lengthy one.

Therefore potential mortgage applicants may find that using a mortgage broker is beneficial as the broker can provide assistance with the application and advice throughout the process.

Mortgage brokers can also review the entire mortgage market in order to find the potential mortgage applicant the most competitive deal for the right financial product to suit them, as well as advising which lenders would be most suitable for the type of non-standard construction property that the mortgage is due to be associated with.

Advantages of Non-Standard Construction Mortgages

The main benefit of a non-standard construction mortgage, (once the lender has been pinpointed for the type of property), is that the lender will have knowledge of the specific non-standard construction market.

Therefore would understand the common hurdles of obtaining a mortgage and would have processes in place in order to obtain the relevant information quickly to assess the mortgage application.

Alternatives to Non-Standard Construction Mortgages

There is a range of other borrowing methods available instead of non-standard construction mortgages such as bridging loans, or more flexible construction loans.

However, the most suitable type of finance product will likely depend on the condition of the property, any plans to develop it and the duration of time that the mortgage holder is planning on owning the property for.

For further information on which type of finance would be most suitable for your requirements, please arrange an appointment to discuss your personal situation with a specialised mortgage broker.

Non-Standard Construction Mortgage Summary

In this post, we have explored what Non-Standard Construction mortgages are and when they would be most suitable to a mortgage applicant.

Such financial products are rarely found on a typical high street and therefore are usually accessed via a specialised broker.

Brokers can search the whole of the market in order to obtain the specific financial product required at the most competitive borrowing terms and interest rests.

Should the property you are interested in have a non-standard construction, please get in touch with our friendly team to review the finance options available.

Call us today on 01925 906 210 or feel free to contact us. One of our advisors will be happy to talk through all of your options with you.

Initial Term Cost – What is it?

by Dax McLeanPosted on 5th August 2021 | Updated 20th January 2023

The mortgage interest rate attributed to your mortgage product is one of the most important factors to consider when selecting a deal, however, despite mortgage terms being up to 35 years in some cases, the mortgage holder is not bound to the initial rate for the duration.

In this guide, we will be outlining exactly what the initial rate is and the options to find and switch to another mortgage deal.

What is the Initial Rate?

The initial rate is the interest rate set by the lender for the introductory period of a mortgage or other loan.

The rate offered will depend on a number of factors including:

The Bank of England base rate at the time of the loan application.
The applicant(s) personal circumstances.
The applicant(s) credit score and credit history.
The lender’s selection criteria and any available offers.
The duration of the loan term.
For mortgages, the amount of deposit that the applicant can put down will also impact the rate offered.

Often the initial rate on a loan is lower than the Standard Variable Rate, however, it is important to compare all the elements of the loan terms against other products before choosing as usually loans with low initial rates can have hefty products or application fees applicable.

There are various free tools available online to calculate how much can be borrowed, typical monthly repayments, interest rates and how the mortgage term can impact the repayments, however, these should be taken as a guide only as the tools cannot factor in the applicant(s) personal circumstances.

For more tailored advice, it is highly recommended that mortgage advice is sought before making any loan applications in order to find the best deal for the applicant, as well as checking suitability and eligibility before making an application, which if declined, could impact the applicant’s credit score.

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Why do Lenders advertise Initial Rates?

Initial rates are offered by lenders in order to compete with each other within an increasingly crowded market, however, the UK has strict rules of how mortgage products can be promoted, and the applicants vetted.

The Financial Conduct Authority (FCA) regulate mortgage lenders and have rules in place to ensure that the promotions for initial rates are clear, fair and do not mislead customers.

Initial rates are provided to enable the choice to the consumer so that after the initial term, the mortgage holder can either switch to another mortgage product with the same lender or seek a new mortgage deal with another lender.

What Happens When the Initial Rate Comes to an End?

Once the initial rate is over, it is common practice for lenders to switch the loan over to their Standard Variable Rate (SVR) which can prove to be an expensive move for the customer.

The SVR set by the lender is often linked to the Bank of England base rate, however, the SVR can sometimes be over twice the lender’s typical fixed interest rate.

Therefore, it is highly recommended that mortgage holders are aware of when their initial rate is due to come to an end and independent mortgage advice approximately 4 months ahead of this date to ensure that there is plenty of time to discuss the options available and to research the current market conditions.

How to Compare Mortgages

As briefly mentioned, it is wise to browse the market for a new mortgage around 4 months ahead of the end of any current initial rate or fixed period.

One method of comparing the mortgage offers is to review the Annual Percentage Rate of Charge (APRC), which is a calculation of the total cost of the mortgage product including any initial rates and any other fees attributed to the mortgage over the full term of the mortgage.

This rate, shown as a percentage enables a simplified method of comparing multiple mortgage offers, taking into account all of the additional costs.

However if a mortgage holder would like any further support, they can approach a mortgage broker.

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What is the Current Market Position for Mortgages?

The UK is currently in an extended period of very low base rates set by the Bank of England.

Following the global financial crisis commencing in 2008, the UK interest rates dropped from around 5%, to 0.5% in stages over a six-month period in an attempt to aid the economy during the recession.

There was very little change in the Bank of England’s base rate between 2009 and 2018, following which tiny increases were applied, taking the rate to 0.75%.

However, this minor recovery was soon halted by the worldwide coronavirus pandemic, which has resulted in the Bank of England dropping the base rate to a record low of 0.1%.

Such low Bank of England base rates, set during the pandemic have finally filtered through into mortgage offers, leading to a very competitive mortgage market as banks and lenders, compete to offer very low-cost deals to specific customers.

Mortgage holders looking to remortgage or those potential buyers with large deposits could find the current conditions very favourable indeed as some mortgages are available at under 1%.

However, there are some caveats as some lenders are not accepting those applicants who are on furlough or received self-employed grants during the coronavirus pandemic and therefore it is increasingly important to establish full details and any exceptions before making a loan application.

Initial Term Cost Summary

In this post, we have explored what initial rates are and what happens when these promotional rates end.

We have also briefly covered the importance of comparing mortgage options using the Annual Percentage Rate of Charge in order to establish the entire costs of a mortgage.

We also took a look at the current mortgage market conditions and the impact that the pandemic has had, as well as implications for those who required financial support during the past eighteen months.

Should you require any further advice in relation to your remortgage options, please do get in touch with our friendly and knowledgeable team.

Call us today on 01925 906 210 or feel free to contact us. One of our advisors will be happy to talk through all of your options with you.

How to get a Mortgage on a Low Income

by Dax McLeanPosted on 17th June 2021 | Updated 20th January 2023

Although it is not impossible to get a mortgage on a low income, there may be some difficulties and additional challenges involved.

Potential lenders will need to be comfortable that a mortgage applicant can comfortably meet the monthly repayments before approving a mortgage and therefore the level of income and affordability is critical to the approval process.

Further to their internal checks and processes, lenders are also bound by UK lending regulations that require lenders to obtain proof of earnings as part of the mortgage underwriting process.

Should you be seeking a mortgage on a low income, it would be highly recommended to approach a specialised mortgage broker for all financial options to be reviewed ahead of making a mortgage application.

However, in the meantime, in this post, we will explore the options for obtaining a low-income mortgage as well as discussing some other considerations that may need to be reviewed along the way.

Can I get a Mortgage on a Low Income?

The short answer is yes, it is possible to get a mortgage on a low income, however, there are many factors involved, the total value that a lender is prepared to offer and whether or not the amount will be sufficient to purchase a property within the local area of the applicant’s choosing.

There are many variables that will impact the total amount that a mortgage lender will offer to loan depending on; an applicant’s personal circumstances, the mortgage product chosen including the term of the mortgage, the interest rate, the property value and the value of the deposit.

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As briefly discussed, lenders are required to determine the affordability of applicants as part of the mortgage underwriting process including ensuring that an applicant can comfortably cover the mortgage repayment as well as their household bills and other expenses.

Also, lenders will apply a ‘stress test’ to ensure that applicants could still afford the monthly repayments if their circumstances change or the interest rates were to rise.

In addition to these regulatory checks, mortgage lenders will also have their own borrowing criteria that assess mortgage applicants on other elements such as their credit scores and age.

Each mortgage lender will have different lending criteria and therefore it is recommended that in order to obtain an insight into which lenders would be the most appropriate, seek advice from an independent mortgage advisor

What Types of Income can be used for a Mortgage Application?

Each lender will have different criteria of what types of income they will accept. Some may accept child support or disability benefit whereas others may not.

In addition, if you are self-employed, you may face further challenges as some lenders may not accept low-income self-employed applicants.

What Documentation Can I use to Prove my Income?

You may already be aware that during a mortgage application and underwriting process the applicant will need to provide proof of their income in order for the mortgage application to be reviewed.

In order to do so, documentation will need to be supplied as part of the mortgage application. There are a number of different ways that an applicant can prove their
prove income including by submitting copies of:

Bank statements – commonly three months are required
HMRC documents including SA302 forms
Letters from employers including offer letters
Payslips – commonly the last three months are required and/or P60s
Self Employed accounting documents

How do Mortgage Underwriters Verify an Applicant’s Income?

Lenders will undertake an underwriting process in order to verify the details provided within the application, as well as scoring an applicant against the lender’s internal lending criteria.

The process will vary between lenders including what elements are automatically completed, what details are manually checked and scored and how long the process takes on average.

When lenders complete their underwriting they are reviewing:

The income details provided in the application are supported by evidence
Stability of employment
Affordability checks
Other personal circumstances including details of financial dependents
The credit history of the applicant
The level of deposit and the source of funds
The property related to the mortgage application

As you can see there is a thorough checking and verification process undertaken by lenders and therefore under no circumstances should an applicant provide false information as it will likely get discovered by the lender and the applicant could be charged with fraud.

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What Assistance is there for Low-Income Mortgage Applicants?

There is a range of government schemes that a person with a low income may be eligible for such as:

The Help to Buy Scheme – A scheme that provides an equity loan of up to 20% towards the cost of the property while enabling the purchase of a property with only a 5% deposit.
Right to buy Scheme – A scheme that provides the right for council tenants to purchase their council home at a discount.
Shared Ownership – A scheme that enables the part purchase of a property, where the remaining proportion is rented from a council or housing association. There is often the ability to buy further shares of ownership later.

How to Get a Mortgage on a Low Income Summary

In this post, we have discussed the process of obtaining a mortgage on a low income including the documentation needed.

It is worth noting that the total value that a mortgage lender will be prepared to lend will vary depending on a range of factors including personal circumstances, credit history, loan to value rate and age, in addition to the current low-income situation.

Should you wish to discuss your current circumstances and what mortgage options may be available to you, please contact us today to arrange an initial consultation with our mortgage advisors.

Call us today on 01925 906 210 or feel free to contact us. One of our advisors will be happy to talk through all of your options with you.

What is an SA302 Tax Calculation?

by Dax McLeanPosted on 17th June 2021 | Updated 18th May 2023

If you are self-employed, you may be aware that you will need to prove your income levels during a mortgage application or underwriting process, in order to be approved.

There are a number of ways to do this, however the most common is by requesting an SA302 form.

In this post, we will discuss one method of meeting the lending requirement of proving income.

Why Do I Need to Prove my Income?

The lending rules were tightened up after the UK’s financial crisis in 2008, and lenders need to assess income levels and applicant’s affordability as part of the mortgage application process.

Also, some lenders use multiplying factors in order to calculate how much they are willing to lend a mortgage applicant and therefore without documented proof of a total annual salary, this calculation cannot take place.

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What is an SA302 Form and How do I Get One?

Also known as a tax calculation, this is a formal document created by HMRC that provides an overview of an individual’s tax calculation for one tax year, created from the details provided within a self-assessment tax return.

The summary document includes all taxable income streams and tax liability and is made of two elements documenting both:

A tax calculation for the relevant tax year, summarising the self-assessment including the total declared earnings and tax payable
A tax overview, indicating the status of the tax payments

The summary document is also known as a Tax Calculation Form and is the most sought-after proof of income for a self-employed person, suitable for mortgage applications.

Unfortunately, HMRC no longer issue SA302 forms and therefore in order to obtain a form you would need to either request a copy via the HMRC website or call and request one to be sent in the post.

Bear in mind that if requesting a form to be posted, it can take up to two weeks for this to be received, therefore if you have access to the website it is quicker and easier to print the form yourself, which can be found under within your HRMC online self-assessment account under the section ‘more self-assessment details’.

If you use an accountant, they can also access this area to download a form on your behalf.

Another method that accountants can use to calculate a summary of annual earnings is by producing a summary directly from their commercial software used to perform the self-assessment tax return on your behalf.

Such documents may need to be certified by the accountant in order to be accepted by a lender, therefore it is worth discussing the documentation requirements with the potential lender before submission.

The timing of the request (and mortgage application) will be key as the self-assessment for the relevant tax year must have already been submitted in order to request an SA302 form. The deadlines for self-assessment submissions are as follows:

Paper submissions must be submitted on the 31st October following the end of the previous tax year
Online submissions are due by the 31st January following the end of the previous tax year

In addition, before contacting HMRC it would be worth asking the potential lender (or independent broker if using one), how many years’ worth of proof of income is required for the underwriting process for the specific lender.

HMRC have SA302 forms available on the website 4 years’ worth of forms (if the applicant has been self-employed for the duration and submitted annual self-assessments).

It is also worth noting, that even if you are employed with PAYE income but also have other earnings, an SA302 form may be useful to obtain to demonstrate your total income to a potential lender.

Related guides:

Do I need an SA302 for a Mortgage Application?

As discussed, mortgage lenders require proof of earnings in order to process an applicant’s mortgage application and the most simple way to provide proof of earnings for a self-employed person is via an SA302 form.

Some lenders will require both elements of the Tax Calculation Form for their underwriting purposes whereas others will only require the tax calculation part of the document, therefore it is worth checking before making an application, to avoid any delays during the process.

It is also worth noting that it has been known for lenders not to accept a self-printed SA302 form. HMRC have published a list of lenders that do accept self-printed SA302 documents available to review here.

What Other Ways can I Prove my Income?

Should your SA302 document not be ready due to the timing issues or if the applicant has not been self-employed for the duration of the tax year, another method to prove income may be required.

There are a number of different documents that can be submitted in order to prove income including:

Bank statements
Tax Returns
Letters from employers including offer letters
Payslips
Self Employed accounting documents

How to get your SA302 Tax Calculation Summary

There are strict regulations within the UK that lenders must abide by, including requiring proof of income from mortgage applicants in order to assess their suitability and affordability for the financial product.

In this post, we have discussed the documents that can meet the requirements of proving income, especially for those self-employed.

If you are self-employed, it is highly recommended that you approach a specialised mortgage broker to assist with reviewing your personal circumstances and suitability of financial products ahead of making any applications.

Brokers can search the whole of the mortgage market to find the most appropriate financial product, with the most favourable terms, which can save the applicant money too.

Once ready to make a mortgage application, brokers can review your documentation to ensure that everything is prepared and organised, meeting the requirements of the mortgage lender in order to avoid delays.

As with any financial decision, it highly recommended that independent financial advice is sought before committing, to ensure that all terms are fully understood and that the repayments can be made comfortably.

As with any secured lending, the ultimate consequence of defaulting on the loan could mean that the property is repossessed by the lender.

Call us today on 01925 906 210 or feel free to contact us. One of our advisors will be happy to talk through all of your options with you.

What is an SA302? Tax Calculation For Mortgages

Yaz Shaw

by Dax McLeanPosted on 17th June 2021

If you are self-employed, you may be aware that you will need to prove your income levels during a mortgage application or underwriting process, in order to be approved.

There are a number of ways to do this, however the most common is by requesting an SA302 form.

In this post, we will discuss one method of meeting the lending requirement of proving income.

Why Do I Need to Prove my Income?

The lending rules were tightened up after the UK’s financial crisis in 2008, and lenders need to assess income levels and applicant’s affordability as part of the mortgage application process.

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Need more help? Check our quick help guides:

What is an SA302 Form and How do I Get One?

The summary document includes all taxable income streams and tax liability and is made of two elements documenting both:

A tax calculation for the relevant tax year, summarising the self-assessment including the total declared earnings and tax payable
A tax overview, indicating the status of the tax payments

The summary document is also known as a Tax Calculation Form and is the most sought-after proof of income for a self-employed person, suitable for mortgage applications.

Unfortunately, HMRC no longer issue SA302 forms and therefore in order to obtain a form you would need to either request a copy via the HMRC website or call and request one to be sent in the post.

If you use an accountant, they can also access this area to download a form on your behalf.

Such documents may need to be certified by the accountant in order to be accepted by a lender, therefore it is worth discussing the documentation requirements with the potential lender before submission.

Paper submissions must be submitted on the 31st October following the end of the previous tax year
Online submissions are due by the 31st January following the end of the previous tax year

HMRC have SA302 forms available on the website 4 years’ worth of forms (if the applicant has been self-employed for the duration and submitted annual self-assessments).

It is also worth noting, that even if you are employed with PAYE income but also have other earnings, an SA302 form may be useful to obtain to demonstrate your total income to a potential lender.

Related guides:

Do I need an SA302 for a Mortgage Application?

What Other Ways can I Prove my Income?

Should your SA302 document not be ready due to the timing issues or if the applicant has not been self-employed for the duration of the tax year, another method to prove income may be required.

There are a number of different documents that can be submitted in order to prove income including:

Bank statements
Tax Returns
Letters from employers including offer letters
Payslips
Self Employed accounting documents

How to get your SA302 Tax Calculation Summary

In this post, we have discussed the documents that can meet the requirements of proving income, especially for those self-employed.

Brokers can search the whole of the mortgage market to find the most appropriate financial product, with the most favourable terms, which can save the applicant money too.

As with any secured lending, the ultimate consequence of defaulting on the loan could mean that the property is repossessed by the lender.

Call us today on 01925 906 210 or feel free to contact us. One of our advisors will be happy to talk through all of your options with you.

What is a Mortgage Underwriter?

by Dax McLeanPosted on 26th May 2021 | Updated 20th January 2023

Before searching the mortgage market for the right product and submitting your application, it is worth taking the time to understand the mortgage process.

In this post, we will explore the mortgage underwriting process.

What is Mortgage Underwriting?

Underwriting is one of the final elements to be concluded before a mortgage application is approved, and at which point the lender accepts the financial risk of the mortgage agreement.

What is the Mortgage Underwriting Process?

The mortgage underwriting process includes undertaking checks on the applicant(s) credit history and affordability as well as checking the property to be associated with the mortgage. Each lender will also have its own policies regarding underwriting and eligibility criteria that will need to be met, as well as fraud checks.

During the process, an underwriter will perform the checks that ensure the suitability of the mortgage applicant(s) and the property.

The process is undertaken to protect the lender from as many risks as possible, ensuring that only certain applications are approved where all criteria are met.

Each lender will have their own mortgage underwriting process, where some of the checks may be completed electronically and automatically and some checks are a manual process.

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The Process will usually involve the following steps:

Soft Credit Check – This is commonly an electronic, quick process that provides a yes or no answer if the application can be proceeded with. High-level issues are usually flagged within this stage such as bankruptcy.
Score-carding – This step usually takes place following the initial soft credit check and any further data gathering exercises as required by the lender’s criteria. The applicant(s) are usually provided with a score based on the personal information provided within the application including income levels, employment status and debts. This is often a mainly automated process and the applicant(s) would need to pass the minimum score set by the lender in order to proceed with their application. Commonly if successful at the score-carding step, the lender may offer a Mortgage Agreement in Principle.
Property valuation and final underwriting – Lenders will usually require a property valuation to be completed as part of the underwriting process. Once the report from the surveyor has been submitted to the lender, it will be reviewed ensuring that the property’s condition and type meet the lender’s criteria.

In addition, the value of the property will also be reviewed in association with the final, in-depth checks of the applicant(s), the finances and the suitability of the loan to the property.

What are the Mortgage Underwriting Checks?

There are a number of factors that will be assessed as part of the process to ensure that the applicant(s) meet the lender’s borrowing criteria. These include:

Policy Rules – The lender will have a range of policy rules that must be met in order to approve a mortgage application including ratios and calculations on a range of factors such as age, credit history, legal residency status, maximum loan values and loan to value ratios in relation to the property value and the level of deposit that the applicants are putting towards the property.
Credit Reporting – In addition to reviewing the credit score of an applicant, the lender may also apply their own scoring model as well.
Property Checks – As already discussed, a property valuation will be required so that the lender can ensure that the property is suitable for the loan. Certain types of properties are commonly not accepted such as properties that have suffered from subsidence or are made with certain construction materials or methods.
Affordability – This can be a combination of income multiplier calculations to establish the total amount that lenders will offer, as well as affordability assessments that take into account the applicant(s) expenditure and disposable income. The affordability assessments test the applicant(s) ability to absorb interest rate rises for example.
Fraud Checks – There are a number of legal checks that the lender will need to undertake to ensure they are satisfied with the source of the funds of the deposit as well as general fraud checks to ensure the credibility of the applicants.

Related guides:

How long does the Mortgage Underwriting Process take?

Again, each lender may vary their expected underwriting durations however often decisions are made within around a week. There can be delays should additional information be required or if the underwriting teams have an influx in the volume of applications to assess.

Why would an Underwriter Reject a Mortgage Application?

Unfortunately, mortgage applications can be declined at various points of the underwriting process, for a range of reasons. There are usually two reasons provided:

Something has changed since the application was submitted such as an applicant has been made redundant
OR
The underwriter has discovered something that flags the application as high risk and therefore the lender is not willing to make a mortgage offer. Should an offer already have been made and the underwriter makes this decision, the offer of a mortgage can be withdrawn.

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There is a range of common reasons why mortgage applications are declined by underwriters as follows:

High Levels of debt
Unacceptable Credit Score and Credit History
Affordability concerns due to high monthly expenditure
Mortgage deposit insufficient
Salary or Employment Concerns
Concerns with the Property’s condition, construction or value
Technical Errors or Insufficient Information

What Happens if a Mortgage Application Is Declined?

Should you find yourself in the position of having a mortgage application being declined, the first advice is to try and remain calm and find out why from the lender.

Next, it is highly recommended that expert advice is sought in order to review all of the circumstances involved before the applicant(s) attempts to make any further applications.

What is a Mortgage Underwriter Summary

In this post, we have explored the underwriting process that lenders complete in order to check the suitability of the applicant(s) and the property linked, as part of the mortgage application process.

Should you require further details regarding the process or would like support throughout the process, please check in touch with our expert brokers who can assist with assessing your personal circumstances against the lender’s criteria to protect against declined mortgage applications.

Call us today on 01925 906 210 or feel free to contact us. One of our advisors will be happy to talk through all of your options with you.

Further reading:

Mortgages for Doctors – Options for those in the medical profession

by Dax McLeanPosted on 26th May 2021 | Updated 20th January 2023

Certain career paths, such as choosing to become a doctor, whilst ultimately rewarding do also have some complications including lengthily training requirements.

In addition, once working, it is common for training contracts to be in place for many years whilst the continued learning takes place as well as other factors being at play throughout a doctor’s career such as choosing to work as a self-employed locum GP or diversifying into training for example.

In this post, we will explore the complex circumstances that doctors often face when looking to apply for a mortgage, as well as options available to junior doctors in order to take their first step on the property ladder.

Why Do Doctors Face Challenges When Applying for a Mortgage?

There are many factors that can lead to complicated earning projections for doctors over time as their career develops such as:

Pay scales within the NHS – A doctor’s salary may initially be fairly low and therefore affordability criteria may be challenging to meet, however as training and development progress a doctor’s salary should be bolstered, which a mortgage applicant would wish to be noted by the lender.
Multiple, complex incomes – Senior practitioners and consultants may have multiple income streams such as training or lecturing income, awards and income from private practices.
Self-Employment – As discussed it is common for doctors to become self-employed, which can add complications such as proving income as well as burdening additional costs such as insurances.

Therefore for a doctor’s application to be fully assessed for borrowing potential is it highly recommended that they seek the advice of a specialised mortgage broker in order to support initial research, ensuring that lenders are selected to be approached and support throughout an application and compare the best rates and terms for a mortgage.

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How Much Can Doctors Borrow?

Typically, standard mortgage lenders can offer up to 4.5 times the applicant’s income as a total mortgage value, however with some lenders that understand the complexities of a doctor’s earnings, the multiplier may increase to 5 or more times the doctor’s salary.

However, the actual money that can be borrowed will depend on a range of personal circumstances including the amount of deposit that can be offered, the applicant’s credit score and credit history, as well as income levels and current employment status.

What Additional Flexibility Factors do Doctors Need to Consider?

During the early stages of a junior doctor’s career, there are likely to be expectations that as part of the training programme different specialities are covered within various hospitals and therefore doctors often are required to move around while their training commences.

Should a doctor wish to be able to purchase a property while completing work-based training across various hospitals, they may require additional flexibility from their mortgage provider in order to rent out the property whilst undertaking placements.

In this scenario, the lender would need to agree to a consent-to-let in order to rent out the property.

Should the placement become longer-term, or relocation is required, the doctor may be in the position to request that the initial mortgage is converted into a buy-to-let mortgage, to enable a second property to be purchased.

If any of these change in circumstances occur it is highly advisable to discuss the options with both the current mortgage lender, as well as a mortgage broker who can access the whole of the mortgage market in order to find the most competitive deal available.

Related guides:

What Investment Opportunities do Doctors Have?

Doctors may wish to build a property portfolio for investment purposes, especially as they may know many junior doctors coming requiring accommodation.

Rental income is still a popular avenue to explore these days despite the tax and legislation changes seen within the industry over recent years, commonly providing rental yields of around 4.5% per annum.

Should you wish to explore your options for a buy-to-let property, get in touch with our team who can help provide a range of options, at the most competitive rates.

Other Factors to be Aware Of

In this post, we have discussed the long study durations and dedication it takes to become a doctor, however, the impact of this is often large amounts of student debts.

Although doctors can accumulate large student loans or other debts for the costs of their studies and living costs, it is important to remember that student loans do not impact a credit record or the ability to borrow money. The only element that may form part of a mortgage application and the underwriting process is the affordability checks, and therefore the monthly student loan repayments made once earning over the threshold’s will be taken into account.

For example, should a doctor now earn £100,000 per annum, wishing to borrow between £300,000 and £400,000 towards a property, they could have their potential borrowings reduced due to repayments of student loans.

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Mortgages for Doctors Summary

In this article, we have discussed a range of factors that can impact a doctor’s salary including the expected salary growth, the common income streams that doctors later in the career often diversify to and the likelihood of self-employment within the industry.

Should you be a busy doctor trying to navigate the mortgage market, please get in touch so we can assist you.

Call us today on 01925 906 210 or feel free to contact us. One of our advisors will be happy to talk through all of your options with you.

Further reading: