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Category: Mortgages

Reasons Why a Mortgage Could be Declined on Affordability

by Dax McLeanPosted on

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

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

Reasons Why a Mortgage Could be Declined

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

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

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

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

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

Let’s discuss the common issues further below:

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

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

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

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

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

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

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

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

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

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

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

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

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

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Reasons Why a Mortgage Could be Declined Summary

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

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

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

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How Reliable is a Mortgage Agreement in Principle?

by Dax McLeanPosted on

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

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

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What is a Mortgage in Principle?

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

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

How is a Mortgage in Principle Obtained?

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

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

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

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

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Does a Mortgage in Principle Affect a Credit Score?

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

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

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

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How Reliable is a Mortgage in Principle? 

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

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

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It is not a mortgage offer.

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

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

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

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

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How Long is a Mortgage in Principle Viable for?

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

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What Happens After the Mortgage in Principle Stage?

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

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

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

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A mortgage in Principle Summary

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

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

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

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5 Times Salary Mortgage Lenders – Who Offers them?

by Dax McLeanPosted on

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

How to Access Higher Loan to Income Mortgages

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

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

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

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

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

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

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

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5 times salary mortgage

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

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

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

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

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

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

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

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

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

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

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

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

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Mortgages 5 Times Salary Summary

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

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

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

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

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

Kristian Derrick
by Dax McLeanPosted on

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

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

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

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

What is a part and part mortgage?

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

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

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

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

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

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

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

Advantages of Part and Part Mortgages

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

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

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

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

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Disadvantages of Part and Part Mortgages

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

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

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

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How does a Part and Part Mortgage Work? 

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

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

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

Paying Back the Interest Only Part

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

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

The Application Process for a Part and Part Mortgage

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

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

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

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Re-Mortgaging Mid-term

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

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

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

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

Therefore, depending on the full details of each individual situation, it may be possible to enter into a negotiation with the existing lender to establish options, such as if a repayment mortgage is in place, can a change be made to a part and part mortgage.

As with all financial decisions, it is highly advised that specialist financial advice is sought before making any changes.

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Part and Part Mortgages Summary

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

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

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

Give us a call on 01925 906 210 to speak to an advisor, or contact us for mortgage advice that’s personal to you and takes your credit history into account. That way you’ll know where you stand in the mortgage market and we can guide you on your route to securing a suitable loan.

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

by Dax McLeanPosted on

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

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

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

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

What is HMO?

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

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

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

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

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Is an HMO licence required?

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

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

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

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

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

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

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

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

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

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

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Differences between an HMO and a Traditional buy to let

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

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

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

HMO income and expenses

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

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

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

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

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

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

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

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

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Location of the HMO property

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

HMO Mortgages

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

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

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

HMO Mortgage Summary

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

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

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

Renovation Mortgages & Conversion Loans – How do they work?

by Dax McLeanPosted on

A refurbishment or renovation mortgage, or refurbishment finance, are types of loans that enable renovations or repairs to commence on a property.

Refurbishment loans can be used to finance a property purchase as well as funding the developments.

A refurbishment mortgage is a short-term finance solution that requires a strategy from the onset to notify the lender of how it will be repaid.

There can be the flexibility of the exact timing that the finance will be settled, where certain factors are unknown such as completion times.

Often the main benefit of a refurbishment loan is that funds are released quickly so that works can start as soon as possible.

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Renovation Mortgages Explained

Types of Refurbishment Loans

Renovation or refurbishment mortgages or loans are typically categorised by scale, light to heavy, depending on the level of the cost needed to make the renovations.

Light refurbishment finance would be applicable to properties that do not require planning permission or building regulations in order to proceed with the developments, such as:

  • Installing a new bathroom or kitchen.
  • General redecoration.
  • Fitting windows.
  • Undertaking electrical rewiring.
  • Installing heating systems.
  • Non-structural developments.

Light refurbishment can involve a combination of the above or simply aesthetic changes such as improvements to fixtures and fittings.

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Whereas heavy refurbishment finance would be for larger projects, which are likely to cost more than 15% of the value of the property.

Heavy refurbishment projects will require more formal planning and building regulations requirements, such as:

  • Structural works.
  • Demolitions.
  • Property extensions.
  • Property Conversions.

Due to the nature of heavy refurbishment projects, the duration of time that the finance will be needed for should be considered, including allowing time for the planning stage.

For this reason, heavy refurbishment loans are often required for a minimum of 18 months, and therefore costs can add up.

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For even larger projects, such as developing multiple units such as an apartment block, or building a property in its entirety, development finance or commercial finance options would be considered.

There are also other circumstances where refurbishment mortgages are not eligible as the associated property is not deemed mortgageable.

There are a number of reasons why mortgages are not granted on certain properties, a few of these are listed below:

  • Property that is uninhabitable for reasons such as it is in a poor condition, the property is derelict or not weatherproof.
  • There is evidence of Japanese Knotweed or other invasive plants.
  • The property suffers from damp, rot, subsidence or flooding.
  •  The property value is under £50,000.
  •  Leasehold properties with a short lease.
  • Planning permission is missing for part or all of the building.
  • The property is not registered with the Land Registry.
  • Properties that are commercial or partly commercial, such as a residential unit above a shop.

You can always consider the DIY option for smaller projects, like upgrading your heating and cooling  system, but of course, this is not possible for everyone and larger, more complex projects demand experience and time.

Roy from Cold Hot Air says: “Some tasks can be done quite easily using some old fashioned DIY, meaning you can avoid getting a renovation loan in some cases.”

“Even seemingly complicated repairs like HVAC systems can be quite simple to repair and in some cases install, but it does require some commitment to research and learn beforehand, which obviously isn’t for everyone.”

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Renovation Mortgages Rates

Mortgage rates and other associated fees will often depend on the property itself and the circumstances of the applicant. Typically, refurbishment mortgage rates start around 5%, and rise for heavy refurbishment projects.

One main factor when considering refurbishment finance is that the values available are usually around 75% of the proposed property value following the completed refurbishments.

Obtaining more than 75% of the post-refurbishment value is often very difficult, following the credit crunch in 2007.

Should more finance be required, other funding options may be required.

Due to the variable factors, including the range of property projects, seeking the advice of a specialist mortgage advisor or broker may be beneficial to find a tailored solution, across a wide range of lenders.

Related guides: 

Alternatives to Refurbishment Mortgages

In some circumstances, refurbishment mortgages are not valid against the type or condition of the property. In these situations, bridging loans can be used to develop a property promptly, to then subsequently apply for a traditional mortgage against the property.

In this situation, often the property in its original condition is not deemed mortgageable, either due to structural issues or did not have kitchen or bathroom facilities at the point of purchase.

Another example where bridging loans are commonplace is at auctions as the finance for the deposit are required upon winning the property, and therefore the refurbishment mortgage process takes too long.

A bridging loan is also a short-term financial product however, it requires the applicant to own another high-value asset to be able to access the equity within it, technically utilising this as a down payment towards other property.

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A bridging loan also results in a charge on the other property that the loan is associated with for security. A charge prioritises the order that debts will be handled should the property owner not be able to make the repayments on the loans.

For example, in the case of a first charge loan, if the property was seized from the owner due to non-payment and subsequently sold, a first charge loan would take priority of being repaid from the funds of the sale.

Whereas a second charge is a terminology used to describe that a loan or mortgage is already in place against a property. In this circumstance, permission from the first charge lender is often required before a second charge can be added.

Due to the increase of risk to the lender, interest rates on loans where a second charge would be applicable are higher.

The suitability of a bridging loan would depend on the circumstances of the applicant as certain criteria need to be met including an exit strategy due to the nature of the short term finance option.

Related reading: 

Renovation Mortgage Lenders

Although there will be some high street lenders that offer refurbishment finance options, typically the constraints of their financial products do not cover the nature of various property development projects, and therefore specialist lenders may be required.

An experienced financial broker would be able to propose a range of financial scenarios, customised to the requirements, to be able to advise the best option, saving the applicant both time and money.

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Renovation Mortgages Summary – Contact us Today

Our expert mortgage advisors are here to help you find a lender from which you can secure a good deal from. Deals available will be based on your financial situation and so you’ll have a much easier time finding a loan that is best for you.

Give us a call on 01925 906 210 to speak to an advisor, or contact us for mortgage advice that’s personal to you and takes your credit history into account. That way you’ll know where you stand in the mortgage market and we can guide you on your route to securing a suitable loan.

Further reading: 

Can you Get a Mortgage for Land? Land Mortgages Explained

by Dax McLeanPosted on

Can you get a mortgage for land? The answer is that yes it’s possible, however, it’s important to be aware of the criteria.

Often mortgages are thought of as being for the purchase of residential property only, however, secured finance can also be obtained against land in a similar way, for a range of purposes.

The mortgage process to obtain a piece of land would be similar to that of a residential mortgage.

For example, the same checking process would take place such as; searching the applicant’s credit history, valuing the asset and undertaking the necessary legal searches.

However, mortgages for land are more specialised than for residential properties, therefore the lenders may differ, and additional criteria needs to be met.

One important criterion is the reason behind the land purchase and defining the ongoing use of the land. Once these are established, navigating the market to seek the appropriate finance will become clearer.

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Different Types of Land Mortgages

Within the UK, the land is categorised by its purpose, for example for agriculture, residential or undeveloped land.

The planning laws can change depending on the objectives of the government at the time, but the laws provide the framework of rules and guide how easy or difficult it is to change the category of land and seek planning permission.

The type of mortgage needed to fund the land purchase will depend on the current category of the land, the planned usage and whether planning permission has already been sought.

The following guide explains the different options of land mortgages.

Need more help? Check our quick help guides: 

Self-Build Land Mortgage

A self-build mortgage is a hybrid concept, linked to both the value of the land and the proposed value of the completed build.

However, one big difference from a traditional residential mortgage, is that the finance is provided by the lender in stages, releasing cash throughout the build phases, for example, to pay for labour and materials during the project.

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Agricultural Land Mortgage

Mortgages on land are also provided as part of a business venture or as owning land as an investment.

With this type of mortgage, the application would often need to be supported by a plan of how the land would be used, such as a business plan.

The document would illustrate the plan to farm the land by the applicant themselves or by leasing the land to a contract farmer for example and detail the relevant income streams.

The category of land would therefore be of interest to the lender, to ensure that it matches the applicant’s plan.

Woodland Mortgage

There are opportunities throughout the UK where an individual can purchase a plot of woodland. Often the change of use or land category can rarely be altered from woodland, however, areas of woodland can be purchased as investments or used for various business models such as woodland sanctuaries.

A woodland mortgage is often deemed similar to an agricultural mortgage in the application processes and with any associated restrictions.

Commercial Development Mortgage

Entrepreneurs or large businesses may seek to purchase land with plans to make developments such as to build residential or commercial units upon it.

A formalised and documented business plan and strategy will be required before a commercial development mortgage application can be submitted.

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Mortgage on Land Criteria

As mentioned earlier, a land mortgage application would undertake the same checks as a traditional residential property mortgage application such as a credit check and valuation of the land however there are some differences.

The main factors that affect the ability to obtain a land mortgage and the terms offered are as follows:

  • The type of land or category of use.
  • The applicants plan to utilise or develop the land.
  • The applicant’s credit score and credit history.
  •  The loan to value ratio – The required mortgage level versus the total value of the asset.
  • The deposit amount.
  • Any additional guarantees such as securing the loan against any other assets owned.

Land mortgages are often deemed riskier to lenders than traditional residential mortgages, therefore, to obtain a mortgage on land additional details of the transaction and future plans such as any linked income to be generated by the land are required.

Interest rates on land mortgages may be slightly higher than those offered on a property mortgage

Higher deposits are often commonplace with land mortgages. This is due to the level of risk lenders associate with this.

One reason that land is deemed higher risk to lenders is that typically the sale of land is a slower process, therefore if there were any repayment issues, it would take the lender longer to seize the asset and sell the land to recoup the funds.

Therefore, land mortgages are often only offered up to 70% of the value of the asset, requiring the applicant to cover the remaining 30%, either with a cash deposit or via securing additional funding against other assets owned with sufficient equity.

The current planning permission status on the land sought to purchase is also of high significance to lenders.

Should a developer wish to build upon land that does not have planning permission, lenders would consider this an additional risk as being granted permission can be a lengthy process and is not guaranteed. However, the land is commonly sold with the relevant permissions to increase the value of the asset to the current owner.

Related guides: 

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Other Land Financing

The land is often sold through auction, which requires a deposit paid upon winning a lot. Therefore, due to the speed of such a land transaction, bridging loans are often used to provide short term finance promptly whilst the sale of other assets is in progress.

Mortgages on Land Summary

The land is often deemed a scarce resource and therefore investors often seek to purchase land to retain as an investment or develop to sell on later.

There are many options available to secure a mortgage for the purchase of land as long as the additional criteria can be met including a plan for future use and any associated business plans.

Related reading: 

Land Mortgages – Contact us Today

Our expert mortgage advisors are here to help you find a lender from which you can secure a good deal from. Deals available will be based on your financial situation and so you’ll have a much easier time finding a loan that is best for you.

Give us a call on 01925 906 210 to speak to an advisor, or contact us for mortgage advice that’s personal to you and takes your credit history into account. That way you’ll know where you stand in the mortgage market and we can guide you on your route to securing a suitable loan.

Further reading: 

Unencumbered Mortgages – Remortgage a House You Own

by Kristian DerrickPosted on

If you own a property outright and want to secure a mortgage, the process is usually straightforward.

The risk to the lender is considered low, so it’s typically easier to secure a remortgage on an unencumbered property than it is to secure a mortgage to buy a new property.

Although, even though an unencumbered mortgage is usually very easy to secure, it shouldn’t be something you rush into. Similar to a normal mortgage, it’s a financial commitment.

If you are certain you want to pursue an unencumbered mortgage, it’s a wise idea to look for the best deals (which Mortgageable can help you with).

What is an unencumbered mortgage?

Put simply, unencumbered is a word that is used for a property that is mortgage-free. Any outstanding loans and charges have been cleared on the property.

If you have paid off your mortgage or if you paid cash for your home, then your property is now unencumbered.

There are many reasons why people would want to remortgage on an unencumbered property.

Some may wish to buy another property, others may want to renovate their current home, or make a considerable purchase in the form of a car. Some people even remortgage to consolidate any other outstanding debt they may have.

Unencumbered mortgage lenders

If you own your property outright, then you will likely have some very good deals available to you. Yet, it’s important to bear in mind that some lenders will consider it a new mortgage rather than a remortgage.

This doesn’t really have much of an impact, but it’s still important to familiarise yourself with the process.

In practice, the term ‘remortgage’ is defined as replacing an existing mortgage with a new one. As your home is mortgage-free, a true ‘remortgage’ is not actually available. Ultimately, the process is very similar, which is why many lenders refer to it as a remortgage.

Since you have paid off your mortgage in full and now own your property outright many lenders will view you as low risk. As a result, you should face minimal barriers to securing an unencumbered mortgageable and the team at Mortgageable will be more than happy to assist you.

Raising capital from a mortgage free property 

Those who own their property outright are in a much stronger position from a lender’s perspective as you have no outstanding debt left to pay on that property.

However, just like with any other mortgage, the reasons for wanting to remortgage and your individual circumstances will determine the likelihood of your acceptance for a mortgage.

Related reading: 

You might wish to consider the following when deciding whether or not you want to remortgage on a property you already own outright:

  • Why are you applying for the mortgage?

This might be for a number of reasons. Perhaps you wish to purchase a larger home or even consider a buy to let.

Home improvements, holidays, new cars, paying off debt are all popular reasons however, it is worth noting that your reason must make financial sense.

  • Can you afford it?

You own your property outright. Do you really want to enter into a new financial commitment? Can you afford the monthly repayments?

These are the types of questions you can expect a lender to ask you when determining your affordability got the new mortgage, so it is worth considering the answers to these questions before you apply.

If you already have a lot of debt then remortgaging an encumbered property might not be the best thing to do however, this will depend on your individual circumstances.

There are other options available if you need to release some capital to pay off other debts. Contact one of our advisors if you are in this position to discuss a debt consolidation mortgage.

  • Can you take the risk?

With every mortgage comes risk. If you have already paid off your mortgage you own your property outright then you are in a very secure position.

Taking out a new mortgage will increase your risk. Even if you are financially stable, it is worth remembering that if you do not keep up your monthly repayments then you may lose your home due to repossession.

Need more help? Check our quick help guides: 

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I own my property outright, can I remortgage?

A mortgage you take out on a property you own is not much different from a normal mortgage. That means lenders will be carrying out a thorough analysis on all the usual criteria including your income, affordability, loan to value (LTV ratio), and take into account any debts.

Other factors can also have an influence including the purpose of the remortgage and your age. There are many different factors that can come into play, but if you would like to find out exactly what you can expect, feel free to contact one of our advisors for a no-obligation chat.

Can I remortgage a property I have inherited?

Difficulties may take the form of family members or estate restrictions and charges that you were otherwise unaware of. There is the matter of transferred ownership that has to be considered.

This can be a lengthy process, but your solicitor will represent you during the process and advise you of what you have to do within the regulations of the law.

Sometimes, when people inherit a property, they want to remortgage to release some capital however this is not always simple due to the fact that most lenders will want you to have owned the property for at least 6 months before submitting your remortgage application.

We have access to many specialist lenders who deal with inherited property remortgages. Contact one of our advisors today to discuss your options.

Can I remortgage for investment?

There are many investors who buy decrepit properties for cash then make the necessary repairs and refurbishments before putting the property on the rental market.

These investors usually buy the property with cash. The reason being, some properties are considered non-mortgageable due to a state of disrepair.

Cash purchases also tend to go through the process much quicker than a mortgage. Through renovation or refurbishment, the investors are increasing the value of the property and can then opt to remortgage if they wish to release funds for their next venture.

If you purchase the property with cash, then it is deemed unencumbered. However, if you want to move into the property yourself,  or if you wish to rent it out to others, then remortgaging may be a better option for you.

You can contact one of our expert advisors for professional advice.

Unencumbered mortgage with bad credit

If you have experienced difficulty in the past obtaining credit due to a poor financial history, then it may be challenging to obtain a mortgage although having adverse credit does limit the number of lenders available to you, there are specialist lenders on the market who can help.

The age of your credit issues will have a major impact on your level of acceptance. For example, if your credit issues occurred more than six years ago and your financial conduct since then has been excellent, then you should be eligible for a competitive deal from the lenders.

The type of issue you faced will also have an impact on your eligibility for acceptance, and or a good deal. For example, if you have a default or late payment recorded on your credit file, whilst this will have a negative impact on your application, it is less severe than a notice of bankruptcy on your record.

Our advisers are available to help you with any questions you may have about your credit score. Contact us to find out how to maximise your chances of obtaining an encumbered mortgage even with adverse credit.

How can I better my chance of qualifying for an unencumbered mortgage?

If you apply for a mortgage on an unencumbered property, lenders will carry out the same assessments and checks as they would if you were applying for any other mortgage. Factors such as income, affordability, other debts, and loan to value will all be assessed.

Lenders will also consider the reasons behind your application at this point. If, for example, you are remortgaging for a buy to let, then lenders will also consider this in their evaluation.

The list of factors that may have an impact on the deals you will be eligible for is ongoing, however, some of the most common are, employment status, age, credit rating, and other debts.

Related guides: 

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Give us a call on 01925 906 210 to speak to an advisor, or contact us for mortgage advice that’s personal to you and takes your credit history into account. That way you’ll know where you stand in the mortgage market and we can guide you on your route to securing a suitable mortgage.

Self-Build Mortgages – How much can you borrow?

Yaz Shaw
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 own 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.

Check Today's Best Rates >

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.

Related reading? 

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.

Check Today's Best Rates >

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. There are some lenders that 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.

Recommended guides: 

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.

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.

Check Today's Best Rates >

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.

Check Today's Best Rates >

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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