Rejected after a decision in principle

fubar4164

Hello there,

Any thoughts would be appreciated:

We currently own a flat with approx 15% equity in it (after assuming a 20% decline in price). We want to rent this flat out and buy a new property. The flat's income will cover the 125% mortgage payment benchmark (even on capital repayment) and we have a 15% deposit for our new place, the borrowing on the new house will be approx 2.4x our joint income.

We have found a tenant for our flat and the vendor has accepted our offer on the new house. We were looking to move next month after having a verbal agreement from a lender and an agreement in principle, where they were aware of all the facts - this was all sorted by our IFA.

However this morning I was informed that the lender has now rejected our application because we want to keep our original flat. This was made clear to them throughout and they still agreed in principle and on the phone.

We are now in the process of applying to another lender, but I am really worried that the rejection by the 1st lender will blight our credit record with the next lender and the whole thing will snowball until we cannot get a mortgage at all. Unfortunately the person that agreed it on the phone is now off on holiday.

Our credit rating at the moment is very good, with no black marks and we have approx £15k of debt between us for student loans and a car loan (apart from the flat's mortgage.)

Is it likely that we will be unable to get a mortgage at all now?

Jamsterthehamster

which lender is this through?

Caz3121

Is the 125% after changing to a BTL mortgage?

herbiesjp

Firstly you need to get consent to let form your current lender for that property, or change it to a BTL deal

NOt really sure what your IFA has done, by placing with a lender that does not appear to like the scenario.

I would ALWAYS triple check cases like these, just in case criteria has recently changed which would mean a wasted application

The good news is, the declined application does not come up as a blight on your credit file. It will only show as a search (it might not even show if the lender in question applies a soft foot print only)

However I would be inclined to get a second opinion from a whole of market adviser, as you need to make sure you are ok on both fronts i.e. your current property and the new property purchase.

fubar4164

We already have consent to let from the mortgage provider for the flat, on the same terms as it was when the flat was/is our home. We do not want to change to a BTL mortgage as we currently have a BOE tracker at +0.84% and only 15% equity, so there is no decision to make on that really. The interest payment on it is current under £100pm and the agreed rent (from the tenant who wants the flat) is £495pcm, so we will continue to pay the capital off anyway.

However, we are limited in terms of who we can approach for a mortgage on the new house as it is a brand new build, and so it is difficult to find a lender on a 15% deposit (regardless of the fact we got £85k off the original asking price and it is the last property on the development, and cheaper than all the comparable properties on the site.)

This was all explained in full on the application and to the IFA, which is what is frustrating me. He has said that he is shocked by the rejection but we are sending off our next application tomorrow. I guess it's going to be a long weekend waiting for a response, but I am reassured if this rejection won't affect our new application. According to the IFA our affordability on the whole thing is fine (i.e. on both properties), let alone with the extra £495pcm rental income.

Fingers crossed.

TroJon

15% on any BTL in this market is great (but risky) - most lenders are asking minimum 25% for a btl mtg. As a new build, it would be even stricter a lot of the time, so I guess something along the way a detail was missed out in the application!

Mrs_Bumble

I think what is happening TroJon is that the OP is carrying out a let to buy, OP has consent to let from exisiting lender and had approached different lender for the new build mortgage where he is intends to live. Lender that was approached for the new build mortgage has now withdrawn the aip.

Do you know the approximate value of the flat? Have you checked out sites like www.zoopla.co.uk , using the estimate what is the approx LTV on the flat.

Who is the lender that has withdrawn the aip?

What do you pay per month on the car loan and student loans? What is joint income?

The lender that has withdrawn the aip did they give any detailed reasoning? It may be that the lender was happy with the let to buy scenario but the total LTV over both properties is more than they are comfortable with. What lender is the IFA approaching today?

fubar4164

The flat is currently valued on Zoopla at £106k and we have approx 85.5K owing on it, a. This has a consent to let on it with HSBC. I am estimating 85% equity as zoopla is a bit hit & miss.

The Newbuild we are buying to live in is £250k and we are putting down 15% on it as there were no 90% mortgages for new builds available. The property was originally on last year for £335k. This is the last property on the development to sell, and all the other comparable houses on site have sold for more than this in teh last 6 months.

Our joint income is £91,800 and the student loan & car repayments are £500pm in total. We have no other loans/debt apart from the mortgage on the flat. We cannot put down a larger deposit as getting it up to 15% has exhausted all our funds.

We have been rejected by the Monmouthshire BS who were offering a discounted rate for 3 yrs, currently at 4.2%, and we are now applying to Nationwide who only have fixes at over 6%.

Our IFA (whole of market) said there are no other lenders out there that will even consider lending with our circumstances. How very frustrating!

Wakey2008

A lot of lenders are refusing to entertain let to buys full stop at the moment. This is due to many people taking this option because they can't sell their existing property and still want to move and not because they want to rent out.

On top of this most lenders now require a let property to have at least 25% equity on it and not 15%. If you are doing this so you can move and cannot and not because you have any desire to become a landlord, then maybe you have you should reconsider how the market is at present and move when it is more purdent to do so.

fubar4164

Thanks for that thought Wakey. It implies that it is better for us to enter into a chain by selling our current property than by simply buying another.

I guess we will wait & see what happens next week, as if we have to sell our flat in order to get a mortgage, our purchase will almost certainly fall through as our flat isn't even on the market at the moment, and in that case there is no point in selling!

Hey ho, long weekend of waiting ahead.

Mrs_Bumble

If it is going to fit with anyone then Nationwide would have been my first port of call, on the face of it affordability seems to fit, so as long as the underwriters are happy with the total LTV across both properties then fingers crossed.