BTL mortgage v Cash Question

richards123

In buying a property for BTL I have two choices

1. buy for cash and mortgage later
2. mortgage now

I would rather get a mortgage now than wait.

I have had an AIP and although my credit score is excellent, for BTL purposes I am struggling within minimum salary requirements in that I am showing a salary of under £20Kpa.

I am told The MortgageWorks will lend with no minimum salary requirements and that NatWest will lend 8 times salary for BTL purposes so if getting a mortgage I would go for one of these lenders.

My question - am I more likely to get a 70% mortgage once I have rented for 9 months with records showing rent coming in etc than if I apply for a mortgage now having just agreed on a property.

Or given THW and NW lending criteria, will it not make any difference?

Because of my weak position re. minimum salary, I want to do whatever gives me best chance of getting that mortgage.

many thanks:)

GMS

What is your residential status? Do you own any other Buy to Let property?

richards123

GMS wrote: »

What is your residential status? Do you own any other Buy to Let property?

dont own any other BTL. Have own property worth £250K with 92K mortgage on it - been there 8 yrs....

GMS

The Mortgage Works are scrutinising first time landlord applications now. Although no minimum income they will look at the ability to withstand rental voids. They also restrict lending to 4.25 x income. Will you fit this?

Broker may be useful for you.

If you buy cash and establish yourself as a landlord you MAY be able to refinance later with less issue regarding income. Criteria changes all the time though so this could be a dangerous way of doing it.

richards123

GMS great reply, thanks.

yes 4.25% x income would be fine. Is this per mortgage or is it for a agregated total?

Re. covering rent voids, would proof of substantial savings make a difference to TMW? or are they looking for a surplus on income each month?

Changing criteria is soemthing thats niggling me so good point there. I don't want a scenario where I use up a pile of cash and find I can't get it back again!

thanks again

GMS

The loan for the BTL must not exceed 4.25x.

Rent needs to be 125% of mortgage payment based upon:

Fixed rates: Up to and including 75 % LTV based on product pay rate or 4.99%, whichever is higher. Fixed rates: Above 75% LTV based on product pay rate or 5.99%, whichever is higher. Tracker rates: Based on product pay rate + 0.5% or 4.99%, whichever is higher.

TMW would assess the potential voids with a combination of your own ability to withstand and the ability of the rental income to absorb it. Savings are unlikely to be considered as in theory you could spend them all the day after completion. Rental calculation will be one part of it but income will be considered too. I.e if you earn 10k p.a then how could you pay your own bills and an extra mortgage. If 100k then shouldnt be an issue.

Buying for cash may be risky as if things change you could find yourself unable to refinance in the near future meaning your cash is tied up.

richards123

GMS wrote: »

The loan for the BTL must not exceed 4.25x.

Rent needs to be 125% of mortgage payment based upon:

Fixed rates: Up to and including 75 % LTV based on product pay rate or 4.99%, whichever is higher. Fixed rates: Above 75% LTV based on product pay rate or 5.99%, whichever is higher. Tracker rates: Based on product pay rate + 0.5% or 4.99%, whichever is higher.

TMW would assess the potential voids with a combination of your own ability to withstand and the ability of the rental income to absorb it. Savings are unlikely to be considered as in theory you could spend them all the day after completion. Rental calculation will be one part of it but income will be considered too. I.e if you earn 10k p.a then how could you pay your own bills and an extra mortgage. If 100k then shouldnt be an issue.

Buying for cash may be risky as if things change you could find yourself unable to refinance in the near future meaning your cash is tied up.

ok, what about if the LTV decreases, ie I apply for a 60% or even a 50% mortgage instead of 70% - would this make my case easier for the lender?

GMS

richards123 wrote: »

ok, what about if the LTV decreases, ie I apply for a 60% or even a 50% mortgage instead of 70% - would this make my case easier for the lender?

Same criteria applies but lower loan means rent claculations met easier. Lower LTV is less risk on paper.

For tax purposes you want to get as much as you can offset against the rent so a higher mortgage is tax beneficial.

There may well be other options. A broker is worth a chat as many BTL products are broker only.

1StepDebt

If the BTL property value is low enough to allow it, and with the high arrangement fees associated with BTL mortgages, is it possible (and, possibly, better value) for people like the OP to secure the extra money as a residential mortgage against the equity they've built in their own property?

From reading of past posts, it appears that it is - and it's still possible to use interest on the borrowings for offsetting against profits for tax purposes.

richards123

GMS wrote: »

Same criteria applies but lower loan means rent claculations met easier. Lower LTV is less risk on paper.

For tax purposes you want to get as much as you can offset against the rent so a higher mortgage is tax beneficial.

There may well be other options. A broker is worth a chat as many BTL products are broker only.

ok many thanks for yur advice. I see you are a broker - at the risk of saying something that will annoy - I'm minded to go direct to NatWest for the following reasons....

1. no minumum income subject to 8x income
2. fees are much lower
3. we have current mortgage with them and they ok'd that with no bother at multiples that more than one broker couldnt get near to. It was also interest only and that was 18mths ago.
4. no affordability checks (when we applied for main home) though I guess they do have access to my bank accounts (I've banked with NatWest 20 yrs with perfect borrowing record)

I've said it before I think here and will say it again - when we went with Natwest for our house mortgage, I'm convinced they treat current account customers with impeccable banking history wanting mortgages with high deposits favourably - almost like they just say yes because the risk is so minimal. (which it is!)

At the end of the day lending to someone who sticks up 40% deposit, who has 100% good 20 yr banking/ borrowing track record (thats 20yr self employed also) that has big equity in main home anyway - its as near to no risk as is possible to get???

I also get the impression that Brokers dislike Natwest selling mortgages direct from branches?!

anyway thats me waffling....

Thanks so much for your advice, much appreciated...

GMS

Doesn't annoy in any way.

As an existing customer you have a relationship with them which may well help.

Good luck.