Got knocked back for a but to let remortgage

DASHBOY

Hi

My brother and I bought a flat around 3 years ago. We took out an interest only mortgage for £96,000 (£438 per month) through Northern Rock.

After 6 months we moved out of the flat but now rent it out which we have for the most of 2.5 years now and never missed a mortgage payment.

The fixed rate was ready to expire the start of this month. The new rate would mean it would jump up to £605 per month. So a couple of months ago I decided to get a mortgage broker to help us get a new deal. He said we wouldn't get a normal mortgage as we hadn't been living in the flat so suggested a "buy to let". He picked out the best deal which was £490 ish a month and was with birmingham midshires. So we went ahead with that and got the flat surveyed, which we paud around £390 for. The surveyor sent through his report and valued the property at £113,000 and estimated a monthly rental income of £530.

We sent this through to the broker who got back and said that we were falling short on the monthly rental income. birmingham midshires needed £570 a month. So he asked us to first of all phone the surveyor and tell him the situation and ask if he could put 570 on this report and resend. We did but he wanted proof of this income so wouldn't lie. So after telling our broker this he then asked us to phone 3 or 4 letting agents and again tell them the situation and ask them if they could send out in writing that a flat in our area would go for 570 a month. We phoned a few but none of them would do this.
We then phoned the borker back and he said that we would have to wait now until the rates change.

Can someone please help what should we do?

Is this the norm for a mortgage broker to basically ask people to lie. We feel as if we should complain about him to someone higher up at his company?

Have we wasted our £390 survey fee?

Could we not just go for a normal mortgage and explain we are renting it out?


Please advise. Many thanks in advance.

Incisor

DASHBOY wrote: »

... Is this the norm for a mortgage broker to basically ask people to lie. We feel as if we should complain about him to someone higher up at his company?

Where have you been hiding? Of course it was the norm until recently, in fact the whole industry expected it, it was driving prices higher and preventing [or more accurately delaying] the current crisis. There is no great point in complaining to someone higher up, the worst he will get is a rap over the knuckles for letting the cat out of the bag over their business methods.

Possibly you have wasted the survey fee. Your best line of complaint is possibly to argue that the broker should have known the loan conditions and advised you of the risk that the survey might not justify a mortgage. A quick calc shows that if you take out the new mortgage for £89000, then the rent assessment might be acceptable. Can you put your hands on £7000?

Captain_Mainwaring_2

A "quick assessment" would appear to show that you have been losing money hand over fist on this place - what have you been renting it for?

And what did you pay for the property?

herbiesjp

You are just under the 85% loan to value mark which leaves a few doors open for you in terns of deals available.

However, the rental incoem seems really tight - what is the actual rental income you recieve?

Having a lower loan to value would open up a few more doors, but seeing as it has already been valued at £113k it would appear that is a very good benchmark on which to base a current value.

DASHBOY

Hi we paid £96,000 for the property and rent it out for around the £530 a month.

Don't understand how we are losing money on it.

herbiesjp

Your rental income is therefore not enough to get a current BTL deal for that amount needed at that LTV.

You might want to try a lender with a more flexible underwriting approach i.e. a lender that might allow you to make up some of the shortfall on the rental income by using your earned income

Incisor

DASHBOY wrote: »

Hi we paid £96,000 for the property and rent it out for around the £530 a month.

Don't understand how we are losing money on it.

Just hang on to it for a few years, then you will understand.

Firstly, now we have the figure, you proposed lender would be mad to accept a rental value in excess of £530/month. All the evidence points to £530 being the value of the rent, which just covers your repayments after allowing for letting voids and assuming no maintenance.

So in revenue terms, your wallet is no fatter for owning the property. In capital terms, some are saying that there is a property price crash. So your BTL gives you no revenue returns for a net asset value of £17000, which could become negative equity if prices drop by 20%

Captain_Mainwaring_2

DASHBOY wrote: »

Hi we paid £96,000 for the property and rent it out for around the £530 a month.

Don't understand how we are losing money on it.

Right, you have a 100% mortgage, a falling market, a valuation of £113K giving you 17K's worth of on paper equity - so far we haven't included your purchase and rental expenses which I would have thought would have done at least a grand - you bought it on a rising market with a reduced mortgage, now you have a situation where if there is no capital growth in the property and possibly a loss, and a shortfall in the rental income over interest payments.

If you had a wadge of equity and a cheap mortgage to repay then you would be making money, but this is on a knife edge as to being a liability at the moment.

TEDDYRUKSPIN

Ahh... the dreaded BUT TO LET? Do you mean Buy to Let? Only joking.

All of the above is right! You must rent the property roughly 125% or 130% above the monthly mortgage repayments. This really depends on the lender.

I can only think your last resort is to work on your income basis. As long as you don't have any other mortgage?

As above, you are surely making a loss on income. Last resort is to stick with Northern Rock and pay for a new rate.

Gorgeous_George

So, a 100% mortgage and a rising market has allowed you to make a profit of £17K plus a little bit of rent.

Sell it now and some of that £17K will be yours to keep.

Keep it and you will lose £100 per month. If the market continues to fall, the £17K will be wiped out and you could end up in negative equity.

Have you got another house? If so, could you raise some capital from that (by remortgaging). If so, you may be able to reduce the amount that you need to borrow for the BTL.

Whatever else you do, look after your tenants. You cannot afford to lose them.

GG

cwodavids

Gorgeous_George wrote: »

So, a 100% mortgage and a rising market has allowed you to make a profit of £17K plus a little bit of rent.

Sell it now and some of that £17K will be yours to keep.

Keep it and you will lose £100 per month. If the market continues to fall, the £17K will be wiped out and you could end up in negative equity.

Have you got another house? If so, could you raise some capital from that (by remortgaging). If so, you may be able to reduce the amount that you need to borrow for the BTL.

Whatever else you do, look after your tenants. You cannot afford to lose them.

GG

Selling is the last thing I would be considering. The centre of economic business research predicts an 7.6% growth for the next 20yrs on property, even the government with a conservative estimate predicts 5.5% growth over the same period (www.communities.gov.uk) Bite the bullet and try to keep hold of it at all costs! Don't panic about negative equity, property in the long run NEVER loses money otherwise banks wouldnt give you up to 5 times your salary :-)

Have you tried a remortgage with your current lender which should get round a few of the problems your experiencing.

D