How can I get the mortgage I need? Q&A

As a business owner or landlord, especially during these turbulent economic times, it can be tricky to navigate how to get the mortgage you need. We are often asked how to best maximise potential borrowing, how to achieve the rest rates and what is the most efficient way to achieve this. So we sat down with Donna Speed, Founder of Elevate Financial Services to ask her some of your questions.

I have multiple income streams; can I use all these to calculate the affordability of my mortgage? 

Yes, there are several lenders who will use multiple income streams towards affordability of a residential mortgage. Director’s salary plus dividends or director’s salary plus their share of the company net profits can be used. Profit from LLPs can also be included towards affordability.

If you are self-employed, you must provide evidence of all of your income via the tax calculation and overview documents submitted to HMRC.

If you are employed you can also use variable income such as overtime, bonuses and allowances to increase the loan amount. If you have a second job, a percentage of this can also be used.

In the case of buy to let mortgages, the amount you can borrow is determined by the rental income achieved by the property and your personal income tax banding. Lenders apply a stress test of the rental income and your tax banding to calculate the loan amount. For example, if you are a lower rate taxpayer, the rental income is stressed at 125% of the mortgage payment, meaning you can usually borrow more than a higher rate taxpayer who is stressed at 145%.

If you are a higher rate tax payer and you want to maximise your loan amount, the best way to achieve this is purchasing property in a SPV limited company; as these are stressed at 125% regardless of the income of the company directors. You can secure a mortgage on day 1 of setting up a SPV limited company as no trading history of the company is required.

I have had credit blips in the past, can I get a mortgage with bad credit?

It is possible to secure a mortgage with adverse credit, however the number of blips, when they were registered on your credit file together with the type will determine which lender and the applicable rates you will pay.

Lenders will review your credit file which provides an overview of your financial conduct over the last 6 years so they can calculate their risk of lending to you. If you want to purchase a property with a history of adverse credit, you may be asked to provide a minimum deposit of 15%.

My credit score is low, how can improve this to get a mortgage? 

There are several ways to improve your credit score such as:

1. Make sure you are on the electoral register at your current address
2. Pay all bills on time
3. If you have missed any payments make sure you bring the account up to date
4. Apply for new credit only when you need it
5. Pay off debt where possible instead of moving it around
6. Try not to go to the credit limit of available credit
7. If you don’t have a credit card, open one and use it for lunches or fuel and then repay the balance in full every month
8. If there is anything you do not agree with on your credit report dispute and try to resolve it
9. Keep an eye on your credit score each month, this can be done online at checkmyfile.com (free for 30 days)

My business has taken out a bounce back loan, how will they affect my mortgage application? 

Firstly, the lender will want to ensure that you are not using any of the bounce back loan funds towards the deposit of the mortgage. If you’re a company director wishing to purchase a residential mortgage, the lender may request the loan repayments are factored in as a monthly credit commitment. If you are trying to secure a commercial mortgage for the company which took out the bounce back loan, it is possible the lender will request the loan is repaid in full prior to issuing a mortgage offer.

I’ve taken a payment holiday on my mortgage, will this affect my changes of securing a new mortgage? 

If the payment holiday was very recent, the lender will want to know why you have requested the holiday and they will take this into consideration when reviewing your mortgage application. Essentially by requesting the holiday, you are telling the lender that you are in financial difficulty so the new lender will want comfort that you are able to meet the repayments of the new mortgage.

If the payment holiday was taken during the height of covid, providing you obtained permission from your lender and this was not registered as a missed payment on your credit file, this wouldn’t be an issue. It is advisable to review your credit file to ensure any agreed payment holidays were not registered against your credit file as missed payments (which has been the case in some instances due to lender error).

I have a residential mortgage on a property I used to live in, however I recently moved out and have now let the property to a tenant. Do I need to do anything with that mortgage?

Yes! Under the terms of that mortgage, you agreed that it will be secured against the property in which you live in. This is called a residential mortgage. Once you move out of the property and start receiving rental income, it is no longer a residential mortgage but a Buy to Let mortgage. You now have two options – you can either contact your current lender and obtain “consent to let” which means you seek their permission to let the property out; they may grant this for a period of time, or you switch the mortgage onto a Buy to Let mortgage. This can be with the same lender or a new one. It is important to review the current mortgage when deciding which course of action to take, as you may be tied into a fixed rate period and subsequently may incur early repayment charges by moving to a new lender. If in doubt, seek advice.

If you take no action and the lender finds out, you will be in breach of your mortgage contract, and they will call in the debt!

I have several properties with various amounts of equity, can i leverage this to expand? 

Yes! There are many ways to grow a property portfolio, dependent on your strategy and ultimate goals in terms of property numbers, types, and your attitude to risk. The most common way is to extract equity from existing properties by way of a remortgage or further advance and use this as a deposit to purchase more.

You can also use the equity in your portfolio for lenders to place cross charges against the properties to make up the deposit funds. For example, if you have a number of properties with equity remaining in each, the lender can place a charge on each property to make up a deposit towards the new purchase. This is more suited to the buy, refurbish & refinance strategy (BRR) using bridging loan finance. Once you have refinanced the property and released the equity, you repay the lender back and the cross charges are removed. This is ideal for unencumbered properties and allows you to leverage the equity without incurring finance costs.

I have equity in my current residential property and want to move but I don’t want to sell. What are my options? 

If you have a minimum of 25% equity in your property, you can do what is known as a “Let to Buy” mortgage transaction. Essentially, you can remortgage your current residential property onto a buy to let mortgage, releasing any additional equity for the deposit on your new home (subject to meeting the rental income stress test) and secure a new residential mortgage on the new house, based upon your personal income and affordability. You may even be able to factor in the rental income towards the affordability of the new residential mortgage.

This way you keep your existing house, generate an income, and buy your new home. You will incur additional stamp duty liabilities on the new purchase, so it is best to seek advice.

My fixed rate is coming to an end in the next 6 months, what should I do?

Your current lender may offer you a new rate to switch onto at the end of your current fixed rate, however this may not be until within 2/3 months of the switch date and it may not necessarily be the cheapest rate available to you. I work with all my clients 6 months in advance of their fixed rate expiry date to ensure we have plenty of time to explore all available options.

Many lenders allow brokers to secure a new rate up to 6 months in advance and in some cases, switch that rate again nearer to the switch date, should a cheaper one become available. We may also obtain a mortgage offer from a new lender (which typically lasts for 6 months) but decide to remain with your current lender if a better rate becomes available. My objective is to ensure you are on the best mortgage product to suit your needs and that you don’t pay more than you have to!

Are there benefits to buying / owning energy efficient properties?

Yes! With the changes to regulations relating to the energy efficiency of rental properties coming into force for landlords, mortgage lenders are offering special rates for properties that have an EPC rating of A-C and D-E. These rates can be up to 1% lower than the other rates on offer by the same lender. Some lenders are also offering cheaper remortgage products to release equity for the purpose of improving energy efficiency.