Mortgage advice...again....BTL

[Haggleburyfinius]

Hi Folks,

The situation is this. My parents have decided, now my brother is leaving UNI (he leaves in a month) to give him one of their properties to help set him up.

The property is an HMO student house (first students due to arrive in September ish) and is worth approx £260K.

My bro is very sensible for his age and wants to borrow some money against the property to add some more bedrooms and generally renovate it to a higher standard in order to generate significantly more rent in the future.

He is looking to get £50K (although I think he might need a little less).

Is this going to be possible given that he doesn't start work (for the family business) til the summer? He's only 22 but I believe has a good credit record for someone his age.

Any advice much appreciated.

[Sarnie]

Your really going to struggle whilst he has no income and you have no tennants. If he doesn't own a residential property then he is also going to be classed as a First Time Buyer/ First Time Landlord which will significantly narrow the market, even once he has an income.

[Haggleburyfinius]

Sarnie said:

Your really going to struggle whilst he has no income and you have no tennants. If he doesn't own a residential property then he is also going to be classed as a First Time Buyer/ First Time Landlord which will significantly narrow the market, even once he has an income.

Thanks for the reply. Will the situation change in the autumn when he has tenants (income approx £1800 pcm)?

[Sarnie]

Haggleburyfinius said:

Thanks for the reply. Will the situation change in the autumn when he has tenants (income approx £1800 pcm)?

Underwriting for BTL mortgages is getting closer to residential underwriting meaning that it is based more and more on affordability rather than simply rental income recieved Vs monthly mortgage payment.

Most lenders now have minimum salary requirements (£20k+) and not a lot of them like HMO's either.

Once he's working, it would be possible, but it would be more of a case of finding a lender who would do it rather than him taking his pick of who he wants to go with.

[Haggleburyfinius]

Thanks once again.

What sort of rate do you think a lender that might be willing to play ball would look to lend at for this scenario? I presume we would be talking repayment only, correct?

Just out of curiosity, why are HMOs unfavored?

Cheers

[Sarnie]

Haggleburyfinius said:

Thanks once again.

What sort of rate do you think a lender that might be willing to play ball would look to lend at for this scenario? I presume we would be talking repayment only, correct?

Just out of curiosity, why are HMOs unfavored?

Cheers

I'd have to get back to you tomorrow with regards to rates etc.

HMO's are unfavoured as, if the lender has to repossess, they have to evict/deal with multiple tennants, each with their own occupancy rights and tenanncy agreements etc = potential big headache......

[Haggleburyfinius]

Sarnie said:

I'd have to get back to you tomorrow with regards to rates etc.

HMO's are unfavoured as, if the lender has to repossess, they have to evict/deal with multiple tennants, each with their own occupancy rights and tenanncy agreements etc = potential big headache......

Thanks for the info.

Much appreciated.

[Burgmeister]

Sarnie said:

Underwriting for BTL mortgages is getting closer to residential underwriting meaning that it is based more and more on affordability rather than simply rental income recieved Vs monthly mortgage payment.

Most lenders now have minimum salary requirements (£20k+) and not a lot of them like HMO's either.

I disagree with this, both TMW and BM Solutions who between them probably account for about 80% of the market have no income requirement on the applicant.

[hamski]

BM have a minimum income of £25k and, although they will take HMO's, they won't accept multiple tenancies (where individual tenants have individual tenancies)

TMW will accept HMO's at 65% LTV but not for first time landlords

[Sarnie]

Burgmeister said:

I disagree with this, both TMW and BM Solutions who between them probably account for about 80% of the market have no income requirement on the applicant.

This is incorrect.

BM Solutions have a minimum salary requirement. TMW do not but this is reflected in their fee's and rates.

[scotal]

Sarnie said:

TMW

Sarnie said:

fees

And boy do they know how to charge them.

[Burgmeister]

Sarnie said:

This is incorrect.

BM Solutions have a minimum salary requirement. TMW do not but this is reflected in their fee's and rates.

I stand corrected!

I am a firm believer that the applicant's income for BTL products should absolutely not be an underwriting factor.

[Sarnie]

Burgmeister said:

I stand corrected!

I am a firm believer that the applicant's income for BTL products should absolutely not be an underwriting factor.

I agree but unfortunately these are the times we live in........

[scotal]

Burgmeister said:

I am a firm believer that the applicant's income for BTL products should absolutely not be an underwriting factor.

Why? If there is a void period and the property generates no income the mortgage still has to be paid. It would be highly inappropriate of the lenders to assume the applicant had sufficient income to meet their commitments. In fact given the FSA's stance on things it would leave the lenders and therefore the brokers open to huge claims for inappropriate advice and misselling. You want another PPI situation?

The applicant's income is seen as a safety net by most lenders. BM don;t insist on the income being evidenced for BTL, but you can bet all you like that if the mortgage isn't paid they will nail the broker to the wall if the applicant doesn't meet their income requirements.

[Burgmeister]

scotal said:

Burgmeister said:

I am a firm believer that the applicant's income for BTL products should absolutely not be an underwriting factor.

Why? If there is a void period and the property generates no income the mortgage still has to be paid. It would be highly inappropriate of the lenders to assume the applicant had sufficient income to meet their commitments. In fact given the FSA's stance on things it would leave the lenders and therefore the brokers open to huge claims for inappropriate advice and misselling. You want another PPI situation?

The applicant's income is seen as a safety net by most lenders. BM don;t insist on the income being evidenced for BTL, but you can bet all you like that if the mortgage isn't paid they will nail the broker to the wall if the applicant doesn't meet their income requirements.

Because it makes the process far more complex however I understand your argument.

There are two scenarios that immediately spring to mind;

1) The borrowers job is to be a landlord so therefore their earnings are 100% based upon rental returns.

2) What happens if the landlord has an income of £X from their 'day job'and the lending decision is based upon that and the rental return from the property. Surely that landlord as they expand the portfolio will find it harder to get finance as each time they add a property the affordability gets more stringent.

Besides in this market any landlord worth his salt should not have any significant void period and there is always the ability to cross subsidise from other proeprties in order to pay the mortgage assuming the landlord doesnt have a portfolio of 1.

[scotal]

Burgmeister said:

Because it makes the process far more complex

Not really. It means gathering some evidence of income. You do it with every othe rmortgage.

Burgmeister said:

1) The borrowers job is to be a landlord so therefore their earnings are 100% based upon rental returns.

Professional Landlords can get mortgages, they just need track record and accounts. The choice is limited, and the deal is less attractive, but that's lenders pricing in their risk

Burgmeister said:

2) What happens if the landlord has an income of £X from their 'day job'and the lending decision is based upon that and the rental return from the property. Surely that landlord as they expand the portfolio will find it harder to get finance as each time they add a property the affordability gets more stringent.

The majority of lenders will only lend on the basis that rental income is sufficient to pay the mortgage.
The minimum income criteria is there as a back up in the vast majoirty of cases.

Burgmeister said:

Besides in this market any landlord worth his salt should not have any significant void period

That's not a stance any lender can take. They have to build in a possiblity of non-paying tenants, void periods, changes in the rental market (either locally or nationally.) Their only way to mitigate that is to ensure the borrower has a backup plan. It's not a perfect system, I grant you, but I reckon it probably the best of a bad lot. The only other way to do it would be some sort of insurance policy, which some landlords simply aren't prepared to pay for.

Burgmeister said:

and there is always the ability to cross subsidise from other proeprties in order to pay the mortgage assuming the landlord doesnt have a portfolio of 1.

Which would crush the market for 1st time Landlords (and they all have to start somewhere) or LTB'ers.