Many people like the idea of creating a property portfolio to fund their retirement.
Not everyone is a fan of pension plans but they do understand the property market, I know that over the past 20 or 30 years, it has been a sound long term investment despite the peaks and troughs.
In this case study, we look at how we helped a client take her first step on the road to being a Landlord.
Emma is a self-employed mum of two, who is a Director of two small businesses. She and her partner had a fair amount of equity in their home and were interested in raising some capital to buy a low value buy to let property, possibly at auction.
Emma felt there were bargains to be had at auctions, but she never had enough money to attend and be a cash buyer.
She had looked at Remortgaging her house in Birmingham for this purpose before but had been told it wasn’t possible unless they could provide an address for the onward property they wanted to purchase – the proverbial “chicken and egg” scenario.
Emma also mentioned that once or twice a year, she received a dividend in the region of £3000 from one of the companies she was a sleeping partner in, and she has been prone to wasting some of that cash when it arrived perhaps unexpectedly.
I could tell that Emma was a very busy person but also an astute businesswoman. The dividends she received could surely be put to better use as she never had it earmarked for anything specific.
I recommended an offset Remortgage in Birmingham for Emma and her partner secured on their home.
I found a Lender who was happy to release funds on completion to be assigned to a future buy to let purchase without insisting on a specific property.
Emma simply deposited the additional funds into the offset savings account that comes as part of the mortgage, and these monies simply sit there until she needs them.
The offset savings accounts do not attract interest but instead is offset against the mortgage balance.
To clarify, Emma had £85,000 surplus funds from a total remortgage of £215,000. While the money is in the savings account, Emma only pays mortgage interest on the £130,000 difference between the two figures.
The £85,000 is on instant access and was available whenever she needed it
Three months after completion Emma identified a suitable property that was in a state of disrepair. It was probably not mortgageable itself but of course, Emma had access to liquid funds to buy the house outright.
Emma secured the property at a knock-down price of £55,000 but this amount needed to rise to a total of £70,000 to fund legal costs and a refurbishment program of works.
A further nine months went by and with the works all done Emma had no trouble finding a tenant. The house was now worth £90,000 and we raised a remortgage of £67,500 against it to fund the purchase of property number two.
Emma has no intention of becoming a full-time Landlord but she can now see a way forward to owning three or maybe even four properties in the future to fund her planned retirement lifestyle.
She loves the flexibility that her offset mortgage brings and whilst she still “squanders” some of her dividend which is her right to do, without fail half of it at least is deposited back into her offset savings account, her money working “for her” to reduce the total amount of interest repayable.
If you are interested in offset mortgages or building your own investment property portfolio please get in touch and we’ll be happy to assist you.
It can be more challenging to get a mortgage if you have had credit problems in the past but Chris and Tina’s situation was made even trickier in that Chris had not long since quit his job to pursue his hobby as a photographer as a new career.
In this case study, we discuss the importance of taking mortgage advice in Birmingham as early as possible to give your application the best possible chance of success.
Chris hated his job, but the salary was excellent, and he felt he couldn’t afford to quit. He started moonlighting on the weekend as a photographer, and he began to see this as a viable career in itself.
He eventually took the plunge into looking at Self-Employment Mortgages in Birmingham, to improve his work/life balance and could finally enjoy his work.
With the additional hours he could now devote to his former “sideline,” Chris’s business quickly showed a profit. In fact, after the very first year of trading, it was profitable enough for him to consider buying a home for himself, Tina, and their children and get out of the trap of renting.
Sadly, finances have never been Chris’s strong point, and his negligence on such matters when he was younger led to a couple of defaults on his credit record. His credit score had improved in recent years, but the old defaults were still showing on his credit report.
Therefore, there were two issues at hand when the customers approached our Mortgage Broker in Birmingham for Mortgage Advice.
These appeared to consist of finding them a Lender who would take a more forgiving view on his historic poor credit while also lending to him based on the year’s trading figures.
Chris knew he would not be an easy mortgage and took the sensible step of engaging with us early on, well before they started viewing houses. He felt that getting a mortgage might even be impossible.
Looking at Chris’s Experian report, it is evident that a specialist lender would be required. Luckily his photography business didn’t need much cash to get going, and he had been quickly able to raise a 15% deposit with just a little help from the “Bank of Mum and Dad.” giving me the reason for some optimism.
Some of the less well-known “specialist” Lenders have carved out a real niche for themselves when it comes to lending to customers who have not long been Self-Employed In Birmingham.
There is some additional risk for them in this area when so many businesses go bust in their infancy, thus to mitigate this, they insist customers put down a fat deposit. 15% was just enough, and we obtained an Agreement in Principle for Chris and Tina, who went on to buy a family home.
Because these specialist lenders are working in carefully selected niches, they tend to charge higher rates of interest than you might see advertised with High Street Banks.
That said, these higher rates are by no means extortionate, and in many cases, it’s still cheaper than renting.
Just because your first mortgage ends up being with a specialist Lender, it doesn’t mean that you are frozen out of more competitive mortgage rates forever.
While it’s likely that you’ll have to sign in for at least two years, if you can prove a good payment history, then a remortgage to a more well-known Lender offering a better deal after a while should be achievable.
Specialist Lenders don’t mind you seeking another deal elsewhere, and they expect that’s what will happen in a large number of cases.
They see themselves as “stepping stone” Lenders, and when you come to leave them in the future, they simply take the funds you have repaid and look to lend it back out to new customers.
In a nutshell, specialist Lenders play an instrumental role in the mortgage market. They will take a different view to mainstream Banks, but don’t get fooled into thinking they lend to just anyone, and you have to fit precisely within their published lending guidelines.
Some employees’ incomes are made up of various different elements. There is almost always a basic income on a payslip but there can also be other items such as overtime, bonuses and shift allowances.
Not all of these additional strands are guaranteed so as we discover in this case study, Lenders view this in different ways.
Josh, a first time buyer in Birmingham, worked for the NHS, and his payslips were incredibly complicated. In addition to his basic income, he was paid different hourly rates for the various shifts he worked.
There was overtime too at time and a half and holiday pay; in fact, one payslip had six different elements of payment on it!
His Bank would not lend him and his family enough to buy the home they had made an offer on, and he approached us for a second opinion.
The reason Lenders can have an issue with multiple elements of pay on payslips is that these additional strands are rarely guaranteed.
Therefore, in the event of a repossession taking place, they might struggle to justify to a Regulator why they granted the mortgage in the first place based on income, which they knew was variable.
As a result, Lenders often take an arbitrary view; for example, they might take 60% of overtime if it’s on every payslip. Others take bonus into account if it’s payable monthly or paid annually, things can get very complicated!
We managed to help Josh; in fact, we found two Lenders who would lend him the amount he and his family needed. Lender one had a policy of taking 100% of the shift allowance and overtime into account as long as it could be evidenced on every payslip.
They applied an average of the last six months’ payslips to give them confidence that the income was smoothed out and sustainable.
Lender two would also lend more than enough but assessed the income differently. Instead of evaluating all the various elements individually, they simply asked that we provide Josh’s last two years’ P60’s and took an average of those.
This method also works well for employed applicants who work in sales roles with low basic salary but high commission and bonus.
Josh was delighted he contacted us for our mortgage advice, he knew the mortgage was easily affordable, and he knew that his income was sustainable, it was just a case of finding a Lender who took a different approach.
Whatever your situation, whether you are moving home in Birmingham, buying for the first time, or looking to Remortgage. If your income is made up from several different sources, I would recommend you make contact with us well in advance of making an offer so you can be sure of your maximum borrowing capacity upfront to avoid potential disappointment.
Some business owners regularly re-invest in their companies in order for them to keep growing. In periods of growth, they don’t always pay themselves as much as they should, holding them back from getting a mortgage.
For these types of Self-Employed applicants, there is Self-Employed Mortgage Advice in Birmingham available if they feel the following case study illustrates them.
Neil was an HGV driver who had been redundant and decided to start his own business in the crafting industry of all things, having spotted a gap in the market. He sold the family home and moved into his in-laws with his wife and children to set up from their garage.
He used the redundancy money and house sale proceeds to buy some stock and set off on his journey into self-employment. Things went well, and within a couple of years, the business was making a small profit.
Neil and his family cut their cloth accordingly and aggressively minimized their expenditure to allow the business to grow more quickly. Luckily they had no rent or mortgage to pay each month, and Neil only paid himself a minimal salary in line with the annual tax-free allowance.
Fast forward 3 or 4 years and the business now had premises and was making almost £100,000 net profit. Still, with minimal expenditure, Neil continued not to pay himself properly. It was time for the family to buy a new home, but his Bank would only lend him £40,000 for a mortgage, and he approached us for assistance.
Neil’s Bank had let him down because he was only paying himself around £10,000, and despite the profits, in the business, he and his family could just about live without a dividend from his Limited company.
Unfortunately, most High Street Lenders (with the odd exception) only assess affordability based on declared earnings. This usually is salary + dividends averaged over 2 years, but in Neil’s case, salary alone.
We managed to find a Lender who would assess Neil’s profits in a completely different way. The Lender took into account his “retained profits” and did not penalize him for his self-imposed frugal lifestyle.
This Lender was not interested in the fact Neil was not drawing out a dividend he did not need from his Limited company and agreed to lend him up to £400,000 (Neil did not need this much as he borrowed a much lower amount).
Neil was not a self-employed applicant looking to take out a self-employed mortgage in Birmingham while simultaneously seeking to minimize the amount of tax he paid aggressively. He made personal sacrifices in terms of income to grow a business from scratch.
He felt that his Bank was not interested in hearing the whole story about his company’s growth and took a blinkered view of his financial situation based on income declared to the Inland Revenue.
We found him a Lender who took a much more understanding view and Neil and his family are now back where they belong in a family home of their own.
If you are in a similar position to Neil or a self-employed applicant looking to take out a self-employed mortgage in the future or needing Self-Employed Mortgage Advice in Birmingham, please contact us. Sometimes there needs to be much forwarding planning to take out a self-employed mortgage, and we are happy to help with this.
I Had a client some years ago who had sold his house and moved back into the family home to start up his business. They made lots of sacrifices personally to grow their business, and within a few years, it was starting to show good profits. He kept his expenditure down to the bare bones and kept re-investing in his Limited company.
He had a sound business with a six-figure profit but hardly any declared income because of his self-inflicted lifestyle choice. Surely this is the kind of frugal businessman all Lenders should be considering (low LTV case too)?
Many people are, to a greater or lesser extent, in debt at some point in their lives. Sometimes due to personal circumstances, this can spiral out of control. When this happens, it can feel that once you have paid all your bills at the start of the month, there is little or no disposable income left.
One route out of this for some applicants is considering a Debt Consolidation Remortgage in Birmingham, as we explore here in this case study.
Deborah was a divorcee living on her own; her children have flown the nest. Her debt had started to accumulate with legal bills after her divorce and increased gradually over the years, having to live on one income with unreliable maintenance from her ex. Finally, her daughter became pregnant relatively young, and as any mum would, she tried to help her out financially, although arguably, she couldn’t afford to do so.
Luckily Deborah had paid her mortgage off some years ago so that asset was there to potentially borrow against. Her take-home pay was £1100 per month, and her credit commitments were taking up more than half of this.
She had not missed any payments on credit commitments, but she had no emergency fund, and while Deborah’s credit score wasn’t too bad, she was no longer able to obtain new zero% credit cards to transfer her balances.
Deborah was recommended to me to see if there were any options available to improve the quality of her financial life.
When I met, Deborah was feeling relatively low. She had cut back on all luxury spending, and it was evident that she was desperate to take ownership of her financial situation before it got any worse.
We explored the possibility of a personal loan, but the debts had mounted too high for that. Deborah had no family members who were able to help; downsizing was not an option, and we agreed the right way forward would be to remortgage the house to pay off the debts and reduce her outgoings.
We managed to find a Lender to meet Deborah’s requirements. Although it has to be said given her low income, it was hard to find a lender who would lend her enough. We managed to get her an Agreement in Principle, but regrettably, it was declined when we submitted the formal mortgage application.
The case was declined because the Underwriter who assessed the situation felt that because Deborah had been using cards to pay off other cards and not then closing down the cards.
When she had transferred balances, there was a high risk that she should re-offend and rack up debts again.
Deborah was devastated. She understood the concerns, but in her eyes, she had accepted she had a problem, and by engaging us had taken a positive step to remedy her position. To her, their risk was minimal – the loan to value was under 40%, she had never missed any payments, and if the remortgage was successful, she could be a whopping £500pm better off.
All the above was indeed correct, but clients don’t always appreciate that taking a property into possession is the last thing a Lender wants or needs. It reflects poorly on the numbers they are required to report each year. In the event of repossession, they have the considerable hassle of securing the property, ensuring it, marketing it, selling it, and paying the surplus of equity (if any) back to the previous owner.
As such, if there is reasonable doubt, then an Underwriter has the discretion to decline an application, even if it is within their published lending criteria.
We pride ourselves on getting our recommendation right the first time, but this one didn’t work out that way due to the Underwriter’s adverse comments at the full application stage. However, we knew this remortgage wasn’t as risky as the Lender had made out, and it ought to be the right outcome for her.
Deborah perhaps felt like she wanted to give up, but we went back to the drawing board to find a different Lender. Sure enough, we found one and armed with the information we had from the previous Lender. We were able to provide better supportive comments for the second roll of the dice, and luckily this time, it was successful.
Deborah didn’t take this step lightly. She has now secured debt that was previously unsecured and may end up paying back more interest overall, depending on how quickly she can get the mortgage paid off.
However, in the short term, this has worked well for her. She now has had the burden of debt relieved from her shoulders, her credit score has improved, and she can save a little each month.
The savings we were able to help her make amounted to over 50% of her net take-home pay monthly and it has changed her life. Upon completing the remortgage, Deborah cut up all her credit cards except one to use in emergencies only, and she has now got her financial life back on track.
If you are like Deborah struggling with debt but are a Homeowner with equity please call us to discuss your options, ideally before the situation gets out of hand. The earlier you take back control of your finances the better you will feel about things. We offer debt consolidation Remortgage Advice in Birmingham & surrounding areas.