With many investment purchases being time sensitive, landlords never want to have their mortgage application delayed or rejected. In particular, if you’ve managed to agree a ‘discounted’ purchase price because you’ve said you can complete the transaction quickly, a delay in getting your finance sorted can result in a deal falling apart altogether.
So, to give you the best chance of getting your application through first time, here we’re revealing five of the most common reasons mortgages don’t proceed as planned:
1. The property you want to buy is ‘down valued’
A surveyor might put a lower market value on the property than the price you have agreed. This is most common when the market has been rising quickly and competition for properties has driven prices up. If the property is down valued, the lender will either reject the mortgage application or make a lower loan offer.
2. The rental income doesn’t stack up
For a Buy to Let mortgage, the rental income has to be between 125% and 145% of the monthly mortgage repayment amount, assuming an interest rate of around 5.5%. That means if the monthly repayment is £400, you need to get confirmation from a surveyor – or, if you’re looking to remortgage, proof of current rental income – that the monthly rent is between £500 and £580. If the surveyor can’t find evidence to support the rent figure required, the lender might reduce the amount they’re willing to lend you or reject your application entirely.
3. You’re a ‘portfolio landlord’ that’s too highly leveraged
If you’ve got four or more properties, you’re classed as a ‘portfolio landlord’, meaning the total borrowing across all your properties must be a maximum of 75% loan to value – preferably lower. And that could be a problem if the mortgages you already have are higher than 75% LTV. For example, if you bought your first three properties in the last few years and took out 85% mortgages, unless the capital value has increased enough to bring the borrowing ratio below 75%, you might be refused a fourth mortgage.
4. You’ve reached a maximum amount of borrowing
Most lenders have a maximum amount of mortgage debt they’ll grant to one person. Some will also take into account the borrowing you have with other lenders. That may be a limit on the number of mortgages or a limit on the total amount of money, e.g. £5m, but if they feel you’re too highly exposed, they could refuse to lend any more.
5. The application hasn’t been completed correctly
One of the most common reasons lenders reject mortgage applications is because the paperwork simply isn’t right – usually because there’s documentation missing. If you’ve already got Buy to Let mortgages, you’ll be asked for quite a bit of information on your other properties, especially if you’re a ‘portfolio’ landlord with four or more mortgaged properties. So, put together a list to make sure you know exactly what’s being asked for and make sure you don’t miss anything out.
By far the best way to make sure you don’t get caught out by any of these pitfalls is to use an experienced, specialist Buy to Let mortgage broker to help you complete your application, such as our mortgage partners, Embrace Financial Services Mortgage Advisers. They’ll know what lender’s are looking for and with existing relationships, the ideal way to secure a mortgage approval.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Embrace Financial Services usually charges a fee for mortgage advice. The amount of the fee will depend upon your circumstances and will be discussed and agreed with you at the earliest opportunity.