When you’ve already put in a lot of work to find a suitable investment property, the last thing you want is to have your mortgage application delayed or rejected, especially when many purchases are time sensitive and the purchase price may have been agreed based on your ability to complete the transaction quickly.
Here are five of the most common reasons why Buy to Let mortgages don’t proceed to offer:
1. The application hasn't been completed correctly
This is very simple, but one of the most common reasons why a lender will reject an application and it’s often because there is simply documentation missing. If you already have existing buy to let mortgages - and particularly if you’re now classed as a ‘portfolio’ landlord with four or more mortgaged properties - you will be asked for quite a bit of information on your other investments.
Make sure you know exactly what is required and put together a checklist so you don’t miss anything out.
2. The rental income doesn't stack up
Buy to let lenders will require the rental income to exceed the monthly repayment amount by between 25% and 45% and may assume an interest rate of around 5.5%. So, if the monthly repayment on the amount you’re looking to borrow is £500, you will need confirmation from a surveyor – or, if you’re looking to remortgage, proof of current rental income – that the expected monthly rent is between £625 and £725, depending on the level of ‘interest cover ratio’ the lender wishes to apply.
3. You are too highly leveraged as a 'portfolio landlord'
If you have four or more properties and are classed as a ‘portfolio landlord’, the total borrowing across your entire portfolio must be a maximum of 75% loan to value, preferably lower. So, if you bought properties 1-3 in the last few years and took out 85% mortgages, for example, you may be refused a fourth mortgage if the capital value has not increased by enough to bring the LTV down below 75%.
4. You have reached a maximum number of Buy to Let mortgages
Many lenders will have a maximum amount of borrowing they will permit one person to have. Sometimes this is a limit on the number of mortgages and sometimes it’s a limit on the total amount of money, e.g. £5m. Some will also take into account the number of mortgages you have with other lenders and if they feel you’re too highly exposed, may refuse to lend any more.
5. Down valuation of the property you want to buy
If a surveyor places a lower market value on the property than the purchase price you have agreed, the lender may reject the mortgage application or make a lower loan offer. Down valuations are most common when the market has been going through a particularly buoyant spell and the competition for properties has driven prices up.
To help ensure you don’t get caught out by one or more of these pitfalls, it’s worth using an experienced, specialist Buy to Let mortgage broker to help you complete your application, such as our mortgage partners, Embrace Financial Services. They will know exactly what is required by the lender and, if they’ve dealt with them a lot and have an existing relationship, may also know the route to having your mortgage approved.
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.