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Categories: Case study | buy to let mortgages
We were approached by a first-time landlord who enquired for a short-term let mortgage. The application would be via a limited company. This landlord specifically wanted a director-only stake on the mortgage, so they did not want to be named as the 100% shareholder.
This presented a problem, because as the only director of the limited company, it is not possible to be listed as anything other than 100% shareholder. We explained this to the client before proceeding.
With these kinds of requests, it is in our best interest to establish what the motivation is. As it turns out, the shareholder had an unsatisfied Individual Voluntary Agreement (IVA), so they had an adverse credit rating.
Whilst not all lenders can help applicants with adverse credit, there are some who have actively positioned themselves in the market to help, so the best approach is to chat through your circumstances openly with your advisor.
A credit check is part of every mortgage application, so your financial circumstances will always become clear during the process. Discuss any concerns you have your advisor upfront – as this client did – so they can seek out a lender whose criteria can accommodate you.
In good time, we managed to find a lender that gladly took the client’s case on, subject to their IVA debts being satisfied prior to the deal’s completion.
The case
Investment route: Limited company, short term let.
The existing portfolio: No previous properties.
The tenancy arrangement: Standard 12 month AST (Assured Shorthold Tenancy).
The borrowing requirement
The client, a first-time landlord, applied for a buy to let (BTL) mortgage through a limited company structure, knowing that their adverse credit rating may present a problem in getting one from a lender. They were looking to borrow 75% loan to value.
The challenges we overcame
The biggest challenge that we overcame with this particular case was the problem of the unsatisfied IVA. Adverse credit can be a deal-breaker for some lenders.
The client may have stepped into this arrangement with false expectations about what can and cannot be done with mortgages. In this case, the whole ownership matter covered above, which they needed to be educated on before we could proceed.
The job of a mortgage advisor is to share all the facts and expertise they have in the most straightforward, digestible way. Fortunately, the client was open-eared and quickly reached an understanding that they could only have full ownership over the property.
The chosen lender requested that the outstanding IVA issue be resolved promptly. Fortunately, the client was able to accomplish this in time for the application’s finalisation, so the lender’s only stipulation was fulfilled without delay.
It was good that the client went into this arrangement with the awareness that their adverse credit could lead to more difficulties than a person with good credit history. They were upfront and honest with us about their tricky circumstances. However, this was not as much of an impediment as the landlord expected.
With this information in mind, the advisor dealing with this client’s case knew how to narrow down the product search in order to find lenders that would be happy with both applicants on the mortgage, despite the IVA. Rates started from 7.99%, with up to 70% loan to value (LTV), but to achieve the client’s target LTV of 75% they went with an interest rate of 9.99% so they could move forward with their investment plans.
Leaping into the Private Rented Sector for the first time can be daunting, but it’s definitely possible for a person without years of experience or a glowing credit rating to accomplish what they set out to achieve.
For lenders, it’s all about risk assessment. They want to invest in somebody honest, reliable and capable with their finances, so they don’t make a loss. The client’s honesty was commendable enough for the chosen lender to place some faith in them.
The solution
Property value: £250,000
Loan amount: £175,500
Loan to value: 70%
Rate: 7.99%
Term: Short term
Payment basis: Interest only
Monthly mortgage payment: £1,457
Monthly rental income: £1,029
Lender arrangement fee: £3,500
Do you need help securing a BTL mortgage?
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