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BTL mortgage refused “not fit for rental“


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Hi everyone new to all of this so bare with if I leave any details out. I’ve recently applied for advance borrowing(deposit for BTL) which was accepted, applied for a BTL mortgage was accepted on the principal house is worth purchase price. The average house price on the street is £125-135k I’ve agreed on purchase price of £100k because it needs abit of work I’d have 25% deposit so would be borrowing £75k however had a call from lender saying the conveyancer has been in touch not left a valuation but have stated “not fit for rental” so I have been refused? Does anyone know why they would refuse or should I say what reasons?

 

thank you.

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Hi Jake,

Do I understand correctly that the solicitor told the lender that the property was not fit for rental?

If so, then it's likely that the solicitor found something in the legal paperwork that prohibit renting the property. Why not ask the solicitor in the first instance and see what they say?

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Hi lilla,

I’ve gone through Lloyd’s who offer a free lenders valuation/home buyers report and it’s that report that’s come back it doesn’t include a valuation just says not fit for rental(this is also my mortgage adviser could see) I’ve asked for further information but my adviser hasn’t heard anything back as of today.

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Hi Jake

How much work are we talking for the property? I believe if it's deemed "Unhabitable", you won't get a buy to let mortgage. (It would be bridging finance that you'd need) Essentially you should  be able to live in the property right from the get go for a buy to let mortgage. 

Nice going with your advanced borrowing - that's exactly what I did and purchased my first buy to let. 

On a completely different and random note, did the buy to let mortgage lender pull you up on the source of your deposit? I had a lender once decline me a buy to let mortgage due to source of my deposit being an advance loan. 

Cheers 

Benji 

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You mentioned conveyancer (your solicitor) and the valuation. Did you mean the surveyor had said not fit for rental or that your solicitor has? If the latter, they should be telling you directly, but it may be that there's something in the legal information about owner occupiers only, in which case forget about it. 

Assuming you meant surveyor, you said it 'needs a bit of work' so what's the extent of that? It's about £30k under street prices, so sounds like more than just new carpets unless you've found a bargain. For a start, what's the EPC rating? Needs to be at least an E otherwise you couldn't let it out. If it would need new kitchen, bathroom, decoration plus some repairs etc that is likely to be the issue. The lender would be concerned about two things - you'll need to spend a considerable amount of time and money before you can get any income, so have you got the money for the refurb and to pay the mortgage or; once you've completed the refurb, you'd look to sell or refinance at a higher level with another lender.

That leaves you with several options:

  1. Buy the house in cash, do the refurb and then apply for a mortgage. The benefits of this are less stamp duty when buying and then the mortgage would be 75% of the c£130k valuation, meaning you should leave less than the 25% in. Slight issue is you're going to need £100k to buy it, plus whatever to refurb, plus ongoing costs etc.
  2. Same as #1, but using someone else's money. Two basic ways to do this - find a JV partner who'll lend you the money either at a fixed rate of interest or for a share of the property or go down the bridging route where you'll take out a bridging loan which would cover most of the purchase cost. In either situation, you pay the loan off when you remortgage. You'll be looking at costs of around 0.75-1% interest per month, plus fees, so not cheap and you need to factor that in to the refurbishment
  3. Speak to your broker. There are some bridge to let mortgage products available which ay allow you to do the work required - as an example, see https://www.precisemortgages.co.uk/BuyToLet/RefurbishmentBTL. You won't be able to access these yourself and probably won't get them through the estate agent's mortgage person, but a good BTL broker should be able to help. 
  4. Walk away and look to buy one of the £130k houses where you'd need to do very little, but will pay additional stamp duty, will need a larger deposit and you won't be able to get any money out for a couple of years and it would then be reliant on the property market moving upwards, as you've not added any value to the house. 

Options 1,2 & 3 are the buy, refurbish, refinance (BRR) model, that is a very good way of making the initial deposit go a lot further. In a rising market, and if you find the houses at a good enough price, you could find you can pull virtually all of your money back out again - you buy for £90k, spend £10k on a refurb and get it revalued at £130k, meaning you get £97.5k back, so you'd have only spent £2.5k plus stamp duty and legal etc. Your original £25k deposit would probably allow you to do 5 or 6 houses and you'd have the rent from the initial properties coming in to keep topping it up and pay for further renovations. 

Rob's book has some good explanations of the strategies but be warned, BRR will take up a lot of your time and energy and is difficult if you haven't got a good builder/team (unlikely on the 1st project) and are working full time in a day job. 

 

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This has happened to us before. We bought a 1 bed flat - similar figures, agreeing a price of £109,000. The flat was not habitable really - required a large refurb of new kitchen, bathroom, rewire etc etc. The Surveyor for BM Solutions down valued the property to £98,000, and refused lending based on the 'not fit to let' criteria - fundamentally the Surveyors opinion. So we went back to our mortgage broker, and applied to TMW instead. TMW's surveyor valued the property at £109,000, and passed it as fit to let, and we got our mortgage. Every case is individual, and will depend on your circumstances but simply trying a different lender may well do the trick. Definitely worth a shot.

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Hi,

I believe it's the valuer who has deemed your property not fit for rental. Mortgage companies would evaluate properties for rental at current market condition not future. If you're property is not fit for rental, you would need to get bridging finance, refurb the property and refinance it for mortgage. 

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Hi all further borrowing was through Lloyd’s On my existing mortgage as I have 65k equity and BTL was also with Lloyd’s and yeah sorry it’s the surveyor that’s said it’s not fit for purpose it needs new kitchen, windows are double glazed but first ever One, boilers old but has passed its check no mould or damp etc would need a good 15k spending to get it upto scratch but I assumed with discount and the mortgage only being £75k I’d be fine I’m waiting for further information but nothing back as of yet. Haven’t really got funds to buy cash so I guess I could look into bridging loan or another surveyor.  
 

thanks guys.

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Hi Murray,

"Advance borrowing" is not the correct term, but describes well enough what people mean. The official term is "further advance" and it means that the existing lender gives you some extra mortgage on top of what you already owe.

E.g. the property is worth £100k, the existing mortgage balance is £50k and you take a further advance of £20k, so your new total borrowing will be £70k. This £20k will land in your bank account and can use it as deposit for the purchase of another property (or home improvements, repaying credit card debt, etc.)

There are of course lots of T&Cs, one of them being what Benji mentioned above that not every lender will accept it if the deposit comes from this solution. These lenders are in minority though and a broker will be able to help you as most appropriate.

Just to mention, an "advance borrowing" could also be a second charge, which is not the case above, but just to complete the picture. A second charge is when it's not your existing lender giving you the above mentioned £20k, but a different lender. It's called a second charge, because when you sell the property, your existing lender gets paid first (they hold the first charge) and the new lender will get paid second (hence second charge). 

Hope the above helps clarify the terms :)

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11 hours ago, lilla d said:

Hi Murray,

"Advance borrowing" is not the correct term, but describes well enough what people mean. The official term is "further advance" and it means that the existing lender gives you some extra mortgage on top of what you already owe.

E.g. the property is worth £100k, the existing mortgage balance is £50k and you take a further advance of £20k, so your new total borrowing will be £70k. This £20k will land in your bank account and can use it as deposit for the purchase of another property (or home improvements, repaying credit card debt, etc.)

There are of course lots of T&Cs, one of them being what Benji mentioned above that not every lender will accept it if the deposit comes from this solution. These lenders are in minority though and a broker will be able to help you as most appropriate.

Just to mention, an "advance borrowing" could also be a second charge, which is not the case above, but just to complete the picture. A second charge is when it's not your existing lender giving you the above mentioned £20k, but a different lender. It's called a second charge, because when you sell the property, your existing lender gets paid first (they hold the first charge) and the new lender will get paid second (hence second charge). 

Hope the above helps clarify the terms :)

Thanks, 

Very informative, and useful to me as I plan to start discussions with my current lender. 

Is it correct that the "further advance" / new borrowing will have different terms to the existing borrowing ?

I currently have a good mortgage on some good terms, and would like to keep them in place - even if it means additional borrowing is on different terms. 

So building on the current example, the existing 50k continues on current arrangement, and the additional 20k will have new terms. 

and to clarify, is it a remortgage will be completely new agreement for the 70k

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4 hours ago, kent614 said:

o building on the current example, the existing 50k continues on current arrangement, and the additional 20k will have new terms. 

Yes, your understanding is correct.

4 hours ago, kent614 said:

and to clarify, is it a remortgage will be completely new agreement for the 70k

It depends. If the deal for the £50k ends on 31/12/2020 and the deal for the £20k ends on 30/06/2022, then you could:

- just take a new deal from your current lender for the £50k to start 01/01/2021 (or a few months earlier, if the current lender allows it) and take a new deal for the £20k when that finishes, etc., i.e. you will be out of sync on the two deals all the time OR

- remortgage the whole £70k to a new lender as of 01/01/2021 and pay the early repayment charge (ERC) applicable on the £20k. This will consolidate the two parts into one mortgage and avoid being out of sync and being restricted to your existing lender's deals, but you'll pay ERC.

Granted, there are deals with no ERC, but whether you can get a further advance deal with no ERC will depend on what your lender has available.

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  • 2 weeks later...
On 4/5/2020 at 10:19 PM, lilla d said:

Hi Murray,

"Advance borrowing" is not the correct term, but describes well enough what people mean. The official term is "further advance" and it means that the existing lender gives you some extra mortgage on top of what you already owe.

E.g. the property is worth £100k, the existing mortgage balance is £50k and you take a further advance of £20k, so your new total borrowing will be £70k. This £20k will land in your bank account and can use it as deposit for the purchase of another property (or home improvements, repaying credit card debt, etc.)

There are of course lots of T&Cs, one of them being what Benji mentioned above that not every lender will accept it if the deposit comes from this solution. These lenders are in minority though and a broker will be able to help you as most appropriate.

Just to mention, an "advance borrowing" could also be a second charge, which is not the case above, but just to complete the picture. A second charge is when it's not your existing lender giving you the above mentioned £20k, but a different lender. It's called a second charge, because when you sell the property, your existing lender gets paid first (they hold the first charge) and the new lender will get paid second (hence second charge). 

Hope the above helps clarify the terms :)

Hi,

 

Thanks for the response. I think that my understanding of it was correct. I assume that when you say "extra mortgage on top of what you already owe" you mean against your residential property or property you already have a mortgage on?

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