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Getting mortgage as agency staff and renting to students


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This July I will have worked for an agency for a year. I am ready (or raring) to buy my first house which I'm hoping will be around the 100k mark. My first plan was to buy a tenanted house (in a student area), and get consent to let on the mortgage. I realised this wasn't possible so I decided to move in to the property, live in it for a while and then change to BTL (or consent to let) when possible. I have a 10% deposit and I think lenders will look at my previous three (hopefully) or six months payslips to determine how much to lend.  My questions are;

1 Will they be looking at gross or net pay? (then they'd times it by 4.5 I guess?)

2 If renting to students would I need BTL or would it be allowed with consent to let?

3 To rent to students (around four) I'd need a HMO. I guess I'd have to apply for this once I was about to rent it? Are there any obvious problems with this either legally/from the lenders point of view?

4 How do you find under market value property deals? (in all the podcasts etc I've not heard tips on this subject....trade secret?!!)

Any help would be awesome, I'm a newbie and have no one to bounce all of this around with!

Nadine 

 

 

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Hi Nadine

As an agency worker, you will find many lenders will be looking for a 2-3 year history of your income. There are some solid options that will take 12 months however, but your options will be relatively limited. I dont think you'll find any lenders that will work on 3 - 6 months income, ts more likely to be an average over 12.

Consent to let is a dangerous thing to rely on, its not guaranteed and can only be established once you are a mortgage customer. If they say no and you rent it anyway, not only will you not have the correct insurance (your students burn the house down and you were on a residential policy, they are not going to pay...) but you will be in breach of the mortgage conditions and the lender can move to reposess if they wanted to. I dont know the answer here, but i suspect that consent to let would be conditional on it being let to a single family on a standard AST. I cant see a lender saying yes to you turning their 90% resi mortgage at 2% into a HMO for students!

Renting a HMO to 4 students is not something to take lightly, you will need to ensure you can get planning permission if you are in an area where HMO's are controlled (usually in popular student areas). If there are already enough the council wont allow you to add more. You might need a license and you will have some expense for things like fire doors, extinguishers etc. Even if you dont need a license, fire safety and the like should be a high priority. If the property is furnished, expect to have a high turnover of furniture. Not something for the feint of heart, and not something i would recommend you start with!

What happens after your mortgage expires. If you have students in there and only 10% equity, you wont be able to remortgage onto a BTL or a HMO mortgage. You'll be stuck on a 5% SVR rate.

As for undermarket deals, i dont know where you find them, personally i think its a bit of a unicorn. People only sell for cheap for a reason, you inherit that reason when you complete and at best you kick the problem down the road. Either other sales are hidden which affect the true price, there's legal or structural issues, its a distressed sale or theres something illegal going on. Lender will actively look for these things and if the property appears too good to be true they will want to know why. As a cash buyer you can often get past much of this if you are comfortable with the risks, but if you are asking the bank to buy it, they are going to be far more cynical and cautious!

Sorry to be the bearer of bad news, but it doesent sound like a strategy thats going to work as you hoped. I'd recommend speaking to a few good brokers, there are plenty on here, and letting them give you some thoughts on how to acheive what you want with the support of mortgage lenders. Unfortunately if you want their money, you need to know what their idea of a good deal loks like!

043_logo_final_03.png.0cdf828351f81e6097208048ac2d018d.pngStuart Phillips

Independent, Whole of Market Mortgage Broker

AALTO Mortgages Ltd

Web  www.aaltomortgages.com

Email  sales@aaltomortgages.com

Call  020 7183 1101

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I appreciate the time taken to reply Stuart. I have spoken to a broker who says that one or two lenders will accept agency staff AND look at last three months pay slips. I only need one lender! Anyone else heard about this as a possibility?

And most importantly would they be looking at gross or net?

I agree re consent to let. Im not at all frightened of HMOs but it does seem that this route is not an option for me at this stage. Fair enough

 

 

 

 

 

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You only need one lender, but you really want plenty if you want to succeed. You are going to have to make commitments to lots of people, vendors, solicitors, lenders, brokers etc. Not everything is as simple as meeting criteria, much of it is down to an underwriters discretion, just because they say they will consider it doesent mean they must or will.

Going into a deal knowing you only have one or two options for finance means that at worst you put time effort and money into something and for whatever reason those lenders dont want to proceed and you are high and dry. Its a gamble. Would you gamble £500 in costs knowing you only had 2 out of 75 lenders as options? If you can afford to lose that then go for it, but it wouldnt be the advice i'd offer. I measure my business on successful outcomes and expect it to go through to completion first time everytime. If its a gamble then its business im unlikely to take on anyway, but as you have found there are plenty of brokers willing to say what you want to hear to secure the business and i dont think thats particularly ethical. BTL is unregulated though so you have very little comeback if you do end up out of pocket.

I get that people come here looking for solutions, and there are lots of brokers who use this forum as a way to drum up business (im not here because im bored...) but i think its important to be realistic.

 

043_logo_final_03.png.0cdf828351f81e6097208048ac2d018d.pngStuart Phillips

Independent, Whole of Market Mortgage Broker

AALTO Mortgages Ltd

Web  www.aaltomortgages.com

Email  sales@aaltomortgages.com

Call  020 7183 1101

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The broker ive been speaking with says his payment comes from the lender so I'm not sure why he'd mislead me as he wouldn't get paid? Unless I'm missing something. 

So to be clear you don't think i can get a residential (my first property will be with resi mortgage, business will come down the line) mortgage as agency staff? 

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If you throw away the idea of renting this then yeah, you should be fine, but flipping it onto a BTL probably isnt viable. People have been trying this for decades and lenders are wise toall the tricks. They dont want you to be doing this and if its evident thats your intention it wont matter about criteria, they will decline, or they will not give consent to let. Either way you dont have a positive outcome.

If your broker knows you are planning to do the above, buy a 90% residential mortgage in order to turn it into a BTL, then they are in murky water with the FCA at best. If you dont tell your broker this is what you are planning, then you are putting them in a bad position with that lender. Either way, not good business from my perspective.

I dont think your broker is misleading you, i just dont think they are acting in your best interests.

Its gross by the way, they generally always take your gross income and calculate tax themselves.

 

043_logo_final_03.png.0cdf828351f81e6097208048ac2d018d.pngStuart Phillips

Independent, Whole of Market Mortgage Broker

AALTO Mortgages Ltd

Web  www.aaltomortgages.com

Email  sales@aaltomortgages.com

Call  020 7183 1101

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  • 6 months later...
On 4/28/2020 at 8:38 PM, Stuart Phillips said:

If you throw away the idea of renting this then yeah, you should be fine, but flipping it onto a BTL probably isnt viable. People have been trying this for decades and lenders are wise toall the tricks. They dont want you to be doing this and if its evident thats your intention it wont matter about criteria, they will decline, or they will not give consent to let. Either way you dont have a positive outcome.

If your broker knows you are planning to do the above, buy a 90% residential mortgage in order to turn it into a BTL, then they are in murky water with the FCA at best. If you dont tell your broker this is what you are planning, then you are putting them in a bad position with that lender. Either way, not good business from my perspective.

I dont think your broker is misleading you, i just dont think they are acting in your best interests.

Its gross by the way, they generally always take your gross income and calculate tax themselves.

 

Hi Stuart,

Would it be possible to remortgage a residential mortgage onto a BTL mortgage after a few years of owning my home, or is this still considered 'flipping'? I know you said that most lenders will decline a BTL mortgage application if this is what they think you are doing...

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