Financial advice needed! Thought I was in a good position but apparently not...

[SquaresandStarlings]

I’m sorry if this is long but I wanted to get all the facts down.

I currently own two properties and am about to inherit a third with a total value of about £1.8million. We live in one and rent out the second, which has a £64K mortgage on it.

The third property is next door to our home and we’d like to merge half of it with ours and create another rental property from the remainder. For this we’d like to borrow a further £116,000, which would be a total of £180,000 combined with the existing mortgage. I also have £17K in credit card debt, which I’ve included in the amount I’d like to borrow.

My previous lender has now changed their buy-to-let criteria from property value to personal income, but many lenders still do loan to value so, as a SAHM, I’ve approached a recommended broker to find a good deal. Everything is in my name only and not DH’s.

We were unfortunately turned down by the first two high street lenders he approached, so I subscribed to Equifax, the search company they used, to check my score. It was shown as Fair, but this was because my address was incorrect. I then spent over a week getting it corrected and my score is now Very Good at 730.

I was surprised therefore when the first application our broker has since made was also turned down, but my broker has said it’s because it takes a couple of weeks for the updated information to filter onto lender’s systems.

When I looked again at my report it’s showing mostly green flags but two amber alerts: one showing my credit card utilisation but also that the search done by the first high street lender is now appearing as a hard search, when my broker assured me all initial searches are soft searches. Now any subsequent lender can see I’ve recently applied for a mortgage elsewhere and was obviously turned down if I’m applying to them!

Equifax also state that a soft search should be made when applying for a mortgage in principle, and that a hard search should be done once you proceed with a formal application after the mortgage in principle has been agreed.

I’m just surprised that I’m finding it this hard to get what is not an extortionate mortgage with the properties I own, and also think I have a right to ask the lender who did the hard search to retract it, as they should have done a soft search and it’s potentially affecting my ability to get a mortgage. My broker says the hard search is not a major factor and makes little difference, but I’m wondering if he’s just covering his back.

Any advice would be very welcome! I’d be interested to hear from people working in lending and underwriting and also anyone in a similar situation.

Caveat that I'm no expert - have recently applied for a mortgage.

1. Sounds like you might need a new broker! They shouldn't really be putting you forward if you're likely to get turned down, that's their job to select the ones that will lend to you. BTL is a specialty so maybe you need someone else?
2. Hard search - no harm appealing; my understanding is Soft search for AIP and hard search for application.
3. Do give it a couple of weeks for the address to update on the files
4. £17k (depending on your income) sounds to me like a high credit card debt. Is this getting substantially reduced each month? Can you wait a few months to clear it then start applying again? If it's not getting reduced, this will indicate to the lender your affordability is compromised - you should be able to comfortably afford mortgage on top of existing liabilities. They will stress test so you can cover periods without rental income etc.

Best of luck with it all!

Thank you.

The lender who did the hard search is Nationwide and I've now read on their website that they do carry out a hard search even at the Agreement in Principle stage.

So I'd advise anyone applying through a broker or directly to a lender to always check if they do a hard or soft check at the initial AiP stage. A hard search will stay on your credit record for a year, but a soft search won't show, which is what most lenders use.

A sibling is inheriting the liquid assets, so if we are really struggling to get a mortgage, as a very last resort I could approach her to borrow to pay off the credit card debt and then reapply (but it takes a couple of months to update on the credit report).

We are very close though and I'd be very worried about putting a strain on an otherwise good relationship.

Is the house you are living in mortgage free?

What is the rental yield on the house you want to mortgage after the works?

I think you might struggle to borrow 180k on the rental income from one property (although given 3 houses have a value approaching 2million, maybe rental costs are much higher than I'm picturing!).

Is the family home in just your name to? Could DH pay iff your debt and take a share in that house and get the mortgage required just on your residential property, leaving the rental properties mortgage free?

Just musings, no reply required, unless you wish to.

The property we live in is mortgage free; the second property we rent out has a £64K mortgage and the third property that we're converting is mortgage free.

The second property is currently a very large one bedroom flat; current rent is £1,350 pcm. Part of the money we'd like to borrow will be to eventually convert it into a two bedroom flat.

The third property will be a two bedroom flat with an estimated rent of £2,000 pcm.

DH is self-employed so going down the buy to let route works better for us as it's all in my name.

Could it be the fact that you are a SAHM, with no income? I know you have rental income, but that is only £1350pm, which is not enough for a mortgage of £197,000. It's also not a guaranteed income, as you could lose your renter at any time, and struggle to replace them.

I did mortgage debt recovery for a very long time, and this is what my mind leapt to. That said, I was never at the mortgage lending side of things. However, we did restructure mortgages and a large part of that was making sure that it was affordable.

Can DH borrow that amount of money from the business?!!! Serious suggestion, BTW.

@BeachBlondey I don't think being a SAHM is an issue as it's a buy to let mortgage and purely determined by the property value and rental income.

Our broker also said, strangely, that trying to borrow a lower amount, which was my obvious response, wouldn't make any difference.

I'm hoping the issues so far have purely been from my Equifax report having had the wrong address and that the correct update apparently (according to the broker) takes a couple of weeks to appear on lenders' systems (even though it's updated on my own report).

@CatOnTheChair no I don't think DH is in a better borrowing position than me unfortunately.

Oh, I'm a bit stumped then. Can you not ask for a reason they declined?

I've been annoyed with my lender. I wanted to reduce the term, which would make the payments higher, but they wouldn't based on "affordability", but I had been overpaying for YEARS, showing that I could afford it. "Computer says No". This means that I can only over pay by 10%, when I really wanted to over pay by more.

@BeachBlondey just a side note on this, I've only recently realised my lender will allow 10% of the outstanding balance per year, not 10% of your current payment. So, if you owe £120k and pay £500 per month, you can overpay by an extra £500 each month (10% of 120k= 12k for the year), not the extra £50 I was thinking. That's not exact numbers as it depends how the payments and interest are calculated etc so probably a bit under that, but your lender can tell you what it is and it's an awful lot more than the £50 a month I was thinking. You might know this already, sorry if it's obvious!

@BeachBlondey can you just keep overpaying without officially reducing the term? By the time it's paid off early, surely the redemption fee will be negligible?

The second decline did actually specify that credit card spend was too high, but that would have been combined with the low Equifax score.

My score then went up by 245 points when my address was corrected and that includes the three credit cards, so Equifax clearly don't have an issue, although that section is listed as amber rather than green on my report.

It's really worth subscribing to Equifax as people have no idea what's on their report and if it may need correcting. It's the main credit agency that most lenders and many other agencies use. It's free for the first month.

Thanks for this. I too thought that, but realised a while ago that it's 10% of the balance. I wanted to reduce the term down by several years, meaning that the required monthly payment would be around what I already pay, leaving scope to send even more, but they won't do it. It kind of doesn't matter now, as savings interest rates are higher than the mortgage rate, so I should probably think about just redirecting the overpayment to a savings account!! Its just the inflexibility and the whole "computer says no attitude".

I do hope you get it sorted Op. Fingers crossed.

Have you tried speaking to a lender directly? What about your existing lender?

If I've understood correctly, you have a good LTV as you have assets worth over £1.8m (or you will do) and a mortgage of only £64k + £17k credit card debt + you want to borrow another £116k. So a total of about £197k? Against the houses that's not a huge amount.

But the issue from the lender point of view is probably whether you have the income to support it and make repayments, if your only income is £1.3k a month.

If they do an affordability check they'll calculate all your income, they'll estimate your outgoings and ask you to confirm any additional costs, like childcare and then they'll stress test to check you can afford the mortgage if rates go up. They tested us to 6% about 3 years ago which seemed high at the time but hey, it doesn't now!
I'm not an expert at all but I've remortgaged a couple of times and my advice is this:
Only answer the questions you're asked, don't embellish!
They need to tick their boxes
Keep checking your credit score
You might be better off moving half the £16k onto another card at 0% because if they look at %age utilisation of all your cards that will look better
Can you increase your income?

Good luck.

Your broker might be the problem here, as pp said they should be approaching them with all the facts to ascertain the likelihood you will get the mortgage before they apply. Some lenders go straight to underwriter stage and may be more sympathetic to the whole case. I had to go down this route when applying not on the electoral register. All mainstream lenders were a ‘computer says no’ scenario.

@AngryGoblin the broker said, based on the LTV, that we could actually borrow more (I think £197K max).

Our credit card debt is included in the £180K we calculated btw, although lenders may see it as extra of course.

@Runnerbeans8 the broker was recommended as an expert in buy to let mortgages. Can you recall which lender you went with (we're in the South East).

So far he's approached NatWest, Nationwide and Yorkshire Building Society, so quite mainstream but with rates between 3.3 to 4.4%

Is it because the property is next door? I had this same issue where I bought a flat in the same building as another flat I owned and needed to go through a specialist broker. I spoke to about 20 different brokers and most said it wasn't doable because I would share the freehold to both flats and there was added risk I would knock through and create one full property.

None of the high street banks would consider the mortgage either.

@Applecart12 the last lender (who hasn't yet got my updated credit report) asked my broker how many flats were in the building and was ok that I owned three of them.

I don't think the first two banks knew as the application was online and based just on the mortgaged property.

Did you resolve everything in the end?

The issue isn't the number of flats you own but that they are next to each other. The fact that you are considering knocking through one (I know you've not disclosed this to the lenders) is one issue I was warned that I could not do.

The risk is if you knock through the property and combine them, the lender cannot repossess the property to recover their funds. Perhaps they have this flagged as being next door to each other?

I have my mortgage through a specialist lender that is only accessible through a broker.

I think you need to find another broker; call around and explain your situation. I spent a good 6 months researching and speaking to alot of brokers to fully understand the situation.

It was with Accord, their rates were a bit higher but not awfully so and at the time I wanted the property. I remortgaged after 2 years to a high street lender.

I suggest you speak to a financial as having 3 properties might not be the best way forward for you financially. It may be that selling the inherited property and investing in other assets may be more financially beneficial, especially given current interest rates and if you are a non earner.

Is it because they are building in the cost of any IHT, or is that already done and dusted?

@Runnerbeans8 Accord is the one our broker is hoping to go with. They initially declined but that was based on my lower score before it updated with my correct address. My broker is going to try them again after my updates have filtered through to the lenders.

@Jadeshack1 that would be really helpful, thank you - do you want to DM me?

By the way, note that banks don't heed the scores given by the credit reference agencies. Banks have their own scoring systems and all are different.

I think it is to do with affordability, and a btl is even more stringent when it comes to affordability. I currently show as having a perfect 999 score with experian, but actually I have almost maxed out on mortgage (our bank's between 4.45 and 4.85 times salary for most and a bit more for particular proffesions) so I doubt I would get more borrowing there. Throw in your credit card debt and they will be really cautious to lend. Has your broker informed the banks that you would clear the credit card debt upon completion? I remember this being asked of us in the past which I assume is also factored into the affordability calculations.

This link to just one bank has an extensive criteria

www.platform.co.uk/mortgage-intermediaries/lending-criteria/index