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.

Banks assess on both LTV and affordability. Your high cc debt suggests that your income is not covering your outgoings, which may be why you've been declined.

My first response when we were initially turned down was to reduce the loan, but my broker didn't think that made a difference, as my LTV was almost £200K according to him.

The other thing I thought might be at play here is that you are applying for the mortgage in just your name. The bank will see you paying for everything from the £1300 - bills, food, mortgage, credit card debt, etc and the affordability at that point is showing as not feasible. I remember when we were applying for ours they laboured the point of how much we had left in our budget after all bills to throw at the mortgage; I am assuming, in your case, this figure is lower than they would want to be able to lend you 200k.

The credit card debt would be paid off with the mortgage though, so it shouldn't be a factor.

We did this a decade ago when we first took out a mortgage - it was about £35K and we were vey open about it being for debt consolidation and home improvement.

I must say I've never applied for such a large mortgage, but as I said, my broker doesn't think it's an issue.

Do you know why Equifax had the wrong address against you? Was it just a mistake or have you failed to update your details when you have moved? I don’t work in this area, but given your comment about your DH, it sounds like his business may not be in a great position. Added to that you don’t have any paid work and can’t manage on your income from the rental so have so build up substantial cc debt - I appreciate this is your planned approach, but nevertheless the lender may not think that prudent, especially if the property market declines or you are left without a tenant.