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4th August 2026 | Baya financial

Month: May 2021

Thinking outside the box: where can your deposit come from?

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In this current market, we really have a big split in the situation of our clients. On one hand we seem to have plenty with cash available to purchase property and then refinance once works are completed. On the other, however, we have so many people trying to get into the property market but struggling to find the deposit funds.

Before I get to the options, one thing that comes up often is how much money you need to prove and whether credit cards can be used.

You need to be able to show the lender where the deposit is coming from (and it needs to be in your bank account!), as well as any refurbishment costs. This will need to match your schedule of works, and a valuer needs to agree that they schedule and cost match the works needed in the property. For example, if there’s clear evidence of damp then the solution needs to be covered off in your schedule.

How can you use credit cards within this? 

I hear property mentors often speak about using credit cards to pay for refurbishments so that you can refinance and pay it back without putting your own money in but to be honest it doesn’t always work that way! Lenders will want to know that you have the funds to carry out the refurbishment – if you’re not able to finish it then they will be the ones left with it and that’s not what they want!

As with lots of things though, it does come down to experience. If you’ve done it a few times before and got off your bridge successfully then they are more likely to be more flexible with where your money is coming from and we may be able to agree it.

Here’s some ideas for where your funds can come from 

Savings 

This is the easiest one, but often the one that gets used up first! If you’re serious about getting into property then you really do need to think about how you can save money from your day to day expenses to creat funds for it. Especially for your first project when the lender wants to see you’re using your own funds. Look at a budget planner, find a savings account that encourages monthly savings and go from there. There may be some sacrifices that need to be made!!

Refinance of your residential or other property

Refinancing your residential property can be seen as risky by some, but you are moving the equity from one property to another. With residential mortgages back up to higher loan to values and lenders now using bonus and commission again this may be a good time to look at this option.

Remember that your home may be at risk if you do not keep up repayments on it, so look at the overall picture. It’s an idea to explore though.

Gifts

Often when investors are looking for investor funds, family and friends are first on the list. It’s an easier sell, but comes with more pressure! Gifts from family are easier to use for your first few projects (before you build up some experience) and it counts as your own money!

Joint ventures 

This is an alternative where you are relying on the experience of someone else. It means your JV partner has more security over their funds and equally you have more support on the project. You are able to split the shareholding to reflect the funds and experience of all applicants too, so it’s flexible.

One thing to remember is that generally all applicants to the mortgage will need to sign a personal guarantee to be jointly and severally responsible for the loan, so ensure that your JV partner is happy with that set up.

Company loans 

Something we are seeing more of, is where clients have a (non- property) company which is profitable and they want to use these funds to put into property. It is a tax efficient way of doing things, but ensure to check with your accountant. You may have utilised a BBL in the company too, so you will be able to use that. Most lenders will allow you to use company loans as long as they are interest bearing.

Angel investments

Once you’ve built up a track record of projects – usually one or two similar sized projects – you can move on to using other people’s funds!

Loans are an option where you run out of your own money, when you factor in the overall costs. Most lenders will now be able to use investor loans where there is a loan agreement in place and no charge on the security property. There needs to be a clear replacement method and any interest payments need to be taken into account so bear that in mind.

With the right strategy you will be able to recycle some of your funds, so you’re not starting from scratch with each project – although ‘no money left’ deals are hard to come across at the moment!

As always, let us know if you want to run anything past us!

 

 

What is going on with the stamp duty deadline and Jackie’s update

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I keep saying this – but I can’t believe it is Friday again!!

I am starting to venture out and its taking some getting used to… We had one night out for a very belated November birthday this week and I’ve needed a good few days to recover!

We are now at the stage when the last cases will get through for the higher SDLT discounts ending 30th June. 

For the £250k and under purchase prices, there are still a few months to go – but be wary, the conveyancing side is starting to bubble over. We are being asked by clients for solicitors details to take on cases when their own are simply too busy to help.

What’s the best way forward if you get a good opportunity?

I would suggest, if it’s available, going dual representative. This is where the solicitor acts for both the lender and yourself.  I wouldn’t be holding your breath for a speedy completion, but it may knock off a good few days/weeks, which could be vital.

It is also important that you make sure you have a solicitor in the bag BEFORE considering an auction timescale case.

I have recently exchanged on a Manchester property. I has all been a bit quick after a year with an option.  With the planning application taking so long, together with a change of tack due to a Housing Association now wanting the plot, things have not been straightforward.  Planning has had to be resubmitted due to the changes so its now going to take even longer!  When we were ready to proceed, the original solicitor simply couldn’t take the case for completion on the 18th June. That has caused a real headache.  Thankfully my go to solicitor (Phillip Adam) took the case after I begged him! Honestly it was a really kind deed, as I know he is as busy as anyone.

So why have I changed direction with my portfolio?

The reason for going for this property and plot was to expand my portfolio. I have had vanilla buy to lets for some considerable years and although they are lovely and safe, I wanted take a bit more risk to get the higher potential rewards.  I am selling one of my flats as the return on Manchester site is worth the cost of selling the flat.

It’s interesting that your pension pot doesn’t tend to go on the radar… until you realise that your years left to fill it suddenly get very short.  Having had a financially difficult divorce in my 40s, time was short if I wanted the option to retire at a reasonable age.  I try to keep a split between earnings, pension (very tax efficient to put money in from a company) and properties.

Enjoy your weekend and I hope you give yourself time to recover 😊

Top slicing is back.. But how does it work?

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Here we are again on a Friday with more positive news about products returning to the market – always good news!  Not only because it makes our life easier, but also as it’s a great sign that things are improving.  Confidence is such a big part in the future of the housing market and its important we continue with the momentum that the stamp duty holiday has created.

So what is top slicing?

It is when the lender uses your outside income on top of the rental income from your buy to let when it isn’t generating enough itself.  We can use income from your outside portfolio where it allows, or from your other earned income.  There are various stresses on the outside portfolio and your own mortgage payment so you’ve got to check it all works.

What are the benefits of top slicing?

There are many, so I’ll go through them:

  • It allows you to buy a property where the yield isn’t high enough. This allows you to take advantage of properties which may have other advantages like a potential capital growth through location, refurbishments (over time) and extending the lease as examples.
  • Where you have a property which was bought before the new higher stress tests, it may not fit on a remortgage now. This allows you to move lender, as well as potentially raise more funds without selling the property.
  • The property may fit on a 2 year fixed, but due to the increased stressed rate of these you only have the option of a 5 year. Top slicing will allow you to have the opportunity you use the 2 year fixed rate if that is a priority for you.
  • If the property is in a lettable condition, but you know that a lick of paint and change of floor coverings will ensure that you get a higher rental, this will allow you to buy it in its current state without using a bridging loan.

How does it work?

The lender will use its usual stress tests to work out what the minimum rental requirement is, based on the loan you are looking to borrow.  We can then look at what the actual rental figure is (which needs to be confirmed by the valuer) and this will give us a shortfall figure.

If you have an outside portfolio, we can use any additional income from this.  We do have to use an artificially inflated interest rate on your mortgages so its not just as case of what is left, but we can use the gross rent.

If you don’t, then we can look at additional income from other sources. Generally, this would be shown through your SA302 or payslips and then last 3 months bank statements to prove the disposable income.

As always, please give us a call if you want to run through any examples.  Have a good weekend!

Personal Guarantees and Associated Costs

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Keeping an eye on the purse – Personal Guarantees…. and associated costs

Pesky costs….

Hi everyone, honestly having a regular blog slot is seriously speeding up the end of lockdown, they come around so quickly!…

Looking at cases recently, I thought I would do a bit of a rant/chat about Personal Guarantees and associated costs that need to be considered when thinking about the overall cost of your mortgage.

Personal Guarantees (PGs)

As most of you will know, these are required 99% of the time for Ltd company applications.  Lenders insist on them as most limited companies paid up capital is so small, it offers a guarantee to the lender from you personally in case anything goes horribly wrong. In the early days of limited company lending a couple of banks were caught out in court, meaning that it became the norm.

Most investors accept that this is just part of the process and just sign and proceed, as do I. It is worth thinking about though as not all lenders have the same rules. If you do have paid-up share capital then that can be negotiator to reduce the amount on the PG.

What we have seen more of recently, is more of the ‘vanilla specialist’ lenders offering funding for HMOs, MUFB and so on. With  lower rates than the more specialist lenders, it can look very attractive to go with them.  Having gone through the process recently for 4 of my properties I can tell you it’s not necessarily the route of least resistance.

It is important to look at what PGs with these lenders actually mean…

Most will want 100% guarantee of the borrowing plus any lender fees. That is jointly and severely between all applicants. What that means is they can come to any or all of the applicants for the full loan (no more than the loan), that may be from one person if they are easier to get hold of or have more assets than the others.

On top of that they will want Independent Legal Advice (ILA) when signing the PG – even though you are in the responsible position of being a Company Director.  This means that you need to pay to receive advice on signing the guarantee with a separate solicitor to the one acting for your limited company. With these lenders, waiving the advice is not possible, even though most of us are of sound mind and under 70 years of age.  Aside the fact I don’t agree with this belts and braces approach, that is how it is.  ILA is a cost consideration, as the minimum price is usually around £400 per person.

I have always tried to challenge the necessity, depending on the applicant but I have only been moderately successful!

Not all lenders want 100% of the loan guaranteed, some will go down to 25% (jointly and severally between all borrowers).  This can be an important factor when making a choice between lenders and should be properly considered.  Rate is not the only factor for choosing a lender as we often discuss.

The more specialist lenders do not require ILA for those in sound mind and under the age of 70.

This is particularly important to consider on smaller properties, these additional costs really make a difference to your return on investment.  Make sure you get as close a breakdown from your solicitor and get as good an idea of total costs for the comparison. We will outline these costs to you when we are looking at options so that you can consider the full cost of the mortgage – as you know we are big on transparency to enable you to make an informed decision.