We get lots of enquiries from potential clients asking about what we can offer, how much it will cost or what the interest rate would be. This week I am going to talk about why this is often not the most important factor to consider when looking for a mortgage.
When you want an uplift on the bricks and mortar value!
There are many lenders offering low rates for investment properties, but they will nearly always value a property as a worst case scenario. There are a few ways of valuing a property, for example with a block of flats you could look at it as a whole building being sold on to an investor, or as an aggregate value. An aggregate value is when you add up the individual values of each of the flats, and the investment value would usually be about 10-15% below this figure. If you want to maximise the money you can borrow then you need to look at someone who will look at an aggregate value. The also applies to HMOs! Some lenders will look at it as an investment or as a HMO hybrid, even when you only have 4-6 bedrooms. We are seeing this more when clients have changed the structure or layout of the property so it could be sold on as a HMO rather than a house – for example you have 5 large double bedroom with en-suites, as well as a kitchen with multiple hobs, sinks and fridges.
When you want to refinance immediately and not wait 6 months!
If you have bought a property at auction, which needs work, or was sold at undervalue, then you don’t necessarily want to leave your money in the property for any longer than necessary. This can eat away at your profits and mean that you are unable to move on to your next project as quickly as you would like. We have lenders who will allow you to refinance as soon as you are able to, immediately if you can, and release funds based on the true new open market value. This is even more important when you are on bridging rates!
When your SA302 isn’t showing the minimum you think you need!
We are seeing more and more full-time investors refurbishing properties or selling properties and the losses making a big impact on their earnings. This can cause issues with the majority of lenders, as they don’t look at the full picture. Inevitably, this could cause you to have to wait to invest in your next project as your current broker or lender isn’t able to lend you anything now. Going to a lender who understands the situation means that as long as your tax return makes sense, then they can take a look at the deal.
When you’re making enough from your portfolio that you’ve finally left the job you wanted to but you don’t have 2 years accounts!
We work with many property investors whose dream is to leave their 9-5 for the freedom they crave from their property portfolio. Once you make that leap, the lack having 2 years accounts or a steady income can be an issue. As I said above, you need a lender who will look at the whole picture. This allows you to follow your dream, spend more time looking at potential deals and have a smooth transition into your full-time property career without any hiccups (that we can help prevent anyway!
When a property isn’t mortgageable and you need bridging finance!
I am going to talk more about this in next week’s blog, but I often get clients who are reluctant to use bridging as its seen as expensive. My reaction is usually that if they think bridging is expensive then its not a good deal! I’m not going to pretend that bridging is a low-cost option, but it allows you to be a ‘cash buyer’ in so many instances, and you have got to look at the bigger picture and your return on investment. Bridging is so useful should any properties have short leases, no kitchen or bathroom, planning issues, structural issues, would benefit from works being completed or a refurbishment… I could go on! Then bridging is a great way of grabbing a bargain and then taking out a term mortgage once you have dealt with the issue, and then the mortgage will be based on the new open market value.
When you want to maximise your cash flow!
Cash flow is so important, particularly as you are growing your property portfolio. Finding a lender who will allow you to borrow 75% loan to value on interest only is often key to ensuring you have enough money to move to your next property, and that you have enough income coming in each month. There are many lenders quoting low rates who will look at much lower loan to values, or on part or full capital repayment which isn’t necessarily helpful!
When assessing a property deal, you need to look at the overall picture, and what your return on investment and yield will be. Work with a broker like us, who can not only find you a product with an interest rate that works, but also a product that meets your needs in all the other areas that are important to you too – ask them a different question to ‘what’s the best rate’ as that is probably not the most important factor to you!
