Rules are be­com­ing tighter on in­ter­est-only mort­gages

Yorkshire Post - Property - - FRONT PAGE - Franz Muelthaler

It is still pos­si­ble but mort­gage lenders’ cri­te­ria has been steadily tight­en­ing and most be­gan to typ­i­cally im­pose a max­i­mum bor­row­ing level of 75 per cent of the prop­erty value.

More re­cently this has been re­duced to 50 per cent with high street lenders such as Hal­i­fax and San­tander.

Lenders want to know that there are funds to re­pay the loan if you have an in­ter­est-only mort­gage; and the sale of the mort­gaged prop­erty will not be al­low­able in the ma­jor­ity of cases.

How­ever, there is a cer­tain lender who will al­low this. Their re­quire­ments for the sale of the prop­erty to be ac­cept­able are there must be a min­i­mum of £150,000 eq­uity dif­fer­ence be­tween the mort­gage amount and the value of the prop­erty – and a max­i­mum loan to value of 66 per cent LTV.

Other op­tions al­low­able will be re­lated to ISA’S, but stocks and shares rather than cash ISA’S. This is be­cause of the liq­uid­ity of the cash ISA and ready ac­cess to the “fund” ear­marked for mort­gage re­pay­ment by the bor­rower. Pen­sion funds are also al­low­able, but again var­i­ous lim­its from in­di­vid­ual lenders and min­i­mum re­quire­ments of the fund will be ap­pli­ca­ble.

The sim­ple fact is the days of an in­ter­est-only mort­gage for a cheaper monthly re­pay­ment on a big­ger mort­gage are go­ing to be a thing of the past for the ma­jor­ity of peo­ple.

Buy­ing to let isn’t sim­ply a case of find­ing a ten­ant and cash­ing in on the rent. There are le­gal re­quire­ments and tax im­pli­ca­tions to take into con­sid­er­a­tion; which may prove quite complicated to the unini­ti­ated.

Speak­ing to a good let­ting agent should help with the ba­sic un­der­stand­ing of the pros and cons of let­ting a prop­erty. My ad­vice would be to speak to an in­de­pen­dent mort­gage bro­ker about mort­gage fund­ing and an ac­coun­tant and solic­i­tor about any le­gal or tax im­pli­ca­tions. There will be more on the specifics of fu­ture im­pli­ca­tions at a later date.

One pos­i­tive as­pect to the buyto-let mort­gage is that lenders are happy to lend on an in­ter­est only ba­sis as op­posed to the res­i­den­tial mort­gage mar­ket.

It can be quite hard to un­der­stand cer­tain terms and un­for­tu­nately these aren’t the only tech­ni­cal terms used when ap­ply­ing for a mort­gage.

Abil­ity to Pay, also re­ferred to as Af­ford­abil­ity As­sess­ment, is a way of work­ing out how much you may be able to bor­row. This is the lender’s way of de­ter­min­ing how much you can af­ford to pay. Don’t be fooled with the cal­cu­la­tion of three or four times your salary as a rule of thumb. This is largely a thing of the past now.

Agree­ment in Prin­ci­ple doesn’t mean you have your mort­gage. This is sim­ply a means to give the lender per­mis­sion to con­duct a credit search and ap­ply a credit score against you. Most lenders rely on this risk-pro­fil­ing to com­plete an af­ford­abil­ity as­sess­ment based on in­come fig­ures de­clared.

At this point, for a lender to de­cide if they could lend, they do not need any doc­u­men­ta­tion re­lat­ing to em­ploy­ment, prop­erty or le­gal cor­re­spon­dence. This is why it is termed an Agree­ment in Prin­ci­ple, it does not guar­an­tee final ac­cep­tance.

Hav­ing an Agree­ment in Prin­ci­ple is al­ways rec­om­mended when ap­proach­ing an es­tate agent. It avoids the equiv­a­lent in the sec­ond-hand car trade of cus­tomers known as tyre kick­ers and demon­strates that any would-be buyer is se­ri­ous and able to ob­tain the fi­nance they need to buy a prop­erty.

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