Day one remortgage for cash purchase – failed score?

Reply to the comment left by "All BankersAreBarstewards Smith" at "23/05/2014 - 11:47":

Yes the biggest draw back to owning BTL residential property in the name of a Limited company is the difficulty of finding standard BTL mortgages.

A couple of lenders do consider Ltd companies but it general also needs to be a SPV (single purpose vehicle or special purpose vehicle) with one SIC code.

SIC ?

The codes used by companies house that describe what the trading purpose of the company is.

Ooops sorry.

I have been caught in exactly this position in the last few weeks. I bought a house for cash because the vendor wanted a speedy completion.
I have done a cosmetic refurb but have been absolutely unable to get a BTL mortgage despite being happy to get a mortgage for only the original purchase price and having a squeaky clean credit rating.
This was explained to me as being because the few lenders willing to mortgage within six months require a salary higher than mine is (I work part-time but have a good income from my portfolio, which those lenders will not consider).
This is such a frustrating situation and I share your pain!

It seems to me that there must be alot of us landlords out there with a reasonable income from a small portfolio ( say 5- 10) with loads of equity, having 'collected' several properties over the years which have gone up in value, and therefore very low risk.

It's a pity there is not a lender out there who can recognise this fact.

I was limited for choice since my income fell £500 short of the cut-off annual income.

Why is it, if you are employed, your 'gross' salary, say £25k, is taken as your income, but if you are self-employed, only 'net', bottom line earnings, are considered ?

Reply to the comment left by "Howard Reuben" at "23/05/2014 - 09:51":

Hi Howard,

I have a quick question re your comment: "In fact, these deals are also available based on the ‘new’ open market value, as long as you can substantiate why there is an enhanced value from the date of purchase to the date of the new mortgage being implemented".

What would class as substantiating? What evidence would be required?

For example, if I was to buy a property at a great discount for cash (say 25% for arguments sake), let it out for 6 months and then applied for a mortgage, would the lender acknowledge the discount at purchase or would they take the view that the price paid IS the market value (regardless of the paper survey value)? In this example, I'm looking for an interest only 75% Loan To (survey) Value in order to recycle capital.

Thanks in advance.

Excellent question, however whether you buy at a 'true' discounted price, or a negotiated purchase price, or at any price less than the 'evidenced' current market value (based on sold comparables etc), the new purchase price you paid then becomes the new benchmark because of course it is this that price that gets logged at the Land Registry and becomes the new 'comparable' that any new valuer will look at for all other property values in the area.

So, to substantiate a higher value for refinance or sale purposes, you would need to show that you have improved the property itself. Keep all refurb, works, development and build costs receipts, invoices and also (I would suggest) take before and after photos too.

Simply buying cheap and trying to sell high doesn't usually work. Buying at a good price and then improving (and substantiating the improvements) can help to persuade a valuer that there is a valid and plausible reason for increase in value.

Saying that you managed to negotiate a bargain, is just interpreted by the lenders nowadays as a possible underhand, distressed sale transaction, and as we all know, the lenders have fast pulled out of the 'sale and rent back' and property club marketplace.

Hope this helps.

Howard

Reply to the comment left by "Howard Reuben" at "27/05/2014 - 11:02":

Many thanks Howard.