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Access to Lending for Buy-to-Let Investors

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  • Access to Lending for Buy-to-Let Investors

    With the downturn in the economy, property investors are using this as an opportunity to start their own property portfolio or increase the size of their portfolio but the question that we could ask is, has lending become easier since the financial downturn? The credit crunch has created huge discounts for investors from motivated sellers coupled with low interest rates from lenders.

    The banks are under pressure and are more tightly regulated because prior to the credit crunch in 2007, investors and individuals could borrow without the stringent measures that have been introduced by FSA and there was less speculation on how the banks ran their financial affairs.

    Although lending is more difficult in today’s market, buy-to-let investors can benefit from mortgage offers from a number of lenders including Birmingham Midshires, The Mortgage Works , Principality Building Society and Aldermore.

    A high credit score is a definite aid when planning to secure a mortgage. All UK investors should be able to view their credit score check via the three leading credit score agencies, which are Experian, Equifax and Check my file. A good credit score and a stable job or business is the blueprint that lenders use to judge whether you will pay your bills on time and your credit worthiness. This report is not always 100% correct, hence it’s imperative to check it and make the necessary amendments if needs be. In conjunction with this, you can to speak to someone at one of the leading credit score agencies to help clear up any discrepancies on your file.

    Be aware that you can have a credit score of 999 but also have incorrect entries on the report. This could happen for a number of reasons. An example of one of the reasons may be because you have reported your credit card lost or stolen and the bank have failed to update your records accordingly.

    Due to tighter regulations introduced by the banks, it might be best to set up a direct debit on all credit cards to ensure that at least the minimum payments are made on the due date and other payments to reduce the balance can be made anytime thereafter. As a buy to let investor, you need could instruct a Mortgage broker to provide details on the best products that are available on the market at the time of your purchase. You can do this yourself, but brokers might have access to more information that enables them to make better informed decisions.

    In order to secure finance, an investor will need to show proof that the property or properties purchased for investment will meet the lenders rental yield requirements. Some refer to this method as the “wash its face” rule where the asset generates enough income to cover ongoing expenses.

    Some lenders will use their own criteria to assess applicants by checking to see if they have an independent source of income other than rental income and also assess the rental income from the unit. If the investors intend to let the property out as an HMO (House of Multiple Occupancy), lenders are still likely to base their assessment on the property as a single let unless the investor has specifically applied for a HMO mortgage. When purchasing a property, do bear in mind that some properties are easier to mortgage than others, for example, a flat above a shop ( in particular a food shop), some lenders see these premises as the first to suffer in a property downturn and they can be difficult to insure as well.

    We have looked at how to get lending if all is well but what would happen if you have been declared bankrupt, fallen into arrears, or have incurred a County Court Judgement( CCJ). Bad credit mortgages were widely available to UK borrowers prior to the credit crunch and special mortgages were offered to anyone who had been declared bankrupt.

    As this is a period of low confidence in the banking sector, you may find that it will be more difficult than ever to get a mortgage but if you have been with a Sub-prime lender for three years and your mortgage payments have been made on time, this could have repaired your credit status.

    Official figures show that UK unemployment currently stands at 2.67million. This situation will provide some opportunities for buy-to let investor as it could result in an increase in demand for rental properties as less people will be able to get onto the housing ladder. One should also bear in mind that the Guardian News Paper stated that tighter lending standards introduced by Britain’s banks have created opportunities for some investors, as the pool of homebuyers shrinks. Whilst this is good news for buy-to let investors, this is likely to increase political pressure on the government to take drastic measures to help first time buyers.

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