Applicant(s)
It's entirely possible to secure a mortgage even with adverse or bad credit history. However, lenders will carefully evaluate the circumstances surrounding the negative credit events, including when they occurred, the reasons behind them, their severity, and whether they have been resolved. Adverse credit history may affect the interest rate offered and the maximum loan-to-value ratio available.
Below is a list of adverse credit events we consider:
- Arrangement to pay
- Arrears
- Bankruptcies
- CCJ’s - County Court Judgements
- Defaults
- IVA’s - Individual Voluntary Arrangements
- Late payments
- Low credit scores
- Missed payments
- Repossessions
- Other
18 - No Maximum
The majority of lenders stipulate that mortgage applicants must be at least 21 years old. However, there are exceptions, with some lenders willing to consider younger applicants, particularly if they are included on the mortgage with applicants over 21.
For commercial mortgages, there is typically no maximum age limit imposed by lenders. This is because the property is viewed as an investment, and therefore not bound by the personal retirement age of the applicant.
No minimum
In general, lenders don't focus much on the length of your employment. However, if your primary income comes from the company seeking the commercial mortgage, this may be assessed in greater detail.
No experience required
Obtaining a commercial mortgage typically doesn't require a minimum level of experience, but having more experience can broaden your options with lenders. While some lenders may mandate property ownership or Buy-To-Let experience for your first commercial mortgage, there are alternative options available where such requirements may not apply.
No minimum required
While numerous lenders may not set a minimum income requirement, if you're receiving funds from the company seeking the commercial mortgage, your personal income and expenses will be evaluated. Lenders will likely request a SALIE (Statement of Assets, Liabilities, Income, and Expenditure) to understand your personal financial standing. However, even with "no minimum income" requirements, lenders still expect some level of income verification. Typically, this involves providing a document backed by HM Revenue & Customs (HMRC) in the form of payslips, signed accounts or a tax return.
While applicants don't need to be British citizens to secure a mortgage, certain criteria apply for non-British citizens or those without permanent rights to reside or indefinite leave to remain. These criteria typically include minimum deposit amounts, income thresholds, and residency duration requirements if applicable. We assist applicants with various residency statuses, including:
- British born
- Holders of permanent rights to reside or indefinite leave to remain
- Citizens of EU or EEA countries
- Foreign nationals
- Expats
Commercial Specifics
Before banks approve a commercial mortgage application, they carefully assess the borrower's affordability to ensure that the loan can be repaid comfortably. Understanding how banks evaluate affordability is essential for businesses seeking financing. Here's an overview of the typical factors banks consider:
Financial Stability:
Banks assess the financial stability of the business applying for the mortgage. This includes reviewing financial statements, profit and loss statements, cash flow projections, and balance sheets. A stable financial history demonstrates the ability to generate consistent income and manage expenses effectively.
Debt Service Coverage Ratio (DSCR):
One of the key metrics used by banks to assess affordability is the Debt Service Coverage Ratio (DSCR). This ratio measures the business's ability to cover its debt obligations, including the proposed commercial mortgage payments. Typically, banks look for a DSCR of at least 1.25, meaning that the business's net operating income is 1.25 times its total debt service payments.
Loan-to-Value (LTV) Ratio:
The Loan-to-Value (LTV) ratio compares the loan amount to the appraised value of the property being financed. Banks prefer lower LTV ratios as they indicate less risk for the lender. Higher LTV ratios may require additional collateral or result in higher interest rates to mitigate risk.
Business Plan and Projections:
Banks evaluate the business's viability and growth potential by reviewing its business plan and financial projections. A well-developed business plan that demonstrates a clear strategy for growth and profitability can positively impact the mortgage approval process.
Creditworthiness:
The creditworthiness of the business and its owners also plays a significant role in the assessment process. Banks review credit scores, payment history, and existing debts to gauge the likelihood of timely repayment. A strong credit history enhances the borrower's credibility and increases the chances of mortgage approval.
Industry and Market Conditions:
Banks consider the industry and market conditions relevant to the business when assessing affordability. Factors such as market trends, competition, and regulatory environment can influence the risk associated with the loan. Businesses operating in stable industries with promising growth prospects may be viewed more favourably by lenders.
Collateral:
Finally, banks may require collateral to secure the commercial mortgage, especially for higher-risk loans or borrowers with limited financial history. Collateral provides additional security for the lender and may include the property being financed or other assets owned by the business or its owners.
Understanding these factors and presenting a strong case to lenders can improve the likelihood of securing a commercial mortgage on favourable terms.
Article 4 refers to a specific provision within the Town and Country Planning (General Permitted Development) Order 1995, which grants certain planning permissions for development without the need for a planning application.
However, Article 4 Directions are additional regulations that local planning authorities can impose to restrict the scope of permitted development rights in specific areas. These directions are typically implemented in areas of special interest, such as conservation areas or areas experiencing significant development pressures.
When Article 4 Directions are in place, it means that certain types of development that would normally be permitted under general permitted development rights now require planning permission. This gives the local planning authority more control over the types of development occurring in those areas.
For example, in the property market, Article 4 Directions might be used to regulate the conversion of residential properties into Houses in Multiple Occupation (HMOs) or to control changes of use from commercial to residential properties. This can impact property investors and developers by limiting their ability to carry out certain types of development without obtaining planning permission.
There are a number of different ways that Buy to Lets can be purchased, these include the following:
- Layered Buy-To-Lets - Group structures with holding companies
- Limited Companies (SPV’s - Special Purpose Vehicles)
- Limited Liability Partnerships
- Personal Name
- Trading Companies
- Trusts
- Other
There are a number of different variations for a commercial lease, lenders will want full sight of the lease so that they can determine how best to assess the affordability of a commercial mortgage where the property is on an investment basis.
The lease types are as follows:
Full Repairing and Insuring (FRI) Lease
In an FRI lease, the tenant is responsible for all property costs, including maintenance, repairs, insurance, and taxes.
Internal Repairing (IR) Lease
Under an IR lease, tenants are accountable for maintaining and repairing the interior of the property, while the landlord handles exterior and structural repairs.
External Repairing (ER) Lease
With an ER lease, tenants only need to maintain and repair the property's exterior, leaving interior upkeep to the landlord.
Effective Full Repairing and Insuring (EFRI) Lease
This type of lease combines aspects of both FRI and IR leases, with tenants responsible for interior maintenance and contributing to insurance costs.
When creating a commercial lease the points to consider are as follows:
- Rent - Clearly specify the amount of rent, payment schedule, and any provisions for rent reviews or increases over the lease term.
- Term - Define the duration of the lease, including the start date and any options for renewal or termination.
- Use - Outline the permitted use of the premises and any restrictions on activities that may be conducted on the property.
- Insurance - Specify the types and amounts of insurance coverage required for the property, including building insurance, liability insurance, and any requirements for the tenant to provide proof of insurance.
- Assignment and Subletting - Address whether the tenant is permitted to assign the lease or sublet the premises to another party, and under what conditions such arrangements are allowed.
- Repairs and Alterations - Specify the procedures for requesting and carrying out repairs and alterations to the property, including obtaining landlord consent and complying with any relevant regulations or planning permissions.
- Service Charges and Utilities - Clarify whether the tenant is responsible for paying service charges or utilities, and outline any additional charges or expenses that may be passed on to the tenant.
- Default and Termination - Define the consequences of default by either party, including procedures for resolving disputes, serving notices, and terminating the lease.
- Break Clause - If applicable, include a break clause allowing either party to terminate the lease early under certain conditions.
- Renewal Options - Address any options for lease renewal or extension, including the procedures and timing for exercising these options.
- Compliance with Laws - Ensure that the lease complies with all relevant laws and regulations, including planning, health and safety, environmental, and disability access requirements.
- Rent Review - If applicable, include provisions for rent reviews to ensure that the rent remains in line with market rates over the lease term.
By carefully considering these conditions and addressing them in the lease agreement, landlords and tenants can establish a clear and comprehensive framework for their commercial tenancy, minimising the risk of disputes and ensuring a mutually beneficial relationship. It's advisable for both parties to seek legal advice when drafting or negotiating a commercial lease to ensure that their interests are adequately protected.
What is an SPV?
A Special Purpose Vehicle (SPV) is a legal entity set up for a specific, often limited, purpose. In the context of property investment, an SPV is typically a limited company formed solely for the purpose of holding and managing property assets.
Advantages
Tax Efficiency: One of the primary motivations for using an SPV is tax efficiency. Limited companies pay corporation tax on their profits, which is typically lower than personal income tax rates depending on your tax band. Additionally, mortgage interest relief changes have made SPVs more attractive for landlords as mortgage interest is fully tax-deductible for limited companies, whereas it is not in your personal name.
Disclosure: We are not tax consultants therefore, please do not consider this advice, each individual's circumstances are different therefore, we recommend you speak with a tax consultant.
Limited Liability: SPVs offer limited liability protection to their owners (shareholders). This means that in the event of financial difficulties or legal issues, the liability of shareholders is limited to the amount of capital they have invested in the company.
Disclosure: We are not able to offer legal advice therefore, please do not consider this advice, each individual's circumstances are different therefore, we recommend you speak with a legal advisor.
Shareholders: An increasingly prevalent practice involves parents, including their children as shareholders in limited companies. Tax professionals typically recommend this strategy, and is often employed to mitigate future tax liabilities, such as inheritance tax (IHT). Parents are able to gift the shares to their children over time, eventually transferring ownership.
SPVs must comply with all relevant laws and regulations governing property investment, landlord responsibilities, and company administration.It's essential to seek professional advice from accountants, solicitors, and tax advisors to ensure compliance with all legal and regulatory requirements.
There are a number of different types of valuations when assessing a commercial property, the method chosen will be determined by the lender. Often valuation reports will state the values of the property based on the different scenarios detailed below so that lenders can make a thorough assessment.
The different types of valuations are as follows:
Market Valuation
- Definition - A market valuation determines the current market value of a property based on its condition, location, demand, and comparable sales or rental data.
- Purpose - It provides an estimate of the property's worth in the current market conditions, typically used for sales, purchases, refinancing, and financial reporting.
- Process - Qualified valuers assess the property, gather relevant market data, analyse comparable properties, and apply valuation methods to determine its market value.
180-Day Valuation
- Definition - A 180-day valuation, also known as a forced sale valuation, assesses the property's value assuming it needs to be sold within a relatively short time frame, typically 180 days.
- Purpose - It aims to provide a conservative estimate of the property's value under the assumption of a forced sale situation, such as in cases of distress or urgency.
- Process - Valuers may apply a discount to the property's market value to account for the expedited sale requirement and potential market conditions during a forced sale scenario.
90-Day Valuation
- Definition - Similar to a 180-day valuation, a 90-day valuation assesses the property's value under the assumption of a shorter time frame for sale, typically 90 days.
- Purpose - It serves the same purpose as a 180-day valuation but with an even shorter timeframe, providing an even more conservative estimate of the property's value.
- Process - Valuers apply a more significant discount to the property's market value to reflect the urgency of the sale requirement within a 90-day period.
Valuations Based on Vacant Possession
- Definition - Valuations based on vacant possession assess the property's value assuming it is vacant and available for immediate occupancy or use.
- Purpose - They provide an estimate of the property's value without considering any existing leases or tenancies, typically used for sales, purchases, or redevelopment purposes.
- Process - Valuers consider factors such as the property's condition, location, development potential, and comparable sales data to determine its value without any occupancy or income considerations.
Method Valuation (Business Assessment)
- Definition - Method valuation involves assessing the value of a business or property-based on its income-generating potential or the value of its underlying assets.
- Purpose - It focuses on evaluating the business itself, including its revenue, profitability, assets, liabilities, and market position, to determine its overall value.
- Process - Valuers may use various methods, such as the income approach, asset-based approach, or market approach, to assess the business's value and its potential for future earnings or growth.
Bricks and Mortar Valuation
- Definition - A bricks and mortar valuation focuses on assessing the physical aspects of a property, including its structure, land, and improvements.
- Purpose - It provides an estimate of the property's value based on its tangible components, typically used for sales, purchases, insurance, and financial reporting.
- Process - Valuers evaluate the property's physical condition, land value, building features, comparable sales data, and replacement cost to determine its bricks and mortar value.
When considering the purchase of a property without a recent valuation report, it's wise to engage a surveyor to conduct one. This ensures clarity on the property's true value, empowering you to make well-informed decisions. Otherwise, proceeding without a valuation may lead to negotiations, document gathering, and lender assessments, only to face potential rejection at the valuation stage due to a down valuation.
Mortgage Specifications
Various deposit sources are considered acceptable, but each lender has specific documentation requirements. Additionally, brokers and solicitors impose their own compliance standards, adding up to three layers of compliance for applicants due to anti-money laundering laws. Accepted deposit sources include:
- Capital raising from another property
- Credit card
- Crypto currency
- Equity gift
- Funding from an overseas company
- Gifted - Family
- Gifted - From overseas
- Gifted - Non family
- Gifted - Vendor
- Inheritance
- Inter-company loan
- Investments
- Pension fund
- Sale of another property
- Savings
- Trust fund - UK/Abroad
- Other
£25,000 - No Maximum
While there is no universal maximum mortgage amount, each lender does have its own limit on the amount they are willing to lend. It's important to note that as the value of a property increases, its potential marketability may decrease due to the limited number of prospective buyers who can afford it. Consequently, lenders often require a larger deposit or a higher percentage of equity for higher-value properties. This ensures that the borrower has a greater stake in the property and mitigates the lender's risk.
70% - Some lenders can go up to 75% LTV
While there is typically no minimum loan-to-value (LTV) requirement, there is a maximum LTV imposed by most lenders. For the majority, the maximum LTV stands at 70%, which translates to a minimum 30% deposit or equity. However, there are some lenders that are willing to go up to 75% LTV, subject to affordability.
We offer comprehensive assistance with various types of mortgages to suit your needs. Our services include:
Purchases
Whether you're a first-time buyer or looking to move home, we can help you secure a mortgage for your property purchase.
Remortgages
If you're considering switching your existing mortgage to a new deal or lender, we provide guidance and support throughout the remortgaging process.
Product Switches
If you want to switch to a different mortgage product within your current lender's offerings, we can help you explore your options and make informed decisions.
Further Advances
In some cases where permitted by the lender, we can assist with obtaining additional funds secured against your property through further advances.
Although some may think that as long as you have the equity to withdraw from your property you can do so without any questions being asked but they would be wrong, ultimately the equity you are withdrawing are funds you are asking for from the bank therefore this needs to be justified with a reason that the particular recommended lender deems as acceptable. Typically funds can be used for the following:
- Business purposes
- Buying the freehold
- Car purchase
- Debt consolidation
- Divorce settlement
- Extending the lease
- Gift to a family member
- Holiday
- Home improvements
- Property purchase
- Redeem an existing lender
- School fees
- Stamp duty
- Tax bills
- Other
4
Most lenders will typically approve up to four applicants. In cases where the property is owned by a Special Purpose Vehicle (SPV) or a Limited Company, lenders usually won't evaluate individual shareholders if they all fall below the lender's minimum threshold.
When it comes to servicing a mortgage, there are three primary options to consider. While the allure of the cheapest option is understandable, it may not always align with your long-term financial goals. It's crucial to assess each option carefully in light of your unique circumstances, as each servicing option has its advantages and considerations. Here are the servicing options we provide:
Capital Repayment - With this option, your monthly payments cover both the interest on the loan and a portion of the capital. Over time, your mortgage balance decreases until it is fully repaid at the end of the term.
Interest Only - Under this arrangement, your monthly payments cover only the interest on the loan, with the capital remaining unchanged. It's essential to have a plan in place to repay the capital at the end of the mortgage term, typically through investments or other means.
Hybrid (Part Repayment, Part Interest) - This option combines elements of both capital repayment and interest-only mortgages. A portion of your monthly payments goes towards repaying the capital, while the remainder covers the interest. It is essential to have a plan in place to repay the outstanding balance at the end of the mortgage term.
1 Year - 40 Years
The minimum mortgage term lenders can offer is 1 year, providing flexibility for shorter repayment periods. Conversely, the maximum mortgage term extends up to 40 years.
However, both the minimum and maximum terms are subject to considerations such as your age and the policies of the lender.
Property & Construction
Due to the history of the UK, many different types of construction have taken place over the last 200+ years with some being more desirable than others. The below is a list of acceptable construction types, however, please be aware that it is not every lender you will have access to whether the methods of construction are non-standard or it is subject to invasion, some of the methods of construction we can accept is as follows:
- Bespoke builds
- Brick
- Cladding issues
- Cob
- Corrugated Iron
- Concrete (Various)
- Japanese Knotweed issues
- Pre-Fabricated
- Slate
- Stone
- Thatched
- Tiled
- Timer
We can accept properties in the following locations:
- England
- Northern island
- Scotland
- Wales
The prevalent property tenures accepted by lenders in the UK include:
- Freehold
- Flying freehold
- Leasehold
- Share of freehold
However, it's important to note that while these tenures are generally acceptable, certain details within the lease, or combinations such as a freehold flat, may fall outside a lender's criteria, potentially limiting your options.
While all property types are open for consideration, it's essential to note that certain types may be subject to loan-to-value limits. The below are a list of property types that lenders can consider:
- Care Homes
- Farms
- Franchises
- Garages / Showrooms
- Hotels
- Industrial units
- Nurseries
- Offices
- Petrol stations
- Professional practices
- Public houses
- Pubs
- Retail units
- Schools
- Other
Contact Us
We`re here to support you.
At the Mortgage Collective you will get a dedicated adviser that is CeMAP qualified who will help you throughout the entire process. They will take time to understand your circumstances and provide advice that right for you.
0203 923 9333
