Property Finance Questions?
The answers you need about funding for propertySpeak to one of our experts020 4525 5312
- Commercial mortgages from 2% above base rate
- Agricultural mortgages
- Bridging loans
- Auction finance
- Can be part of 'jigsaw' funding designed around your needs
- Monthly, quarterly and annual repayments
- Tailored around your cash flow
- An adverse credit history need not be a problem
- Repayment and interest only available
- All types of land
- Buildings as well as land
- Refinance existing property assets
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Property Finance can be complicated
We guide you through the key questions you have
We've compiled the top Property Finance questions our team gets asked, with answers from our property funding experts.
Table of Contents
What is an Administration Fee?
An Administration Fee is charged by the lender when a loan application is made. Preparing and underwriting Property Development Finance, Bridging Finance, or a Commercial Mortgage all take time and expertise, so a Borrower might expect to pay a fee on application.
We have heard of some lenders charging large, non-refundable fees when there is no chance of the loan be approved. Applying for your property funding with the help of Rangewell can ensure that you avoid this kind of problem. We ensure that all lenders are reputable and their terms of business are fair.
What is affordability?
Affordability rules are applied by Lenders to determine what is a sustainable level of Mortgage for a Borrower. With Residential Mortgages, lenders will look at a client’s income to make this calculation, and clients should expect to complete a Monthly Budget Plan. Lenders will make calculations based on this to see what a borrower can afford.
For Buy to let Mortgages, the Lender will look at the rental likely to be earned and apply a stress test - basically, what would happen if interest rates went up - to ensure that the BTL is viable.
For Commercial Mortgages, the lender will need to see the business’s cost projections, and their previous years' accounts to ensure that it can afford the repayments.
What are Alternative Lenders?
Alternative lenders describe the Lenders that are not traditional banks. The UK banking sector has historically been dominated by the ‘Big Four’; HSBC, Barclays, Lloyds and RBS Group. Newer entrants have concentrated on areas that are underserved by the more established players, Although their loans may be more expensive, they are often much more flexible in their approach. Peer to Peer Lenders, Development and Bridging Lenders would all be examples, but there are many more, and at Rangewell we work with all of them - a llowing us to provide the most appropriate lending for your property needs.
What is Amortisation
Amortisation is a formal way of describing paying off your property loan - both the capital and interest. Each month part of the payment is assigned to covering the interest, and the rest is used to reduce the Capital. As Capital payments are made, the outstanding Capital balance reduces. Therefore the portion of the payment assigned to interest reduces, and the portion assigned to Capital repayment increases. with a Fully Amortising Loan then providing all payments are made the mortgage debt would be fully repaid at the end of the mortgage term.
An amortisation profile is the term the payment schedule is set against.
What is Anti-Money Laundering
Property deals are used by criminals to launder money. Property deals are therefore subject to scrutiny, and you will need to provide proof of your identity and of your address. Normally a bank statement or utility bill (amongst others) dated within the last 3 months, but a driving licence can also be used In some circumstances you will need to provide evidence of your source of Wealth (SoW), detailing how you have come to create the wealth that you have today. Starting from where you studied, through to the jobs you’ve held and the investments you’ve made, and any inheritance or family assistance along the way.
What is an Arrangement Fee?
This is the fee the lender charges when a loan is agreed. Most lenders allow these fees to be paid on completion from the borrowers own funds, or more commonly they can be deducted from the loan advance, or even added to the loan. Remember if you add the fee to the loan, you will be charged interest.
What is an Asset?
An Asset is property owned by a person or company, that has a value and can be used as security for a loan. A home is an asset which may be suitable, although in some circumstances at Rangewelll we can use other types of possessions, such as cars and plant as security for property lending.
What is Auction finance?
Property auctions can provide properties that might otherwise be difficult to sell such as those in poor condition or have been repossessed. Property may not be in a lettable condition or be otherwise unmortgageable. It may need renovation or even structural repair, or it may even be bought for planning gain and redevelopment. Buying at auction requires cash. The precise arrangements vary with different auction houses but with most auction sales, when the gavel falls on your winning bid you will be expected to pay a 10% deposit of the hammer price immediately. You will then be required to pay over the balance of funds, which will include the auctioneer's commission, usually within 28 days. Failure to provide the full funds may lead to you losing both the property and your deposit.Conventional solutions that can provide the high level of funding for property buying, simply cannot be arranged in the time available.
Auction Finance can provide the solution - it is basically a type of short term finance, similar to a Bridging Loan.
What is base rate?
Central Bank Base Rate is usually the Bank of England lending rate, and very occasionally the or European Central Bank base rate. |It is used by lenders as a base for their lending to track - so a loan may be quoted as being a certain percentage above base rate.
What is Build Contingency?
Development will almost always run into unexpected costs. A contingency should therefore be included in every development project budget. Build contingency is a way of formalising this finger in a development loan.. It is an allowance built in to the build cost estimates to allow for cost overruns. The industry standard is to build 5% into the budget, but some lenders will insist on more, perhaps up to 10%. This is covered within the loan.
What is Build To Rent?
Developers may build to rent rather than sell. The majority of the larger schemes are owned by Institutional Investors, who like the long-term yield that it provides. At Rangewell we can provide links to lenders who can support buy to rent projects
What is Bullet Repayment
Bullet Repayment is the repayment of the capital at the end of a mortgage term in one payment. Interest Only mortgages will normally refer to this term..
What is Buy to let?
Buy-to-Let Property is investment property, normally held for the long-term and to produce an income, and capital Growth. A property purchased specifically for the purposes of being rented out. If you buy a home with a conventional mortgage, the lender will almost certainly include clauses that will prevent you from letting out the property. A Buy to let Mortgage contains no such restrictions and is specifically for buying or refinancing property which is let to tenants rather than lived in by the borrower.
They are similar in principle to a homebuyer's mortgage, but are classed as a business transaction and are not subject to the same regulations as residential mortgages. This means that they are more flexible, but rates and fees are typically higher than those you would find with a standard residential mortgage.
The minimum deposit for a Buy to let Mortgage is 25% of the property’s value
Many Buy to let Mortgages are interest-only. This means you don’t pay anything each month, but at the end of the mortgage term you repay the capital in full
Unlike residential mortgages which are calculated on the basis of your salary, Buy to let Mortgages are based on the revenue your property will generate. The mortgage lender will make a rent to interest (RTI) cover calculation. This means that you will need to show that you can obtain enough rental income from a tenant to cover the interest on the mortgage. RTI cover calculations vary between lenders. The rental income usually has to be between 125% and 130% of the monthly mortgage repayment. Many lenders also require a minimum income of £25k per annum in addition to the income made from rent.
What are Capital & Interest loans?
Capital & Interest refers to repayment of a Loan over a given term, and is otherwise known as a Repayment Mortgage. Each month part of the payment is assigned to servicing the Interest, and the rest is used to reduce the capital. As capital payments are made, the outstanding capital balance reduces.
What is change of use?
The way a property may be used is tightly regulated, and every property is given as usage class. These changed in the middle of 202 and are now:
- C1 Hotels - Hotels, boarding and guest houses
- C2 Residential institutions - Residential care homes, hospitals, nursing homes, boarding schools, colleges and training centres
- C2A Secure Residential Institution - Use for a provision of secure residential accommodation, including use as a prison, young offenders institution, detention centre, secure training centre, custody centre, short term holding centre, secure hospital, secure local authority accommodations
- C3 Dwellinghouses - This class is formed of three parts
- C3(a) covers use by a single person or a family (a couple whether married or not, a person related to one another with members of the family of one of the couple to be treated as members of the family of the other), an employer and certain domestic employees (such as an au pair, nanny, nurse, governess, servant, chauffeur, gardener, secretary and personal assistant), a carer and the person receiving the care and a foster parent and foster child
- C3(b) covers up to six people living together as a single household and receiving care e.g. supported housing schemes such as those for people with learning disabilities or mental health problems
- C3(c) allows for groups of people (up to six) living together as a single household. This allows for those groupings that do not fall within the C4 HMO definition, but which fell within the previous C3 use class, to be provided for i.e. a small religious community may fall into this section as could a homeowner who is living with a lodger
- C4 Houses in multiple occupation - Small shared houses occupied by between three and six unrelated individuals, as their only or main residence, who share basic amenities such as a kitchen or bathroom.
Class E - Commercial, Business and Service
- E(a) Display or retail sale of goods, other than hot food
- E(b) Sale of food and drink for consumption (mostly) on the premises
- E(c) Provision of:
- E(c)(i) Financial services,
- E(c)(ii) Professional services (other than health or medical services), or
- E(c)(iii) Other appropriate services in a commercial, business or service locality
- E(d) Indoor sport, recreation or fitness (not involving motorised vehicles or firearms)
- E(e) Provision of medical or health services (except the use of premises attached to the residence of the consultant or practitioner)
- E(f) Creche, day nursery or day centre (not including a residential use)
- E(g) Uses which can be carried out in a residential area without detriment to its amenity:
- E(g)(i) Offices to carry out any operational or administrative functions,
- E(g)(ii) Research and development of products or processes
- E(g)(iii) Industrial processes
Class F - Local Community and Learning
- F1 Learning and non-residential institutions – Use (not including residential use) defined in 7 parts:
- F1(a) Provision of education
- F1(b) Display of works of art (otherwise than for sale or hire)
- F1(c) Museums
- F1(d) Public libraries or public reading rooms
- F1(e) Public halls or exhibition halls
- F1(f) Public worship or religious instruction (or in connection with such use)
- F1(g) Law courts
- F2 Local community – Use as defined in 4 parts:
- F2(a) Shops (mostly) selling essential goods, including food, where the shop’s premises do not exceed 280 square metres and there is no other such facility within 1000 metres
- F2(b) Halls or meeting places for the principal use of the local community
- F2(c) Areas or places for outdoor sport or recreation (not involving motorised vehicles or firearms)
- F2(d) Indoor or outdoor swimming pools or skating rinks
'Sui generis' is a Latin term that, in this context, means ‘in a class of its own’.
Certain uses are specifically defined and excluded from classification by legislation, and therefore become ‘sui generis’. These are:
- amusement arcades/centres or funfairs
- fuel stations
- hiring, selling and/or displaying motor vehicles
- taxi businesses
- scrap yards, or a yard for the storage/distribution of minerals and/or the breaking of motor vehicles
- ‘Alkali work’ (any work registerable under the Alkali, etc. Works Regulation Act 1906 (as amended))
- hostels (providing no significant element of care)
- waste disposal installations for the incineration, chemical treatment or landfill of hazardous waste
- retail warehouse clubs
- betting offices/shops
- pay day loan shops
- public houses, wine bars, or drinking establishments – from 1 September 2020, previously Class A4
- drinking establishments with expanded food provision – from 1 September 2020, previously Class A4
- hot food takeaways (for the sale of hot food where consumption of that food is mostly undertaken off the premises) – from 1 September 2020, previously Class A5
- venues for live music performance – newly defined as ‘Sui Generis’ use from 1 September 2020
- cinemas – from 1 September 2020, previously Class D2(a)
- concert halls – from 1 September 2020, previously Class D2(b)
- bingo halls – from 1 September 2020, previously Class D2(c)
- dance halls – from 1 September 2020, previously Class D2(d)
Other uses become ‘sui generis’ where they fall outside the defined limits of any other use class.
For example, C4 (Houses in multiple occupation) is limited to houses with no more than six residents. Therefore, houses in multiple occupation with more than six residents become a ‘sui generis’ use.
Generally, if it is proposed to change from one Use Class to another, you will need planning permission. Most external building work associated with a change of use is also likely to require planning permission. Before you lease or buy a property for your business, you should check whether you need to obtain planning permission or prior approval for its intended use and, if so, your chances of getting it.
What is a Commercial Mortgage?
A Commercial Mortgage is a loan secured on property and works much like a residential mortgage. If you want to buy premises or land for your business to use, or a property to let out or develop as an investment, it can provide the level of lending you need.
- Buy the premises for your business to work in – building up a valuable business asset and increasing your security
- Buy additional premises or land for expansion
- Buy premises or land for development –new-build, conversion or refurbishment
- Buy a commercial or residential property to let out
- Raise cash with a mortgage on land or buildings you already own – and use it for any purpose
A Commercial Mortgage also lets you raise large-scale funding.
You raise a new Commercial Mortgage on your existing property. You receive a cash lump sum to use as you wish and make monthly repayments until the loan is paid off. So, if you already own premises, such as an office, factory or other commercial facility, you can use it to raise money, providing a cost-effective way to invest in your business, buy another or deal with a temporary cash flow issue.The actual rate you pay will be set by the lender on an individual basis. An established business with good prospects should be able to secure the most attractive rate, and there will also be valuation, arrangement and legal fees. Getting professional help with arranging a Commercial Mortgage can help you make substantial savings.
What is Completion?
Completion is the final stage in the property buying and selling process. Completion or completion day will occur an agreed date after after the exchange of contracts.There is no fixed period for how long it should take between exchange of contracts and completion. The buyer’s and seller’s solicitors will usually agree a date for completion either prior to or when exchanging contracts. It is possible for exchange of contracts and completion to happen on the same day, although not that usual for domestic purchases. Exchanging contracts and completing on the same day is more likely to be possible where there is no chain and/or where the buyer is a cash buyer.
The legal definition of completion is that it is the point when all the terms of the contract of sale have been fulfilled and therefore the transaction is completed.It is when money changes hands and when the seller gives up the property and the buyer takes possession
Completion is when the buyer must pay the final balance for the property, less the deposit they have already paid. This can either be paid in cash or using mortgage funds. However, the buyer and/or the buyer’s mortgage lender will need to send this money to their solicitor in advance of completion day to allow this to happen.
On completion day the buyer’s solicitor or conveyancer to send the balance of the purchase price to the seller’s solicitor. Once the seller’s solicitor has confirmed receipt they will send the legal transfer of title deed and the title deeds for the property to the buyer’s solicitor and the transaction is then completed.
On completion day it is usual to aim to complete the sale between 1 pm and 2 pm although it can vary. This is usually specified in the contract and is known as the contractual completion time. It is usual for the seller to hand over the keys to the property, perhaps through the estate agent, once their solicitor confirms that the sale has completed.
Completion day does not have to be moving day. The seller must vacate and the buyer is able to move in or begin work on the property which becomes legally theirs.
What is conveyancing?
In its simplest form, conveyancing is the legal process of securing a legal interest in a property. Whether you are selling or buying a house, leasing a shop or being a n investment securing that interest is something that needs to be done properly, because there are some pitfalls that can prove expensive if you fall into them.
Conveyancing is important because of the amount of money that is involved in most property transactions. When there are hundreds of thousands involved in a transaction it’s important to secure that transaction is watertight
The key stages of conveyancing are:
Initial Paperwork and Draft Contract
Once an offer has been accepted, the seller’s solicitor will draft a contract. This will outline the conditions of sale, the terms of the deal including the price and any special circumstances or proviions. At the same time, the seller will need to provide information about the property and the seller’s solicitor will check and then provide details of the seller’s legal title to the property.
Introductory Enquiries from Buyer’s Solicitor
Once the buyer’s solicitor has checked all the initial paperwork and the contract it will be up to the buyers solicitor to make s preliminary checks regarding the property and its current owner. Issues regarding the local area, rights of way and boundary disputes will also be included in these enquires.
Organising a Survey and Searches
The survey must be organised by the buyer’s solicitor. This will check the state of the building, the condition of the surrounding land as well as the assessment of external factors such as drainage systems and whether there are any local developments planned in the near future. The buyer’s solicitor will also make various searches, including checking any outstanding issues with the local authority, including planning, flood risk, contaminated land and other environmental issues.
Approval of Draft Contract
Both solicitors will negotiate terms on the draft contract. Once this has been finalised and each party happy, the contract can be made official and each party can sign in readiness for exchange.
The mortgage or other finance must be agreed at this sage. The lender will also instruct a solicitor to act on its behalf. Usually this is the solicitor acting for the buyer if that solicitor is approved by the lender. The solicitor will check the mortgage terms and arrange for the buyer to sign the mortgage deed.
Exchange of Contracts
This is the point at which the seller and buyer commit to the transaction. It they later back out or try and change the terms of the deal will suffer financial penalties and be liable to for any loss suffered by the other party as breach of contract. The contract will require the buyer to pay a deposit and the date for completion of the deal is fixed. This date will be included in the contract. After exchange If it has not already been done the formal transfer deed is signed, final land registry and bankruptcy searches are done, the mortgage money is requested and sent to the buyer’s solicitor and the final financial statements are prepared. The seller’s solicitor will check how much is needed to pay off any existing loans and make sure everything is ready on their side. All the things that need to be done so everything is ready for the day of completion.
On the completion date the seller’s move out of the property, the buyer’s solicitor sends the purchase money to the seller’s solicitor and the solicitors agree between them what papers have to be sent. When the money has been received completion takes place (but the buyer and seller do not need to attend) and the keys are released to the buyer who is then able to move in.
he buyer’s solicitor has to check the deeds and papers they receive, report to HMRC and pay and Stamp Duty and register the purchase and the mortgage at the Land Registry. Once that has all been done the solicitor then has to tell the mortgage lender and the buyer and make sure the right papers and documents are sent to
If you're using a mortgage or other funding the conveyancing solicitor acts on behalf of the buyer and the lender. All the lender's conditions in the mortgage offer must be dealt with before funds can be requested from them.
Ten years ago, everything in conveyancing would have been done on pen and paper. These days it has become much more electronic, with communication between solicitors and with banks all done electronically and likewise with bank transfers.
Similarly, the Land Registry has its documents online with members of the public able to download documents for a small fee.On average Conveyancing takes around 12 weeks, but this can be much shorter, with some transactions completing in as little as 4 weeks, and it is possible to arrange same day conveyancing, if you are a cash buyer - although many solicitors will tell you that this is not possible.
What are Demolition costs?
Development Finance may be used to fund clearing of a site before building works can be commenced. Demolition costs are recognised by most Lenders as a legitimate Build Cost, and can be included towards the Total Costs of the project when making an application for Development Finance.
The price for demolishing a property depends largely on its size, and to a lesser extent on its construction As you would expect, the cost to demolish a small bungalow will be considerably less than the price for hiring a demolitions specialist to take down a large factory building - particularly if it is an older, brick or cast concrete structure.
In some cases specialist contractors and explosive experts may be required.
It is hard to calculate a general price per square metre because of the number of complicating factors, but there are broad price ranges that you can keep in mind. For very small properties, such as bungalows, demolition costs may be as low as £5,000 if there are no complicating factors, such as asbestos. A large portion of these costs will be taken up with transporting the waste materials away.
It is usual to factor demolition costs into a larger project, but if it is necessary to remove a structure before the sale of a plot, it may be possible to raise a loan to cover it. At Rangewell we can help provide the solutions required.
What is Commercial Property Refinancing?
If your business has been established for a few years and has its own premises, you could be sitting on a valuable and appreciating asset.Your office, warehouse, factory or depot is a store of wealth - commercial Property Refinancing lets you access that wealth.
You do not need to have paid off your current mortgage to arrange a new one. Your property will probably have appreciated in value, and the means that the chances are that you can get a better deal on your existing loan. So if you want to reduce the monthly repayments on your current mortgage, cut the demand on your cashflow and release funds for use elsewhere in your business, refinancing your current commercial mortgage could help. You may be able to simply pay off an existing loan and replacing it with a new one may be an effective solution.
How Refinancing works
A Commercial Mortgage is a loan secured on your property. The lender would have the right to seize the property and sell it to recoup the loan they have made you if you cannot keep up the repayments..
This works in your favour. Because the risk to the lender is small, the interest rate they charge can be reduced. As a result, the costs of a Commercial Mortgage can be cut, making it among the lowest cost lending that is commercially available. So, if you want to raise cash, a Commercial Mortgage can be a cost-effective solution. With the current low interest rates and high property values, it could be the simplest way to get the funds you need.
It works by letting you take out a new Commercial Mortgage on your existing property. If you own the property outright, all the money you raise is yours to use in any way you wish.
If you are refinancing an existing Commercial Mortgage, you can repay your original loan, and use any surplus cash to help build your business.
In both cases, you repay the loan over the time agreed, and regain full title to your premises when the funds are paid off.
Many commercial lenders will be able to provide property refinance. Most will have similar requirements.
Lenders will want to see a significant amount of financial information. They will need to understand your business and see balance sheets, statements showing profit and loss and cash flow data, and possibly details of your plans for the future. They may also need to see details of your personal finances, and will expect you to have a good credit history.
They will also want to confirm the current market value of the property you want to refinance. The condition and type of the premises will be important, and if the valuation has changed since you took out your original mortgage, this could have an impact on the loan-to-value calculation for a new loan. If you own the property outright, all the money you raise is yours to use in any way you wish. You can also refinance a property with an existing mortgage, repay your original loan, and use any surplus cash to help build your business. You regain full title to your premises when the funds are paid off and to take advantage of rates that are exceptionally low.
Refinance can also help reduce the cost of existing property finance obligations, because you do not need to have paid off your current mortgage to arrange a new one. You may be able to pay off an existing loan and replace it with a new one at a lower cost.
Before taking the plunge and refinancing a Commercial Mortgage, business decision makers should ensure they are fully informed about the process and consider all of the pros and cons
While there are clear benefits to refinancing, there are drawbacks too, so it is crucial for businesses to think carefully about whether it is the best option in the long term. Interest rates cannot be permanently fixed, and may increase considerably after any fixed period expires. If refinancing means you will be paying off your mortgage for longer, you could end up paying more overall.
What is a Deposit?
In mortgage terms, a deposit is the difference between the acquisition price of the property and the value of the Mortgage. It can be expressed as a monetary value, but more often as a percentage figure. Most lenders will not offer 100% mortgages: lenders will have to provider a proportion of the funds themselves. This is known as the deposit. So with a 65% LTV Mortgage, the deposit is 35%.
What is Development Finance?
Development Finance is a specialist funding, specifically used to fund a Development Project.
Property Development Loans are a type of short-term lending to finance renovation or refurbishment of a property. It can cover three types of projects:
- Small-scale loans to cover light refurbishment
- Lending to cover renovation and major conversion projects
- Funding for ground-up development, starting with an empty plot of land
50 – 60% of the site/property value can be advanced with additional stage payments available throughout the build at intervals agreed at the offer stage. Loan terms are flexible from 1 – 12 months and arrangements with no monthly interest payments may be available.
Loans are also available to fund up to 100% of the development costs.
Major development funding is designed for more extensive projects and ground-up developments, you may need a more complex finance arrangement. Funding is often sought by those who already own land, and who will offer it as security to raise funds to cover both land purchase and building costs.
However, experienced developers may be able to secure partial funding for the purchase of land as well as development costs. Lenders can provide up to 60% of the Gross Development Value or GDV.Lenders may expect at least 40% equity of the GDV to be funded by the client with the acquisition of the site. Funding will then be provided on a phased basis to cover the costs of development or redevelopment. Very large multi-unit block developments may require pre-sale of each phase before funding can progress to the next stage of the project.
Lending arrangements can include a roll-up of interest and associated costs into the loan, which would be paid off once the development is sold.
What is Drawdown
Drawdown is the point at which the money leaves the lender for the borrowers account. This is the point from which interest start to be charged.
What is an early repayment charge
An early repayment charge is made against the borrower if they exit the loan before a specified term. They can apply to any Loan, but are most typically applied to Fixed Rates in the Residential, BTL and Commercial Mortgage markets. At rangewell we will always make sure you are fully aware of all charges, including early repayment charges. Where the possibility exists, we will try to negotiate to ensure that no suh charge is made on your loan agreement.
What is Equity
Equity is the difference between the loan and the asset value, in other words the proportion that the borrower actually owns. The equity value can increase in value over time, as debt is reduced and the property increases in value - but the reverse can happen usually if property prices fall. This is known as negative Equity.
It is possible to have an equity loan - funding which covers the deposit on a mortgage.
What is Equity Release
As its name suggests, Equity Release is a way of releasing the enquiry value built up in the property. It could be for debt consolidation, further property investment, improving a property, business purposes, or other reasons. More recently in the UK the term has come to prominence due to a range of Lenders offering specialist products that allow older homeowners to access the Equity in their homes. These loans are typically not serviced and instead interest is rolled up, with the debt being repaid when the owner sells the property or dies.
What is an Equivalent Annual Rate?
Equivalent Annual Interest Rate is used to calculate the actual Interest Rate paid on the Loan balance drawn when there is more than one Lender charging different Interest Rates. This can occur with development finance. As Development Loans are drawn on a Stage Release Payment basis and the loan interest is only charged on what is drawn, it is extremely difficult to calculate the actual interest rate paid over the course of the loan, if there are Senior and Mezzanine Lenders both making loans.
What is Exchange?
In property transactions, 'exchange' is short for exchange of contracts. For all type sof property purchase - residential or commercial or development, exchange is the point in the buying and selling process at which the buyer’s and seller’s solicitors or conveyancers physically exchange the legal contract of sale for the property.
This is the point at which the property sale becomes final. Neither buyer nor seller can back out of the sale after this point without penalty. Exchange is very much the point of no return.
At the point of exchange, it is normal for the buyer to pay a non-refundable exchange deposit. This is traditionally 10% of the purchase price, although it can be less. The exchange deposit can be paid in cash or using expected funds from the sale of a property the buyer is selling at the same time.
The buyer becomes responsible for the property at the time of exchange. One implication of this is that they should arrange buildings insurance for it from exchange day.
Buyer and seller no longer meet in person to physically sign and exchange the contracts. Today solicitors will usually ask each party to sign their individual copy of the contract of sale well before exchange day. On 'exchange day' they will exchange contracts electronically with the other party’s solicitors and then exchange the physical copies afterwards. It is usual practice to aim to exchange contracts around noon on exchange day.
The buyer does not actually take possession of the property at the exchange of contracts. here a chain is involved – as is often the case with house purchases and sales – the various buyers’ and sellers’ solicitors or conveyancers should work together and coordinate everything to get the chain in place so that the completion date can be met.
The seller should ensure the property is ready to hand over. The buyer is able to check the property to ensure that it is in the condition that has been agreed.
The necessary financial arrangements should be made. The buyer needs to ensure that the money is with their solicitor before the completion date. If the buyer is buying with a mortgage, arrangements should be made for the money to be with the buyer’s solicitor before the completion date. If the seller has a mortgage on the property a redemption statement should be obtained and arrangements made to redeem or repay the mortgage. The solicitor will take care of the details.
Each party’s solicitors will set up bank transfer details in preparation for completion day.
The buyer’s solicitor will prepare a completion statement showing the purchase price, the deposit paid, balance to be paid and relevant costs, fees and Stamp Duty.
The seller’s solicitor will prepare a completion statement showing the sale price, deposit received, balance to be paid, the mortgage to be repaid if appropriate, relevant costs and fees and the amount payable to the seller.
The buyer and seller can book a removal date and start to do their packing where appropriate.
What is an Exit Fee
An exit fee may be used in Development Finance, it is a charge levied by a lender to the borrower at the point of Loan Redemption. It is normally charged as a percentage of the Gross Loan. It is different to an Early Repayment Charge as the Exit Fee is due at any time, regardless of when the loan is repaid. Exit fees are not applied by all lenders - those that do may charge a percentage of the loan amount or,sometimes, the gross development value.The costs offered by different lenders will vary considerably, and negotiation is possible - especially if you have the support of the Rangewell property team.
What is an Exit Strategy
An exit strategy is the means by which a property deal will pay off. An exit strategy is essential for both Bridging Finance and Development Finance. The term refers to how the loan will be redeemed; typically this is Sale of Property, or Re-Finance. the Lender to evaluate the plausibility of an exit strategy as part of the decision making process.
What is a First Charge?
A charge executed against a property equating to the value of the first lenders Loan. This Lender has priority over all other Lenders that may secure a Loan against the same asset - they will be repaid first if the asset is seized.. Also known as the Senior Loan.
What are Fit-Out Works ?
Fit-Out Works, also known as Second Fix is the The stage after First Fix has been completed, or the property is at Shell & Core stage. The works needed to make the property suitable for occupancy; connection of electrics, sinks, toilets, hanging of doors, etc. Commercial Property and High-Value Residential Property are sometimes built to Shell & Core stage as the occupants are more likely to have specific requirements to how the property is finished.
What are Ground Works?
Ground works are a feature of ground-up development projects, and are the Site Preparatory Works carried out before construction work starts; They can demolition, decontamination, clearance and the laying of drains, and in some cases may involve levelling, with the addition or removal of material.
What is gazumping and gazundering?
Gazumping is when a seller has accepted an offer on a house or flat from a buyer. Then another buyer comes along and makes a (usually higher) offer which the seller accepts. The original buyer loses the house they wanted and the gazumper buys it instead.
The opposite of gazumping is gazundering. Gazundering is when a buyer reduces their offer on a house or flat to lower than was originally offered and accepted by the seller.
Gazanging is when a seller decides not to sell their property at all.
Gazumping is most likely to happen in a hot property market, when there are more willing buyers than properties for sale, a property shortage or when property prices are rising
Gazumping is not illegal. It is perfectly legal for buyers to gazump. It is perfectly legal for sellers to accept an offer from a gazumper and decide not to sell to the person who made the original offer - but it can be expensive for everyone. Time and money might have already have been spent on surveys, mortgage application fees and solicitors’ fees. When gazumping happens a lot of money can be lost.
To prevent gazumping, make a strong offer, and ask for the property to be taken off the market as soon as your offer is accepted. Ask the agent to remove the property from their books and not to conduct any more viewings. Try and make it a condition of your offer.You could ask the seller to enter into a lock-in agreement or exclusivity agreement under which they agree not to negotiate with another potential buyer. They may be unwilling to do this, however, and it does not guarantee the property will be sold to you. It’s best to take legal advice about the pros and cons of doing this.
Be a cash buyer. If you have a property to sell, sell it before you find somewhere to buy. Sellers are more likely to see a cash buyer as a priority buyer.
Have your finance lined up, such as a mortgage in principle, in advance can help convince the seller that your offer is sound.
Arranging your finance with Rangewell before you make an offer could be an effective way to reduce the risk of being gazunded
What are holiday lets?
Holiday lets are an expanding market. Taking holidays in the UK – the staycation as it’s called – seems to be rising in popularity.
Compared to longer-term lets, furnished holiday lets can be much more profitable. A very rough rule of thumb might be that you can charge the same for a week’s holiday let when in-season as you can for a month’s long-term let.
. There can be major tax benefits of holiday let properties which ordinary buy to let landlords can’t obtain. These can make a huge difference to the profitability of your property.
HMRC considers holiday lets to be a business rather than a buy to let as such. This means you may be able to claim full mortgage interest tax relief, rather than the very limited allowance that is now given to most landlords.You will be able to claim all the running expenses of your holiday property business including bills and maintenance costs and the replacement of domestic items.There may also be benefits with Capital Gains Tax (CGT) and Inheritance Tax (IHT) depending on how you operate your holiday let business.
You may be eligible to pay Business Rates on your property instead of Council Tax. If your property has a rateable value under £15,000 you may be eligible for business rates relief too and even pay no rates at all.
To qualify here your property will normally need to be a furnished holiday let (or FHL as it’s known), available for letting at least 210 days a year and let for at least 105 of those. This should be possible with a property in a popular tourist destination, such as an area popular with families or in an area of outstanding natural beauty.
Last but not least, you can also use your holiday property yourself. This is important to many holiday property investors and from a financial point of view, you could benefit to the tune of several thousand pounds a year.
However it may be more difficult to finance holiday property. Standard residential mortgages can’t be used to buy a holiday let and many buy to let mortgages only permit letting on an AST. Mortgages which permit holiday lets may only be available with a lower LTV and charge a higher interest rate.nvolve more work but, ultimately, it will probably generate the highest return from your holiday let.
The solution is to call us at Rangewell. We're able to provide expert support on the right tye of funding, and find the enders able to provide lending for yor holiday lets business - weather you want to let out a single home, or a series of chalets.
What are High-Value Residential Properties?
High-Value Residential Properties are becoming increasingly common. Properties of £5 million or more are considered high value. Funding to buy this type of property is beyond the scope of most high street lenders, but at Rangewell we know the specialist lenders and private banks capable of providing the level of funding required.
What is a House of Multiple Occupancy?
A House of Multiple Occupancy is a property that is let to more than 3 people, that f and share communal areas such as bathrooms and kitchens. HMOs can provide these increased yields because they provide rent by letting individual rooms, providing multiple income streams, and higher yields overall compared with letting to a family.
Government regulation states that an HMO has at least three unrelated tenants living in a home sharing a toilet, bathroom or kitchen facilities. It becomes a ‘large HMO’ if it has more than five tenants and is over more than two floors. Large HMOs automatically need a licence from the council and need to meet certain standards for fire safety. In some areas, all HMOs require a licence. YUnlike a standard let, with a shared occupancy and one tenancy agreement covering all the occupants, an HMO usually requires individual short-term tenancy agreements with each of the tenants.
It will also require a special kind of funding. Not all lenders are keen on providing mortgages for HMOs because of what they see as an increased risk.HMO properties are traditionally seen as unlikely to attract family renters, and as often being of poor quality, offering little security for the lender. An existing Buy to let Mortgage may have clauses preventing you from turning it into an HMO.
At Rangewell, we know the specialist lenders who can offer competitive deals for landlords looking to purchase an HMO or convert an existing property, with an HMO Mortgage. They may be more costly than a conventional Buy to let Mortgage, but can cover up to 75% loan-to-value.With our help, finding a lender for both licensed and non-licensed HMOs can be straightforward, although each lender has their own approach and criteria, and costs may be a little higher than comparable buy to let arrangements.
Some will base their valuation on the price achieved if it were purchased as a single dwelling, restrict the amount that you can borrow. However, others will base their valuation on the achievable rental income or ‘investment value’ when making their lending decision.
What is an Interest Only Mortgage?
An Interest Only Mortgage is a type of mortgage where the Borrower is only required to pay the interest each month. With an interest-only mortgage, your monthly payment pays only the interest charges on your loan, not any of the original capital borrowed. This means your payments will be less than on a repayment mortgage, but at the end of the term you’ll still owe the original amount you borrowed from the lender.erest to the Lender each month. The capital must bes paid in a lump sum at the end of the loan term. This is sometimes referred to as a Bullet Repayment..
What is interest roll-up?
interest roll-up mortgage is an interest-only mortgage under which neither capital repayments, nor payment of any of the interest accruing under its terms, are required until it comes to an end, whether on expiry of the term (if any), discharge of the mortgage or the happening of some other event. It is most commonly applied to development deals, where the value of the project is only released on its sale.
What are Land Costs?
Land Costs is a term used in Development Finance to account for any costs incurred by a Developer in acquiring a site. This would be the cost of the land itself, plus SDLT, Agent Fees, Legal Fees and Valuation. When arranging Development Finance it is vital to know all of these costs as they can increase the costs considerably.
What is Leasehold Property?
There are two ways to acquire title to property, leasehold and freehold.
With a freehold purchase the buyer owns the property and the land it is built on outright.
With a leasehold purchase, the buyer is effectively only buying the right to occupy the property for a specified number of years from its freeholder. After that period the ownership of the property reverts to the freeholder.
Many Flats and apartments, whether in converted buildings, above shops and offices, and new build blocks may be leasehold. In most cases, if you wish to buy or invest in flats you will have to buy them on a leasehold basis.flats are leasehold, while most other properties tend to be freehold - but there are exceptions, and it is essential to understand which you are buying, and the differences between the two.
Historically leases were for 99 years, although terraced properties in the north-west of England – particularly Greater Manchester and Merseyside – often have 999-year leases with peppercorn ground rents. This was often done as the land was owned by a large estate who were reluctant to sell it for freehold housebuilding. More recently 125-year leases have been used, although new build developments often have 999-year leases.
ith a leasehold property, you will have to pay annual ground rent and probably also an annual service charge. There will also be various rules and regulations in the lease covering issues like noise or pet ownership. You may also need permission to make changes to the property.
Very significantly, you won’t own the property beyond the end of the lease unless you extend it Properties with only a short lease remaining – under 70 years but sometimes more – can be hard to mortgage. That means they can be difficult to sell and be worth a lot less because fewer people can buy them - but it is possible to extend a lease As well as 'security a lease extension can enhance the value of your property by making it easier to mortgage for future buyers. It also means ground rent may no longer be payable.
Some property investors buy short leasehold properties mainly with a view to extending the lease, so adding value to them and then selling them for a profit.
There are two ways in which a lease can be extended: The first is by informal negotiation with the freeholder in which case it can be done under any terms you both agree. The second is using a formal legal process. This starts by serving the freeholder with a formal Tenant’s Notice to Extend. The freeholder is legally required to extend the lease at its fair market value. This is worked out according to a fairly complex formula. It takes account of factors including the reduction in the value of the freeholder’s interest in the property between the existing lease and the new longer lease, and compensation for loss of ground rent.
You may also have to pay what is known as marriage value if the lease has under 80 years remaining. Marriage value means that as well as the cost of the leasehold extension you will be expected to pay 50% of the adjusted amount or potential profit that the leasehold extension adds to the value of the property.
At Rangewell we can help secure the funding you need both to acquire short lease property with a view to using it to generate a profit by extending the lease, and funding to pay for the costs of extension.
What is Leasehold Enfranchisement?
Short Lease properties can be difficult to raise a Mortgage against. A Lease may be considered short once is drops below 70 years, and past this point the value of the property will start to decrease.
Leasehold enfranchisement Is the process that a Leasehold Owner would go through to extend their Lease, or to purchase Shthe Freehold. We can help you find lenders who will allow you to raise monies against a property to pay for Lease Enfranchisement, if the Lease Extension is to be granted simultaneous to the drawdown. The Lender can instruct their Valuer to state the value of the property once the lease is extended (normally higher) in which case this would allow more borrowing than is possible when the lease is shorter.
What are Lending Criteria?
Lending Criteria are the rules and guidelines that a Lender sets, which Loan Applications have to meet ito be approved. Lending Criteria are also known as Credit Criteria, Credit Policy, Underwriting Criteria and Underwriting Policy.
At Rangewell, we know the lending criteria of all the lenders, - this helps us ensure that we only approach lenders who are likely to approve your funding application.
What is Loan-to-Value?
The loan-to-value ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. The term is commonly used by banks and building societies to represent the ratio of the first mortgage line as a percentage of the total appraised value of the property. The e ratio of debt to property value, expressed as a percentage; for example a Borrower that obtains a Loan of £ 6000,0, against a property value of £ 1000000 would be expressed as 60% LTV.
LTV is important - the lower the LTV, the better the interest rate you may be able to secure. For this reason it is often worth looking at the refinance of a property after a few years, when the equity that you own has increased, and the LTV will consequently be far lower. Loan to value ratios of 80% and lower are typically seen as low LTV ratios, whereas LTVs over 90% are considered higher. The lower the ratio, the smaller the risk for the lender and the better the interest rates offered to the borrower. he best rates come with 60% LTV mortgages which are the lowest available LTV mortgages. In the middle there are 80%75% LTV mortgages, 70% LTV mortgages and offer very competitive rates with manageable monthly repayments. 95% LTV mortgages, 90% LTV mortgages and 85% LTV mortgages are all at the high end of available LTVs. These may have higher rates, but offer a way for first time buyers to buy a home. The highest LTV you can is with a 100% LTV mortgage but these are rare. They need no deposit but often charge very high rates of interest and require guarantors
How to calculate your LTV
Divide your outstanding mortgage amount by your property’s current value.
Multiply the result by 100.
Your outstanding mortgage is £250,000.
Your lender thinks your property is worth £300,000.
250,000 divided by 300,000 = 0.75.
0.75 x 100 = 75 – so your loan-to-value is 75%.
What is Negative Equity?
Negative Equity is used to describe a situation where the Loan-to-Value is higher than 100%; essentially the loan value is greater than the property value. The term can also be used to describe a situation where a property owner would make a loss on the disposal of a property. This can occur when prices could have fallen in between purchase and sale, or prices may have remained flat or while costs have increased.
Negative equity means that it is impossible to sell a property without making an additional payment to the lender. People in this position are considered mortgage prisoners. .
What is Open Market Value?
The Market Value is the fair price for a property sold in normal circumstances; when the market is operating under normal conditions. The RICS definition is; The estimated amount for which a property should exchange on the date of valuation between a willing buyer and are defined as the price available with “ willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.”
Buying property under market value may be possible in some circumstances, but lenders will want to understand why the property is being sold cheaply, and may make special provision if a loan offer is made.
What are Permitted Development Rights?
Building development work in the UK is strictly controlled, and planning permission is required for most extensions and change of use.
Permitted development rights allow the improvement or extension of homes without the need to apply for planning permission, where that would be out of proportion with the impact of the works carried out.Rights to develop property that are granted by Parliament and allow certain building works and change of use without having to make a further Planning Permission application to the local authority.
- Permitted development can include
- Adding or changing windows - as long as the property is not listed
- Adding single stoey extensions in the garden at the rear, as long as they fall into permitted size limits
- Converting garages or other attached outbuildings
- Loft conversions and skylights
The rights differ between Residential Property and Commercial Property. The conversion of Offices to Residential Property has been a popular route that many Developers have followed. Permitted development rights are subject to conditions and limitations to control impacts and to protect local amenity.
Surprisingly is is possible to convert an industrial, commercial or agricultural building for residential use, without the need for planning permission. As is often the case, you will require approval for Listed Buildings and in Conservation Areas.You will also need to follow the Prior Notification procedure if you are converting an agricultural building such as a barn.
Understanding your permitted development rights may be crucial to the viability of development plans. Lenders will want to see that you have thoroughly researched the potion before making an applications for a loan.
What is planning permission?
Planning Permission, in simple terms, is provided by a local authority and is permissions to do a certain piece of building work. If your project involves the creation of a new dwelling by either building from scratch or subdividing an existing home or change of use, then planning permission is normally required.
Developments and extensions may also require planning permissions. lLarger outbuildings or extensions, or builds/improvements in Designated Areas or involving listed buildings.
There are two levels of planning permission. Outline planning permission may suggest that a certain project may be possible - but you will still need detailed planning permission before you start work
Planning permission can turn a piece of land into a viable building plot and the process is in place to prevent unlawful development. As such, planning permission is a vital part of any development project, or any home improvement planned for a listed building or property located in a designated area.
The cost of submitting a planning application varies across the UK, but is currently £462 for a full application for a new single dwelling in England. For home improvers, an application in England for an extension currently costs £206, whereas in Wales the cost of a typical householder application is currently £190.
Since April 2008, all local planning departments use the same application form, known as 1APP, s online at the Planning Portal.However, this is only the beginning, and obtaining planning permission requires investment in drawing up the plans and documents for submission and any accompanying surveys which may be required. A minimum budget of around £2,000 is probably realistic for getting planning permission.
A sign must be posted outside the address relating to the proposed development and any neighbours likely to be affected are written to and invited to view the plans and to comment. This is known as the public consultation process and it takes three to eight weeks. The authority will make statutory consultations to the local Highways department, and where necessary the Environment Agency as well as others.
Securing planning permission doesn’t necessarily mean that you can start work straightaway. Make sure you look at the planning conditions attached to the consent — for instance, you may need to seek approval for your chosen cladding or roofing materials.
Neighbours will be consulted and invited to comment, together with parish councils (in England and Wales), but only those objections based on material considerations are taken into account. If the neighbours do not object and the officers recommend approval, they will usually grant planning permission for a householder application using what are known as delegated powers.
Planning gain occurs when a developer applies for and is granted - planning permission, which increases the value and appeal of a site or property.
Buying land cheaply in the hope that planning permission will be granted is a high-risk strategy, and in most cases will not be successful. However under certain circumstances it can be successful. Remember, you can make a planning application on any piece of land in the country — you don’t have to own it
At Rangewell we know lenders who may be able to provide funding for this type of speculative venture.
What is a Portfolio Landlord?
When a person or company holds multiple BTL properties they are termed a Portfolio Landlord.
Conventional buy to let mortgages are based on individual properties, much like a homebuyer mortgage. They can be difficult to administer when the property owner has a large portfolio. For landlords with multiple properties, or those aiming to grow their portfolios, a portfolio mortgage could be a solution. A portfolio mortgage allows landlords to fund all their buy to let mortgages with one mortgage, treated as a single account.
This means that rather than having separate lenders for each property, the entire portfolio is undertaken by one lender, hence one monthly payment with one monthly mortgage payment compared to multiple mortgage payments across the month.
The portfolio is registered as a limited company and finances and expenditures are treated exactly the same as any other business, simplifying administration and reducing costs.
Technically, a portfolio could consist of two properties, but from a lender’s perspective, they would usually class four properties to be the bare minimum for a portfolio.f you hold 4 or more mortgaged BTL Properties the lending rules that need to be applied are different to those with less than 4. The rules on this can be more complicated than a single property BTL mortgage because all the properties inthe portfolio may need to be assessed to make an advance, and profitability must reach certain standards across them all.
Portfolio mortgages can offer a range of advantages.
Tax efficiency - A portfolio mortgage can help you be more tax efficient. The rules on Buy to let have become punitive outside a limited company. Inside it, and with a portfolio mortgage, funds withdrawn from the portfolio will soon be taxed as a whole, rather than paying tax solely on net income. So if you retain funds in the portfolio, funds can then be used to renovate or even purchase additional properties - and classed as expenses.
Simplify your buy to let finances - Rather than having multiple lenders, a portfolio mortgage allows landlords to have a single lender. A single lender across a portfolio can simplify finances in many ways, as they’ll only be one monthly payment.
With individual mortgages, under-performing properties can be a problem for lenders, especially when you need further finance. If you have properties in your portfolio which aren’t generating as much profit as others lenders may see them as liabilities.
With your entire portfolio is under one mortgage, well-performing properties can compensate for poor rentals. This is because lenders will simply assess income and expenditure as a whole, rather than on a case by case basis. This allows portfolio landlords to spread the income over their entire portfolio and in many cases can increase the maximum amount they can borrow.
Lenders that offer portfolio mortgages will require you to have their portfolio under a limited company. Migrating properties into a limited company can be expensive, and does mean some increased administrative duties and a professional accountant will be essential. And you should remember that although there are tax benefits to having a portfolio in a limited company, selling a property from a limited company is subject to corporation tax and capital gains tax.
Not all lenders will approve portfolio lending. At Rangewell, we know those that will.
What is refurbishment finance?
Refurbishment Finance arrangement could provide the solution you need if you are restoring or converting an older property. Refurbishment Finance is designed specifically for property professionals looking to refurbish or improve existing properties. It differs from Property Development Finance, which is generally intended for major ground-up construction. Instead, Refurbishment Finance is used for projects that may retain original structures and use, but which will update them to meet modern standards. It could provide the answer when you want to you buy and refurbish both residential property and commercial property
Refurbishment Loans are available for both light and heavy refurbishment.
If a property simply needs redecorating, rewiring or relatively minor changes, such as newly fitted kitchen or bathroom, this can be arranged through a Light Refurbishment Mortgage, which may cover both purchase or the works alone. Light Refurbishment Mortgages are ideal for developers looking to refurbish a property as an investment, especially those properties where a conventional mortgage might not be available because of the condition.
A light refurbishment property should be currently habitable with working utilities.
The work required should not require any planning permission approvals or structural work that requires building regulations approval. There should not be any change to the use of the property.
If the works require a change of use, for example, converting offices into flats, or any structural works requiring consent from the local authorities, this would be considered a heavy refurbishment project and would require a heavy refurbishment mortgage. Heavy Refurbishment Mortgages allow experienced property developers and investors to fund both the purchase of a property needing work and the funds to carry out the refurbishment required.
The refurb may include conversion of a single building into multiple letting units, such as self-contained flats or a multi-tenancy home of multiple occupation (HMO), where reconfiguration may be necessary. With heavy refurbishment, the lender will want to see a schedule of works. This is a detailed breakdown of the work and costs involved in the project, together with projected timings. A valuer will comment on whether the intended budget is realistic and if the time scale is achievable. Lenders may also want to see evidence of your past projects, to ensure that you have the skills and vision to complete the work
Refurbishment Finance is based on the gross development value (GDV), the value of the project once completed. This is also known as the post refurbishment works value.
Loans may be available from £100k to £10m. Lenders may consider lending up to 70% of GDV, with funds released in stages. These funds may cover both the property purchase as well as refurbishment works, although funds may also be available for developers who already own a property in need of work.
Terms of up to 18 - 24 months are available, and interest payments may be rolled up in the total loan amount. There will also be fees:
What is a Residential Mortgage?
a Residential Mortgage is typically a Loan against a person’s main residence; usually, but not always used to buy the home itself
With a residential mortgage the home must be used as a residence by the borrowers, not rented out to tenants or used for commercial purposes.he key definition being that 40% or more of the property is to be used as a dwelling by the borrower or their immediate family. Also known as Regulated Mortgage Contract.
Interest will be charged on the value of the mortgage owed. Interest is the what the lender charges for providing the money. It is charged as an annual percentage rate against the value of your debt.
This means you will have to repay the value of your mortgage plus interest on the loan. For example if you were charged 5% interest on a £160,000 mortgage you would still owe £156,776 at the end of a year, which is £160,000 + £8,000 (5% interest) – £11,224 (monthly repayment of £935 x 12).The total cost for credit is based on any mortgage related fees being paid upfront and not added to the mortgage. Mortgage related costs can vary greatly between providers and add to the cost of your repayments when added to the loan.
This is why a mortgage sems to take a long time to repay at the outset. The balance of your capital - what you borrowed in the first place - never seems to go down.
There will be monthly repayments that will need to be made until the mortgage is repaid - which could be 25 years or more.. Not being able to meet these repayments could result in losing your home. These repayments will increase or decrease with the amount of interest being charged.
You can remortgage if your circumstances have changed and you want to pay back the debt faster or slower.
Many lenders have an upper age limit of 75 at the end of the mortgage agreement. So, for example a 65-year-old would typically have to agree to repay a mortgage within 10 years.
There are two types of repayments:
- Full repayments interest plus capital - This repays the full value of your mortgage. Your repayments back a small chunk of the money you have borrowed as well as interest. This means you will have fully repaid your mortgage at the end of the term.
- Interest only – This will only pay the interest charged on your mortgage. This is much cheaper, does mean you will never repay your mortgage. The mortgage will be repaid at the end of the term by selling the home, remortgaging or using a ‘repayment vehicle’ (an investment or saving that matures alongside the mortgage).
There are many different types of mortgage.
Fixed rate mortgage
A fixed rate mortgage, as the name suggests isis where the rate of interest you will pay is set for a period of time. This can be a big help when starting out in the process of buying a home. Most lenders offer rates which are fixed for 2, 3 and 5 years, although some will also offer 1 and 10 year rates. With a fixed rate deal, no matter what the Bank of England Base rate and LIBOR are doing, your interest rate will remain the same for this period. Once your fixed rate term finishes, you will move onto the lenders Standard Variable Rate and, generally speaking, at this point borrowers will look to secure a new deal either with the same lender or remortgage to a new provider.
A tracker is a type of variable rate mortgage - but the way it can move is subject to some restrictions, because the rate itself in is tracking the Bank of England Base Rate or LIBOR. A tracker will therefore be the BOE rate plus a certain percentage.. These rates are subject to change and can move up or down. You can take a deal which tracks for 2, 3 or 5 years and then moves onto the lenders Standard Variable Rate, or you may be able to take a product where it tracks for the term of the mortgage.
In times of low,or falling interest rates, a tracker can be a sound tactic.
Discounted rate mortgage
A discounted rate is where the lender is providing you a discount from their Standard Variable Rate. this is another introcductory deal, and as with trackers, it is subject to movement when the underlying rate changes. It and can be for a period of 2, 3 or 5 years, ior in exceptional circumstances for the term of the mortgage.
Sometimes known as a current account mortgage, an offset mortgage uses the money you have in your savings to help you save on your mortgage payments - the more money you have in your savings account the more you save on your mortgage payments.
The way an offset mortgage works is that the money in your savings and/or current accounts are used to reduce the mortgage balance on which you are charged interest. You can't receive any interest on the cash in your account. Instead, the interest it earns is set against the interest you pay.
With an offset mortgage you can reduce your monthly mortgage payments or your mortgage term whilst still having instant access to your savings.
Currently savings rates are particularly poor and an offset mortgage can make your savings work harder for you than stuck in a savings account. It should be kept in mind however, that an offset mortgage can be beneficial at any time, not just when interest rates are low.
A cashback mortgage can provide you with a lump sum cash extra when your mortgage begins - which can be ideal for first time buyers setting up their home, and facing the need to buy furniture and fitting. Cashback incentives only apply to certain mortgages and may be a fixed amount or a percentage of the mortgage. Cashback mortgages are not always available but can be great for borrowers requiring a lump sum to install a new kitchen or bathroom for example. The main disadvantage of a cashback mortgage is that the interest rate is normally higher than the average - and that you could be paying interet on the cash for furnitures for the next 30 years.
A capped rate mortgage has a variable rate, usually a tracker or a discounted basis, but ith an agreed maximum rate of interest. For example, if the rate was capped at 5%,as long as the interest rate you were paying was below this figure it can go up and down - , but it could not go over 5%, whatever happened to rates in general. As with other special mortgages, the capped rate is an ntorcutory offer, and would
e in place for 2, 3 or 5 years before going back onto the lenders standard variable rate.
Mortgage deals may depend on a number of factors, but the loan to value <lin> can be crucial. This determines the proportion of the purchase price that you want to borrow. The larger you deposit - the amount you contribute o the purchase - the less you need to borrow, and th lower your rate may tend to be.
As well as your deposit amount, lenders will also consider your individual financial circumstances when applying for a mortgage. Your credit rating plays a huge role in your mortgage application. If you have a poor credit rating then it’s likely you will only be eligible for mortgages with high-interest rates. You can find out more about our bad credit mortgage options by calling us at Rangewell.
What is a remortgage?
A remortgage is where you take out a new mortgage on a property you already own - either to replace your existing mortgage, or to borrow money against your property. Around a third of all home loans made in the UK are actually remortgages.
There are several reasons to remortgage.
- Many of the best mortgage deal only last a short time – often two to five years – the typical length offered on a fixed rate, tracker or discount mortgage. When it comes to an end, your lender will put you on its standard variable rate (SVR). It’s likely to be higher than your old interest rate and higher than the best buys available. If so, you want to be ready to remortgage to a cheaper rate.
- If the value of the property has risen rapidly since you took out your mortgage, you may find you're in a lower loan-to-value band, and therefore eligible for much lower rates with another mortgage.
- You want to borrow more money. This could be a simple way to access the equity built up in your home. The most commonly acceptable reasons to raise money are for home improvements and paying off other debts
Check if your new lender is offering a fee-free mortgage (many lenders will write to you near the end of your current mortgage term and offer you a new deal to switch to), or if there is a product fee involved. This could swallow any savings you could have made by remortgaging.
There may be an early repayment charge on your current mortgage that you have to pay off before you can switch to a new deal. Again, this could outweigh any benefits from switching. The lower your loan-to-value (LTV), the more mortgage deals that may be available to you. You can work out your LTV by dividing your outstanding mortgage balance by your property’s current value.
It may not always be possible to arrange a remortgage. Since the credit crunch, lenders have become much more selective about lending. The regulator, the Financial Conduct Authority, now also requires them to carefully check the mortgage is affordable, not just at current rates, but at a higher rate too, to ensure you could cope if interest rates were to rise. As a result, lenders will want a lot of detail about your outgoings, and are looking for good, clean record of handling debts well.
If you have had credit problems, getting specialist help from the Rangewell team might be valuable.
What is rental yield?
Rental yield is a measure of the return on your property from letting it out. It can be expressed as a gross rental yield, as a percentage of what your investment in that property brings you back, from that property, on a yearly basis, and it may or may not take into account the costs of running your business.
The starting point is to look at your monthly income; the profit you property is likely to make on a monthly basis.
Most investors look at around 6% gross rental yield for their UK buy-to-let properties. Some investors sacrifice some of that percentage to go to a higher value area, or to a specific property that might provide other benefits such as a greater opportunity for capital growth.
Different classes of property may also offer very different levels of yield. HMOs for example, offer multiple income streams from several tenants, but may provide rental yield above 10% - although the costs of running the property may be considerably greater. Holiday lets may offer even greater rental yield in the season, but will mean inevitable void periods when there are no tenants available.
Being able to provide an accurate forecast of your rental yield may be crucial to securing funding: the lender will want to know that the property they are financing will be part of a viable business.
What is a Second Charge?
A Second Charge is a legal charge executed on behalf of a Lender that sits junior to the First Charge - in other words, a second loan on the same property.
Second Charge Loans are generally more expensive than First Charge Loans, due to them being more risky. In a default scenario the First Charge Lender is redeemed entirely before the Second Charge Lender can state their claim. Also known as a Mezzanine Loan.A loan that is subordinated to the Senior or First Charge Lender. A Mezzanine Loan can also be referred to as a Second Charge Loan. It is more risky and as such will attract a higher rate of Interest. Ordinarily an Intercreditor Deed is agreed between the Senior and Mezzanine Lenders, to govern the relationship in the event of NPL.
What is Second Fix?
Second Fix is a building term typically used in Development Finance. The stage after First Fix has been completed, or the property is at Shell & Core stage. The works needed to make the property suitable for occupancy; connection of electrics, sinks, toilets, hanging of doors, etc.. Also known as Fit-Out Works, it is significant as it is a accepted as a one of the ekey stage for drawing down of fund through staged payments.
What are Self-Certification Mortgages?
Self-Certification Mortgages were Mortgages that used to exist before being phased out as part of the mortgage market review in April 2014, this saw some of the biggest changes to the regulated mortgage market in decades. The main areas it covered were; a ban on Self-Certification mortgages, tighter rules on how Affordability is calculated and making it more difficult to obtain pure Interest Only mortgages.. Popular with self-employed people, as theyenabled borrowers to state their income on a Mortgage Application Form without having to prove it.
if you are in this position now, CLL TO US AT rANGEWELL MAY BE YOUR BEST NEXT STEP IN SECURING A MORTGAGE
What is a short term let?
A short-term let is considered to be a tenancy between one night and six months. These types of lets typically attract tourists, business travellers and those who are looking to rent more flexibly or need temporary accommodation, such as someone who has recently moved to a new town.
These types of investment also have the potential to provide landlords with the opportunity to monetise void periods between long-term tenancies or while waiting to sell their property.
Waht’s more, furnished holiday lets are treated differently from a tax point of view and typically offer more tax relief opportunities. Landlords can offset mortgage costs against taxable income with short-lets, unlike with buy-to-let investments because of Section 24.
Many landlords have discovered that rates for short-term lets are higher than traditional long-lets. A landlord can earn 15% and even up to 30% more revenue in certain locations such as central london.
However, there are drawbacks. Tenants will expect more to be In short-term lets, such as furniture, fittings, WiFi, TV license and cleaning services will all be demanded.
Across England and Scotland, any property let out for 140 days per year or more is considered self-catering. This means the income made from these properties is subject to business tax rates, but as landlords are allowed to rent their properties to short-term tenants for a higher number of days, Airbnb is still considered to be a lucrative alternative to traditional long-term tenancies.
Short term letting can form a business model, or allow additional revenue from rental properties which would otherwise provie voids, but the important thing to remember is that is may not be allowed on standard BTL mortgage.
At Rangewell we can help you find lenders who are able to provide specialise funding for short term lets.
What is a Special Purpose Vehicle?
A special purpose vehicle is most usually a private company limited by shares, which invests in or otherwise owns property.. However, it can be any kind of business format including a limited liability partnership (LLP) or a public limited company (Plc).A legal entity that is created for a limited use. In our case property ownership. Normally a limited company (UK or Overseas) that owns a property only.
It offers some important tax advantages. From the 2020-21 tax year onwards rental profits have been taxed with a maximum deduction for finance costs at the basic tax rate, currently 20% as the only permissible decution. This has increased the tax liability and operating costs for many property investors who are sole traders and who use mortgage finance. As a result, it has made some investments including buy to lets unviable or even loss-making unless they have been very carefully planned.
However, limited companies are still able to claim tax relief on the mortgage interest they pay, meaning a limited company can be a more financially attractive way of operating a property business today.Phe market for limited company mortgages is smaller and less competitive than standard mortgages. Many mainstream lenders do not offer limited company mortgages. With lenders that do, the interest rate charged is usually higher than for standard mortgages and a lower LTV or loan to value may be applicable too. A limited company mortgages may only require a lower level of rental coverage or interest cover ratio than regular buy to let mortgages. This is the amount by which the monthly rental income must exceed the monthly mortgage payment. This can make it viable for investors to purchase buy to let properties with relatively large mortgages even if the rental income potential is low, allowing the potential to build a portfolio which would otherwise not be viable.
Mortage companies may be way of providing mortgages to trading businesses. The risk is that if the business is unprofitable, the mortgage may become impossible to service.
The solution may be to use an SPV. Mortgage lenders tend to prefer limited company SPVs because it is easier to understand the lending risk involved. For example, a new SPV for a property project will be a new business with no previous trading history. It will be free from any pre-existing obligations, debts, charges or legal claims which may otherwise affect their lending decisions. The SPV will also be separate from its owners and directors for accountancy and tax purposes.
Lenders lending to an SPV generally look at the financial standing and ability to repay of the company directors of the SPV, rather than the SPV itself which may well have no income or other assets. They are likely to require personal guarantees for the mortgage from the directors of the SPV.
Transferring exciting Property Into an SPV
If you wish to transfer a property you already own into an SPV limited companyr to claim mortgage interest tax relief, it is possible but it may be far from simple. . It is usually undertaken by selling the property to your newly created SPV. However, you should take into account the conveyancing costs, Stamp Duty costs and other fees involved in doing this, and carefully consider the tax implications too.
It is important to note that an SPV can only offer these possible tax advantages under current legislation which is, as with all legislation, subject to change.
At Rangewell we can help secure funding solutions for SPVs
What are Staged payments?
Staged payments are often provided for development and self-build projects. The main difference between a self build mortgage and a traditional mortgage for house purchase is that with a self build mortgage, money is released in stages - in arrears or advance - as the build progresses, rather than as a single amount. Funds are drawn down in stages by your solicitor so that money is available to the builder during the construction phase. No funds will be advanced by a lender out unless the stage of development has been certified by a suitably qualified architect or valuer.
Every self build project has identifiable stages from the initial breaking soil to the final fix. The following chart shows the typical stages for a traditional brick and block construction and a timber frame construction.
Stage 1 Purchase of land
Stage 2 Preliminary costs & foundations
Stage 3 Wall plate level
Stage 4 Wind & Watertight - roof is on
Stage 5 First fix & plastering
Stage 6 Second fix to completion
Payments can be made geared to these stages, and this can happen in one of two ways Depending on your individual circumstances, stage payments will either be guaranteed based on your project costs or valuation based requiring a sufficient uplift in value at each stage of your project. The latter can cause problems when the lender instructs an interim valuation, and the valuer comes back with a figure that is lower than expected.
Advance Stage Payments
Funds are released at the start of each build stage, prior to work commencing. Stage payments are guaranteed, and are based on your project costs, irrespective of any valuations carried out by the lender. With off-site manufactured building systems like a timber frame, SIPs or ICF where you need to pay for your system in full before it even leaves the factory, advanced stage payments ensure you’ll have the cash to meet your supplier’s payment terms. What’s more, as a cash buyer you may be able to negotiate, and take advantage of deals.
Arrears Stage Payments
This Is the more traditional approach, and suited to traditional building projects. With an arrears stage payment mortgage, the lender will release money to buy the plot, usually 50% to 85% of the purchase price or value of the land and then release money for each build stage, after it has been completed and a valuer has visited the site.Payments are released after each stage of the build is complete because the lender wants to make sure that they do not lend more than your project is currently worth, at any given time. Money is released once a valuer has provided the lender with the current valuation.
Suitable if you have savings or access to cash to fund the build stages. Stage payments are not guaranteed and will be subject to interim valuations by the lender. BuildStore has a range of exclusive cost based arrears stage payment mortgages ensuring stage payments are guaranteed, regardless of valuation figures.
What is Stamp Duty Land Tax
Stamp Duty Land Tax - SDLT is a tax imposed by the Government on UK property. The cost of SDLT varies according to the property value and property type, with different rates applied to Residential Property and Commercial Property. Buyers of Residential Property now have to pay an additional surcharge on new properties, if they already own more than one property.
Vacant Possession Value
Vacant Possession Value is the value of an income producing asset, normally commercial property,without a tenant. Also known as the ‘Bricks and Mortar’ value. The VPV will normally be lower than the ‘Investment Value’, but how much lower will depend on the property use. Offices for example are easy to let to a new whereas more specialist setups, such as a garage, can only be re-let to another garage, or they require an expensive re-fit. The time and cost of this is factored into the VP value.
What is Viability?
A Lender will assess the credibility or viability of a proposed Borrower Exit Strategy befor emaking a lending decision. When making a Bridging Loan or Development Loan, one of the Lender’s primary concerns is how they will be repaid at the end of the Loan Term. If the proposed exit is Re-Finance as a BTL operation, then the lender will make an assessment of the availability of BTL funding for that particular asset. Similarly, if the exit is Sale, then the lender assesses the demand for the end product. The lenders valuer may be asked to help with this assessment in each instance.
What is a Structural Problem?
In simple terms, structural problems are anything that affects that structural integrity of a poperty. They can be structural issues due to poor design, poor building materials, poor building work, or structural faults that have developed since it was built.
The main worry with structural problems is that they can make your house unsafe. Some structural problems can make your house uninhabitable. Serious structural problems could even cause it to collapse. Damp and subsidence re the main issues, and can stem from a number of causes, from invading tree roots, which may be relatively easy to deal with - to subst\ndrd construction techniques, which may be very serious indeed and in extreme cases impossible to remedy.
In severe cases, structural problems could even mean y the property has to be demolished.. When your buyer has a survey done the surveyor will note any structural problems and even just any suspected structural problems. This could mean that your buyer reduces their offer, or even backs out of buying altogether.
But the key thing to remember is that most forms of lending will not be available for property with structural problems - because the property itself is not suitable for security. It cannot be sold on by the lender to recoup their money if you do not keep up payments.
However, it may be possible to arrange funding to buy a property at a reduced price and repair the structural problems, providing a potential for rapid profit.
The process is a little more complicated than buying a standard property, as the extent of the problems much be understood, and costed schedule of works prepared.It’s extremely difficult to diagnose structural problems yourself. If you suspect you have a structural problem with your house take advice from a builder and/or a surveyor or structural engineer who can undertake a professional structural survey. They can assess the extent and cause of the structural problem, conduct structural testing and monitor the problem, over time, where necessary.
Structural surveyors can advise on what needs to be done to solve the structural problem, prepare specifications for repairs and advise on the likely cost of fixing the problem
At Rangewell we can help you find lenders able to provide the necessary funds.
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What isVacant Possession?
If a contract of sale stipulates that the property is to be sold with vacant possession, this means that the property must be clear of all residents (or tenants) when the sale is completed and contain only the physical items that have been pre-agreed to stay where they are.
Vacant possession means several things..
- The property must be free of people - whether they be the owners, tenants or squatters - with the new owners, legally and physically, able to move in.
- The property must be free of chattels - such as furniture, personal items and yes, rubbish or items to throw away, too. Chattels are distinct from fixtures, although sometimes that distinction can be blurred.
- The new owner must have undisturbed enjoyment of the property - which means, to give one example, that it is not acceptable for the old owner to keep coming to the property to pick more personal items up after the sale has gone through.
- A property can not be considered to have been sold with vacant possession if there is a legal obstacle to the enjoyment of that property, such as an already-existing compulsory purchase order, from a local authority.
Landlords who are looking to sell a buy-to-let with tenants in situ will not be selling with vacant possession so it wouldn't be included in the contract and the new owner would inherit landlord status and responsibilities.
If you are a landlord or buy-to-let investor, selling a property with vacant possession then you need all tenants and their personal effects gone from the house, at the point that the new owner takes over.
This is a legal obligation and it includes rubbish and concepts around leaving the property in a 'fit state' to pass on.
Failure to live up to the expectation of the contract can land you in trouble. If you breach your contract then the new owner could have a legal claim against you that could result in a delay of payment or see you liable for damages.
It is, in short, your responsibility to ensure the contractual appliance of the sale. If your tenant interferes, in any way, with the new owner's ability to 'enjoy the property' then you are at risk of legal action. The buyer has a number of options available.
This can include an application to the courts to order the seller to fulfil the terms of the contract and pay damages or it could include cancelling the contract and claiming back the deposit.
What is Yield?
Yield is the income that a property produces. It is calculated by taking the gross rental and dividing it by the property value and multiplied by 100. So gross rental of £ 60,000 against a property value of £ 1,000,000 would equate to a 6% yield. You can also calculate the Net Yield, which would deduct the property running costs and any mortgage costs before completing the same calculation.
Both figures can be useful when you are planning a property deal, as they can provide evidence of whether or not the property will be profitable
Raising funds with short term property finance
If you are looking at the most cost-effective way for your business to raise cash, your business property may provide the solution, with property remortgaging or refinancing.
If your business has its own premises, you could have a valuable and appreciating asset - which you may be able to use to secure short term funding.
What about cost?
With all types of property finance, securing the most competitive interest rate will be crucial. Lower rates mean greater profits and easier cashflow - although in some cases, all fees and interest can be rolled up into the loan, which can be settled with a single repayment.
A short-term loan allows you to take advantage of the best rates available because you won’t need a fixed interest loan due to the short lending period. They also offer the chance to make quick decisions on buying new properties or can help save you if your property needs desperate refurbishments or repairs.
There will be fees:
Arrangement fees are charged by the lender for arranging the loan and are typically 1.5% to 2% of the loan amount.
Valuation fees cover the costs of a surveyor to value the property both before and post refurbishment works. The scale of these fees will depend on the size of the project
Business property finance from Rangewell
Buying any type of property will involve high costs, and it is important to have the answers you need to all your questions - including your questions about finance
At Rangewell, we work with lenders across the market and have access to the full range of property funding products. It lets us use our property finance expertise to support you – and ensure that you have the financial solutions you need.
At Rangewell, we know the lenders who can offer all types of property finance, and we can use our expertise to identify the deal that really is the most appropriate for you. Our knowledge can not only help you secure the funding you need - it can save you a great deal of cash.
ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
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Download Rangewell’s free and detailed guide to Property Finance
How does Property Finance work?
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What are the costs?
What are the restrictions?
The downsides of Property Finance
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Key terms to check