Second charge loans on property

 

The Mortgage that you get to buy a property are usually 99.8% registered as a first charge , this means this mortgage will have the main priority in getting the lenders money back if the property is ever repossessed . If you own a property and it is worth more than the mortgage that is placed on it this is called equity.  It is possible to borrow money against this equity by remortgaging the property with another lender who will pay off the existing lender and register their charge as a first charge. You can approach the existing lender for a further advance that will be register with the main mortgage as a first charge.

The other option is to secure a loan on the property on top of the mortgage, this is what is called a second charge mortgage or loan, and it has second priority to the original mortgage and is paid off after the mortgage if the property is repossessed, this means securing the loan as a second charge is a lot more risky due to having priority after the main mortgage, if the property needs to be repossessed and the equity has been eroded by a recession or a major event in the property market the second charge lender might not be able to recover its money . For this reason the interest rate on second charges are greater to cover the extra risk of the higher prospect of not getting all or none of the money back in the event of repossession.

Second charges were free off regulation before 21^st March 2016, but now they are regulated by the FCA and are afforded the main strict affordability checking a first charge mortgage is subject to. When borrowing as a second charge the cost of the first charge mortgage payments, all the other expenses for cost of living and other credit cards and unsecured loans , so it might be less affordable to take out a second charge mortgage than it would be to take a further advance or remortgage .

Second charge mortgages usually go anywhere from a loan of £1000 right up to £250,000 and beyond depending on available equity in the property. The second charge lender will work out how much equity is left after the mortgage and second charge is put on the property, this is usually down to many factors, the type of security, the credit status off the applicant and the amount being borrowed.

Advantages of a second charge

1.       If you have a very good rate with your existing mortgage and remortgaging would mean you losing this rate then a second charge might be a better option.

2.       If you have acquired bad credit after taking your original mortgage, it might be easier to get a second charge other than re-mortgaging as second charge lenders do offer in some circumstances a wider range of products for adverse subprime clients.

3.       In most circumstances  getting s second charge completed is quicker than remortgaging as many of them offer an in-house legal service that is included in the price of the second charge package , so you are not relying on a third party solicitor to complete the matter .

In summary getting professional advice on the best option is always advised.

What are building regulations?

 

 

What are building regulations?

Building regulations are a national standard for most types of buildings in England and Wales; they cover building projects in the home or commercial developments. They are set out to make sure that when something is built, it will be up to a standard that will be a safe environment for people to live and interact with. Building regulations are adjusted as time goes on to make sure they are current with the changing times like making sure the building matches current energy conservation requirements for fuel and power , also for public buildings they must meet requirements for providing access and facilities for disabled people .

For anyone that is planning to start a project to build a structure on their home, if you visit LABC’S home and build website, you will find a lot of helpful information to guide you what the rules are and what you need to do.

Buildings regulations are spate to planning permission, Planning permission something the local authority needs to approve before a building is started and are approved from plans drawn up by an architect, buildings regulations set a safety standard that the build needs to meet and to get a buildings regulation sign off, but you must check before starting the project if planning permission is needed from your local authority. It would be very costly if you finish a build without planning permission as the local authority could make you take the building down.

LABC

This stands for Local Authority Building Control, they represent all local authorities in England and Wales.

Go to this link if you are thinking of starting a new project 

 https://www.labc.co.uk/homeowners/getting-started-your-building-project

Planning permission when buying a property

 

 

Planning permission when buying a property

When buying a property any major alterations that affect a property structure will usually need planning permission and building regs , it is always worth asking the vendor when viewing the property if there looks like there has been a new structure added  to the exterior of the building or any major alteration to the internal structure of the house or flat if planning permission and building regulations were satisfied .

Some of the points to look for are as below

• Loft conversion or roof terrace in a conservation area
• Two-storey rear or side extension
• Construction of a permanent outbuilding, e.g. an office or garage
• Solar panels
• Gates and higher boundary walls
• Internal work on a listed building
• Properties that have 2 kitchens or look to be used as flats at some point.

As when it comes to the legal work done by the conveyancer if you go ahead and buy the property will uncover any problems if planning permission or buildings regulation certificates are not available and could stop the process being able to complete .

What do sellers need to reveal ?

The principle of Caveat emptor (“buyer beware ") applies when buying any property in England and Wales. This means it is the buyer’s responsibility, with help from the solicitor, to understand what they are buying so basically bought as seen, this is why conveyancer’s are necessary to mean your purchase is safe and the title will be clean after completion. If you are buying with a mortgage then this is re enforced by the lender that everything is investigated before completion and any issues are dealt with before the lender will release any funds. The issues are usually found by local authority searches and the surveyor that the lender sends out to inspect the property.

If when your conveyancer starts the conveyancing process, they will identify anything that might need planning permission and building regulations and they will send what they call enquiries to the other side for clarification, if then it is established that both or either planning permission and buildings regulation are needed, your conveyancer will request to see them before the conveyancing process can proceed any further.

Bad news

In some cases, one or more of the following may become clear:

• The work likely needs, but does not have, planning permission
• Planning permission has been refused
• The work has not been signed off by a building inspector
• Building regulations have been breached by the seller
• The work is otherwise not compliant with applicable regulations

These issues may not always be deal-breakers, but you should carefully consider the risks of buying a property affected by these defects.

 

If this arise the buyer can

Apply for retrospective consent

The new owner can apply to the local authority for retrospective consent. Where the work is fully compliant and does not breach any conservation area or listed building-related restrictions, the council may grant this consent.

In some cases, an inspector may be unable to confirm whether the work is fully compliant with regulations (because the work is finished, plastered over, etc). The inspector may instead confirm that they will take no further enforcement action.

An indemnity policy

There is a risk that the council could refuse retrospective consent. As a result, the new owner may instead opt to take out an indemnity policy. The policy will insure against the cost of work or losses should the council take enforcement action.

If the council has already refused consent, the buyer may also find it impossible to take out a policy.

A solicitor should be able to advise as to which the best route is.

Count court judgements, defaults explained and effect on mortgage applications

 

Count court judgements, defaults explained and effect on mortgage applications

When a lender assesses an application, one of the main factors they look at second to only income and affordability is credit status and risk. Credit reports are good for gauging how a potential applicant might behave on how they will pay the mortgage ongoing. Clients that apply who have kept a spotless credit record will endeavour to protect their spotless credit report by making sure payments are made on time every month, so this used with assessment  off income and affordability to underwrite the case so that the lending is as secure as possible .

From analysis of credit report’s over the years since they have existed its has been found that  clients that have poor credit ( that has not been caused by s sudden major event in their life) have got used to paying their credit poorly and might do so for any  new credit taken out in the future .

 For this reason many lenders especially standard high street lender will turn down applications with adverse credit showing on the applicant’s credit report. This has given rise to the formation of niche lenders that will lend to clients with varying degrees of adverse credit and this is usually reflected in the interest rate depending on how severe the adverse credit is, it will also have an effect on how much the lender will lend towards the property, the heavier the adverse the more deposit will be needed to secure the mortgage.

Lenders take the view that the more money the applicant has in the property that is from their own funds, the more chance they will pay the mortgage as they will have more of their own money at risk if the property was ever repossessed. A higher interest rate will cover the cost of any bad debt that is estimated to accrue from lending to applicants with adverse credit.

County court judgments

A County Court judgment (CCJ) is a court order which tells you to pay money you owe to a debt. It’s one of the actions your creditors can take as part of the debt collection process.

If you receive a county court claim form you have just over two weeks to respond. It’s very important to respond in the timeframe given, as if you don’t, the court could order you to pay the debt back at a rate you can’t afford. This could lead to further enforcement action.

You can only receive a CCJ in England or Wales.

Lenders will look at the date the CCJ was registered and how large it is, another factor will be if the CCJ is still outstanding or has been satisfied. If satisfied this will go in the applicants favour with select amounts of lenders.

A default

A default is usually registered on your credit report when a payment has reached a total of 8 payments missed, the company you owe the money to will issue a letter for default and register this on your credit report as a default, showing date registered and amount of the default. If you pay off the default it will show in the credit report as satisfied and date satisfied , lenders will base decisions on how new the default is, size of default and if it has been satisfied or not .

All adverse credit will come of your credit report after six years from the date it was registered.

 

 

 

Firstly lenders will base in the first instance the amount they will lend on the market rental figure that is usually established by the lender employed surveyor. But there are a lot of other factors that are looked at also depending on the specific lender.

Some lenders have a minimum income requirement; this is commonly set at £25,000 per applicant and is mandatory no matter how many existing buy to let the client has. This is often proven by 3 payslips P60 and bank statements showing the salary credit going into the account for employed applicants and for self employed, they will usually require 2 or 3 years SA302’S and tax overviews.

Due to buy to lets being un-regulated mortgage lenders have to be careful with their criteria, 99% of lenders require you to own 1 other property at the time of making the application and after the application has completed, this is to try and stop applicants trying to buy a property that is outside their current income and affordability limit as a buy to let and then living in the property after completion. It is possible to remortgage your home property on a buy to let basis if you want to move to another property to live in, 99% of lenders will insist that you complete the new purchase simultaneously with the let to buy remortgage, this is also to stop applicants remortgaging home property beyond what their income will allow them to remortgage it under income and affordability limits.

There are a handful of specialist lenders that will base the entire application without any minimum income requirements  but will insist you are an experienced landlord with at least 6 months landlord experience , this will mean you would have to have a property in your name you own and have rented out for at least 6 months . The lender will still require proof of income if you have an income this is often proven by 3 payslips P60 and bank statements showing the salary credit going into the account for employed applicants and for self employed, they will usually require 2 or 3 years SA302’S and tax overviews. The good thing is even if you earn nothing or a very small amount the lender will look at your application based on rental income.

Rental income calculator is now mostly dependant on being a lower rate tax payer or higher rate tax payer in the UK, this mostly equates to 125% of market rental income for lower rate tax payers and 145% for higher rate tax payers.

How to work out what you can borrow using these 2 common rental ratios.

125% lower rate tax payer.

Currently being used is a reversionary rate of 5% by lenders that they base the calculation on, but you would need to check with the lender what rate they are using currently for this.

Lower rate tax payer

Firstly you would need to work out the mortgage you think you will need £300,000 purchase price  minus standard 25% deposit for buy to lets =£225,000 mortgage needed then you multiply this by 5%=£11250 then you need to divide this by 12 to give you a monthly amount =£937.50 then you times this by the current lenders lower rate tax payer ratio 125% for this example =£1171.88 this is what the market rent needs to be , if it’s the same or higher than this you are good to go for the required mortgage amount , if it is lower you will need to put more deposit towards the purchase price to be able to buy the property .

For higher rate tax payers

Firstly you would need to work out the mortgage you think you will need £300,000 purchase price  minus standard 25% deposit for buy to lets =£225,000 mortgage needed then you multiply this by 5%=£11250 then you need to divide this by 12 to give you a monthly amount =£937.50 then you times this by the current lenders lower rate tax payer ratio 145% for this example =£1359.38  this is what the market rent needs to be , if it’s the same or higher than this you are good to go for the required mortgage amount , if it is lower you will need to put more deposit towards the purchase price to be able to buy the property .

You can see if you are a higher rate tax payer, you would need more rental income from property than as a lower rate tax payer.