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Residential Commercial Buy-to-Let Remortgages Bridge and Secure Repayments Methods Interest Rates

First Time Buyer

A person who has not acquired a freehold or leasehold interest in residential property in the UK or an equivalent interest elsewhere in the world is generally classed as First time buyer. However, there are few lenders who will class you as a first time buyer if you had a property in the past and have sold it before 12 months.
Buying a house is often complex and confusing, no matter how many times you’ve been through the process, but for a first-time buyer, it can be an even more daunting experience. We understand how stressful it can be. Our advisers can guide you through the entire process, in an easy to understand way, we are here to help you!
If you’ve decided you’d like to own your own home, there are a few things you need to understand to make the process easier. From saving for a deposit to the mortgage application process, here’s everything you need to understand:


  • Review your financial circumstances and seek advice on how much deposit you need to buy a house
  • Find the correct type of mortgage interest rate (e.g. fixed or variable) and select affordable schemes to get on the property ladder
  • Select correct type of repayment method (interest only or repayment)
  • Find a right property (freehold or leasehold)
  • Make sure you can afford monthly repayments
  • Budget for the other costs of buying a home. Don’t forget the associated fees (Solicitor fees, valuation fees, mortgage fees, arrangement fees, stamp duty fees, etc)

Homeover

Most people need to borrow money to buy a new home. A person selling one property and purchasing another property will require a Homemover mortgage. Many home owners looking to move will face difficulties securing a new home mover mortgage, even from their current lender.
Many mortgages are 'portable' which means you may be able to transfer your current mortgage product to a new property. Porting is a great flexible feature but there are no guarantees that your lender will permit you to do it, for two key reasons:

1. You have to re-apply so may not qualify.

When you ask your lender to 'port' your mortgage, you effectively have to re-apply for that deal, so you may not qualify as it is much tougher to get a mortgage now than it used to be.
For example, your circumstances have changed, you're now self-employed, you earn less or you have more debt and/or outgoings. Or you might not have changed at all but your lender's criteria has, so even though you got your first mortgage without hassle, it doesn't mean the same will happen again.
And if you haven't made all your mortgage payments on time, chances are the lender will refuse in the hope you leave them.

2. You may not be able to borrow more.

If you move to a more expensive property, you may need to borrow more cash but your lender may not allow this if you are already close to the maximum it will lend you. Even if it will lend you the extra money, it may insist you put the additional borrowing on a different product.
Additionally many mortgages were arranged on an ‘interest only’ basis meaning the debts have not reduced. Add to this the fact that lenders gave mortgages to many who could barely afford them. Lending criteria has tightened up for home mover mortgages – a lot. Lenders want to avoid what they see as ‘risky’ mortgage lending and have taken steps to avoid taking on such business.


  • Lending risk (the risk being that of a lender possibly losing money) is reduced if the borrower can put down a large deposit. This is not easy, especially for those who borrowed a high proportion of their current home, and prices have fallen since meaning there is not much equity left in the property.
  • The Financial Conduct Authority (FCA), who regulates the market, insists lenders are more prudent in the amounts they lend. So they now lend less than they used to for any given incomes.
  • The FCA has also restricted lending on an interest only basis, whereby no capital is payable off the loan. Whilst this is not necessarily a bad thing, preventing the storing up of problems for later, it means that many, especially slightly older borrowers, cannot afford the full capital and interest repayments. If you cannot prove that you have decent pension provision, it may not be possible to get a mortgage beyond normal state retirement age and this can restrict the term (and push up the cost) for your new mortgage.
  • Anyone with a less than exemplary financial record will struggle even more. Clients with adverse credit history could potentially be turned down by many mainstream lenders; even those with even slightly impaired financial records so we assist those through cases through specialist lenders.
  • Most mortgage schemes have ‘early repayment charges’ which are payable if you move to another lender before the scheme ends. If you are still within a scheme period and your own lender cannot give you the mortgage you require, and you have to look elsewhere, these penalties can often be high and could mean you need to delay your decision to move.

Shared Ownership

You can buy a home through the shared ownership scheme if you cannot afford all of the deposit and mortgage payments for a home that meets your needs.


You buy a share of the property and pay rent to a landlord on the rest.


When you buy a home through shared ownership, you:


  • Buy a share between 10% and 75% of the home’s full market value
  • Pay rent to the landlord for the share they own
  • Usually pay monthly ground rent and service charges, for example towards the maintenance of communal areas

Buying your share

The share you can buy is usually between 25% and 75%. You can buy a 10% share on some homes.


You can take out a mortgage to buy your share or pay for it with savings. You’ll also need to pay a deposit, usually between 5% and 10% of the share you’re buying.


You can buy more shares in your home in the future. This is known as ‘staircasing’. If you buy more shares, you’ll pay less rent. The amount of rent you pay will be based on the landlord’s share.


Homes you can buy through shared ownership

You can buy:


  • A new-build home
  • An existing home through a shared ownership resale scheme
  • A home that meets your specific needs, if you have a long-term disability - for example, a ground floor flat

Investment Buy to Let

Investment Buy to Let (Standard BTL is non regulated)

The purchase of the property is for business purposes for long term income and / or asset growth. Property purchased with an intention to rent it out and neither you nor your relative has ever lived and do not intend to live ever is classed as Investment Buy to Let mortgage contract. They are designed for property investors and private landlords.


Consumer Buy to Let

Consumer Buy to Let (CBTL is regulated)

These type of buy to let properties constitute of very small numbers and are short-term solution due to client’s circumstantial changes. eg. Accidental landlords - A borrower with no other let properties wishing to obtain a mortgage on a property that has either been inherited or has previously been occupied by the borrower or related person at any time will be classed as Consumer Buy to let mortgage contract.

Remortgages

Remortgage means switching to a different lender and is generally considered to get a better deal after the initial beneficiary period. Other reason to remortgage is to raise capital from the increased equity of your existing property and use funds to purchase a new property or home improvements. Remortgages can be applied for residential as well as buy to let properties.

If the purpose to remortgage is only to raise capital for home improvements, you must explore other options available (e.g. Further Advance (i.e. borrowing additional funds from the same lender)) as this may cost you less overall interest payable over the term.

If the purpose to remortgage if only to get better interest rate deal, you must contact your existing lender and discuss the option of Product transfer as they may offer you a better deal by simply switching off your product.

Our experts can also advice you if remortgage is suitable for your circumstances and assist you to consolidate debts.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

THERE CAN BE AN EARLY REPAYMENT CHARGES THAT YOU NEED TO CONSIDER.

Bridge Loans

Bridging loans are designed to help people complete the purchase of a property before selling their existing home by offering them short-term access to money at a high-rate of interest. As well as helping home-movers when there is a gap between the sale and completion dates in a chain, this type of loan can also help someone planning to sell-on quickly after renovating a home, or help someone buying at auction.

Bridging loans can be used for a variety of reasons, including property investments, buy-to-let and residential developments. They are also aimed at landlords and amateur property developers, including those purchasing at auction where a mortgage is needed quickly.


Secured Loans

A secured loan (also known as a homeowner loan) is a credit agreement that is backed using the equity in a property owned by the borrower. Borrower pledges some asset as collateral for the loan, when then becomes a secured debt owed to the creditor who gives the loan.

Loans of this kind are only available to people who own their own homes, and can be used toborrow anything from about £5,000 to £125,000. However, the amount you can borrow, the termand the interest rate you are offered will all depend on your personal circumstances and theamount of equity you have in your property.

This type of loan is most suitable for someone whose low credit score makes it hard for them to get a low-rate personal loan. There are risks involved in borrowing via secured loans,though. You could, for example, lose your home if you fall behind with the repayments, so it is vital to ensure that you do not overstretch yourself.


Business Finance and Commercial Mortgages

We act as introducers for business finance and commercial mortgages.


  • Property purchase – investment or owner occupier, commercial or residential (HMO)
  • Business purchase – including goodwill.
  • Property development – site purchase and build costs.
  • Vehicle Leasing finance – Personal Contract Hire or Purchase (Fixed or Variable)


What is a Commercial Mortgage?

To add more context to our summary, a commercial mortgage is a loan used to purchase or refinance a business property, such as an office building, retail store, or apartment building. The borrower will use the loan to pay for the purchase of the land and buildings.


A commercial mortgage is secured against the purchased property and can be used to finance a wide range of projects, from the owner-occupied property, to small business investments and large-scale development projects.



Who Can Obtain a Commercial Mortgage?

Generally, commercial mortgages can be obtained by business owners and investors interested in purchasing a commercial property. However, they can also be obtained by individuals or companies looking to refinance an existing commercial mortgage.


To qualify for a commercial mortgage, borrowers must typically have a good credit score and demonstrate the ability to make regular payments on the loan. Additionally, lenders may require borrowers to provide financial statements and other forms of income verification.



How Do Commercial Mortgages Work?

Commercial mortgages are loans secured against a property used for business purposes. They work similarly to residential mortgages, with the lender providing a lump sum to purchase or refinance the property and then receiving regular payments plus interest over an agreed period.


The terms of the loan will depend on the nature and purpose of the deal as well as on the creditworthiness of the borrower. Borrowers may be asked to deposit, usually between 30% – 40% of the property value. They will also need to provide supporting documentation such as financial statements and business plans.


Commercial mortgages are typically taken over terms from five to twenty years. The overall cost of the loan will depend on the size and complexity of the deal, as well as on prevailing market rates. Therefore, it is essential to do your research and shop around to secure the ideal product.



Types of Commercial Mortgages

Commercial mortgages come in different forms and will vary depending on the type of property being purchased. Some common types include:


  • Investment Property Commercial Mortgage: This is where a mortgage is taken out to purchase a property to generate income through rental payments from a third party business.
  • Construction Mortgage or Development Loan: A mortgage taken out to fund the cost of construction on a commercial property, such as an office building or retail store.
  • Bridge Loan: A short-term loan is used to bridge the gap between purchasing a property and securing long-term financing.
  • Owner-Occupied Commercial Mortgage: Also known as a trading business commercial mortgage. A loan to help you buy the property your business trades from.
  • Business Loans: Business loans are loans to businesses for things such as business cash flow, acquiring stock, hiring staff etc. You do not always need a property as security as lenders can consider lending to a business based on its performance.
  • Mezzanine Financing: Mezzanine finance is a form of leveraged hybrid finance that combines traditional debt with an equity stake given to the lender. It can fund everything from large construction projects to management buyouts.
  • Asset Finance: Asset finance is a loan secure on an asset, such as machinery, rather than a property. It can be combined with other finance types to get to the loan size required.

Each type of financing has pros and cons, so it’s essential to consider all the options before deciding. An experienced commercial mortgage broker can provide valuable advice on which financing suits a particular situation. Whatever type of commercial mortgage is chosen, it’s essential to be aware of the associated risks and ensure that all due diligence is carried out. This will help to reduce the chances of an unfavourable outcome and protect both lender and borrower in the long term.



Commercial Mortgage Criteria

Commercial mortgage criteria vary depending on the lender. Generally, for a commercial mortgage loan to be approved, you must provide documents such as tax returns, business financial statements, and business plans.


Lenders may also require additional collateral or personal guarantees from property owners. In addition, lenders may consider factors such as credit scores, debt-to-income ratios, and experience in property or business.


To ensure your application is approved, ensure you have all the necessary documentation to prove that you can repay the loan. It would be best if you also were prepared to provide details on how you plan to use the commercial mortgage funds.


Here are the commercial mortgage criteria in a list


  • Tax returns
  • Business financial statements
  • Business plans
  • Collateral or personal guarantees from owners of the property
  • Credit scores
  • Debt-to-income ratios
  • Experience in real estate
  • Detailed plan for how funds will be used
  • Proof of ability to repay the loan

Any other documents or evidence deemed necessary by the lender



The Application Process for a Commercial Mortgage

  • Gather the required documents: The lender will need bank statements, financial statements, tax returns, and other business documents to assess your creditworthiness.
  • Discuss loan terms with the lender: This includes setting up an interest rate, loan amount, fees associated with the loan, payment schedule, and any other terms you may want to negotiate with the lender.
  • Submit a loan application: You must complete a detailed loan application, including your personal information, financial documents, and other required paperwork.
  • Underwrite and approve the loan: The lender will review all documents before deciding if they can approve the loan. This process can take several days to weeks, depending on the complexity of your application. It may also include the valuation of the property or asset.
  • Offer: Once approved, the lender will issue formal loan terms or mortgage offer. In most cases, a solicitor will be needed who will complete the necessary legal work.
  • Receive funding: After completing the legal work, your solicitor will request the funds and the loan will complete.
  • Make payments: You will be responsible for making payments on time and following the agreed-upon mortgage terms. Failure to do so may result in penalties or other legal action
  • Monitor changes: As the market changes, you will need to keep an eye out for any adjustments to the loan terms that may be necessary. You should also review your mortgage periodically and ensure you are still getting a good rate of return on your investment.


How to apply for a commercial mortgage

To find out if you’re eligible for a commercial mortgage, you’ll need to provide


  • Three full years’ audited or certified accounts plus current management figures (if produced)
  • Two months’ bank statements
  • Assets and liabilities statement


Terms and fees

  • Apply for a business mortgage for amounts over £25,000
  • Fixed-rate terms from 1 to 10 years
  • Prepayment fees may apply if you repay all or part of your loan before the expiry of the agreed term
  • Lending fees and associated borrowing costs apply and can be added to the loan
  • For fixed-rate loans, if you decide to pay or cancel the fixed interest rate you may have to pay a breakage cost in addition to other fees such as prepayment fees

Any property used as security, which may include your home, may be repossessed if you do not keep up repayments on your mortgage.



Final Thought

There is a lot to consider when considering taking out a commercial mortgage. From understanding your credit score and being aware of the different types of loans available to researching lenders and negotiating rates and terms – with this in mind, the process can be daunting.


However, with careful research and preparation, it is possible to secure the ideal rate for your needs and find the right lender for your situation. A commercial mortgage can be a great way to finance a commercial property purchase or refinance, and by following the tips outlined above, you can be sure that you get the right deal available.


Overall, the benefits of obtaining a commercial mortgage far outweigh the challenges if you are prepared and knowledgeable about what to expect. With the proper preparation, you can find the right loan for your needs and ensure a successful outcome.

Capital and Interest

This type of repayment method is suitable to most clients especially residential mortgages. It is strongly recommended to clients who are not prepared to take risks with your mortgage liability. Capital and Interest only mortgage is designed to use each monthly payment to pay back interest accrued on the loan plus a proportion of the capital outstanding. If you keep up your payments, it guarantees that your entire loan will be repaid at the end of the mortgage term.


Interest only

This type of repayment method is generally selected when purchasing an investment property. Only the interest on the borrowed loan amount is repaid on a monthly basis and the capital will need to be repaid at the end of the term. Generally, lenders expect an investment backed repayment vehicle to be in place to ensure security but this may fluctuate to some extent and may fall short at the end of the mortgage term. Alternatively, it is recommended that you make regular monthly extra payments to ensure that full mortgage capital amount is paid off by the end of the term. It is your responsibility to review your investment regularly.


Part and Part Mortgage

A part and part mortgage is when some of your loan is on a repayment basis and some is interest only. With a part and part mortgage, the full loan amount will not be repaid at the end of the term. The interest-only mortgage element will need repaying via the sale of the property, a remortgage, or from pension tax free cash etc. A part and part mortgage allows the property owner to benefit from lower payments over the term of the loan due to some of the balance being on an interest-only basis.


Fixed Rate

The interest rate you pay will stay the same throughout the length of the deal no matter what happens to interest rates. This type of rate is most suitable when you want your monthly payments to stay the same, helping you to budget your monthly outgoings. You may have to pay an early repayment charge if you want to switch before the deal ends.


Variable Rate

This is the normal interest rate your mortgage lender charges to homebuyers and it will last as long as your mortgage stays or until you take out another mortgage deal. With variable rate mortgages, the interest rate can change at any time. Changes in the interest rate may occur after a rise or fall in the base rate set by the Bank of England. This type of rate is selected when you want full freedom to overpay large sum and have no restrictions should you wish to pay in full and leave the mortgage.


Discount Rate

This type of mortgage offers a discount off the lender’s standard variable rate (SVR) and only applies for a certain length of time, typically two or three years. The rate starts off cheaper ensuring that your monthly repayments are lower. If the lender cuts its SVR, you will pay less each month and otherwise. SVRs differ across lenders, so don’t assume that the bigger the discount, the lower the interest rate. You may have to pay an early repayment charge if you want to switch before the deal ends.


Tracker

Tracker mortgages move directly in line with another interest rate – normally the Bank of England’s base rate plus a few percent. So if the base rate goes up by 0.5%, your rate will go up by the same amount. Usually they have a short life, typically two to five years, though some lenders offer trackers which last for the life of your mortgage or until you switch to another deal. If the rate it is tracking falls, so will your mortgage payments and otherwise. You may have to pay an early repayment charge if you want to switch before the deal ends.


Capped Rate

Your rate moves in line normally with the lender’s SVR. This type of rate is generally higher than the other variable and fixed rates. But the cap means the rate can’t rise above a certain level. It is your responsibility to ensure that you can afford if it rises to the level of cap. Your lender can change the rate at any time up to the level of the cap; however your rate will also fall if the SVR comes down.


Offset

This type of rate is designed to be linked to your savings and current account against your mortgage so that you only pay interest on the difference. You still repay your mortgage every month as usual, but your savings act as an overpayment which helps to clear your mortgage early and save you from paying extra interest over the term of the loan.


YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
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