Pushing the limits of a mortgage

When searching for your dream home through services like Rightmove and Zoopla you often have an idea of where you want to live, and how much you are willing to spend. Some buyers will prefer homes which are ready to be occupied straight away without alteration, such as new builds or recently renovated homes. Whereas others are happy to pay a little less to obtain a property which may have been vacant for a long period of time or be in a poor state of repair.

Often these properties are older, which means you benefit from larger rooms and a much more generous plot size. Typically, with a garden at the rear and front of the property and ample off-street parking. Depending on the state of the property and the situation of the seller, these properties are often sold through auction.

Properties sold through auction

If you are purchasing a property through an auction, it is essential to line up the property finance in advance of the day. You can apply for a property based on your maximum bid, meaning that you can set yourself a realistic ceiling going in and won’t get carried away during the bidding process. It also means that you are able to make offers below your maximum bid, instead of being restricted in how much you can offer. Often with a full offer for finance you can make a pre-auction bid. Some will be rejected, but it at least provides the opportunity to engage with the property.

Flexibility of a mortgage

As every property is unique and every bank has a differing policy, it is often a surprise to most of how flexible you can be with a mortgage. You can purchase properties which are in a poor state of repair or require essential work. Depending on the condition of the property you may be required to have an additional survey completed alongside a valuation, such as a structural survey or damp and timber report. These reports serve a dual purpose, as they provide the lender with confidence that the issues with the property are either cosmetic or financially viable to resolve. It also provides the buyer with reassurance as to the size of the project they are about to take on.

However, not all properties are going to be suitable for a mortgage. In the event that a mortgage cannot be obtained then the options are influenced by the situation of the borrower and the amount which is being raised:

If one applicant earns over £100,000 then a specialist mortgage can be arranged through private lenders. This type of mortgage is similar in cost to a mortgage, although slightly more expensive. You are also typically only able to take the product on a variable rate basis. This means that once you have improved the property you can re-mortgage to a cheaper loan, but it does mean you are exposed to any changes in rates in the market
Traditional bridging finance. This is much more expensive than a mortgage but can accommodate a greater range of clients and property. The benefits of the purchase need to be weighed against the cost of finance, but if you are purchasing in a high-demand area or feel you can add significant value. Then this is still a worthwhile consideration

How we helped a client purchasing at an auction

A client was introduced to us by a bank who were unable to help with their purchase. Due to our ongoing working relationship, they recommended Orton Financial as a firm able to provide the client with a tangible solution.

The client had already agreed to purchase a property at auction for £655,000 and was looking to obtain finance as quickly as possible, balanced with the cost of finance. The property was an old farmhouse in a generally poor condition. With outbuildings in need of demolishing and a right of access through the property. Due to the condition of the property it was marketed for cash-buyers.

The client was also running a fairly new company, with the company at its infancy they had now been drawing a significant level of salary or dividends.

On review of their property and situation we recommended a high street lender to the client, with consideration of a specialist alternative if required. The client had previously spoken to the lender recommended, who had turned him away due to the need to utilise net profit from his company. The lender had not yet completed a valuation, so this was also a main factor to consider.

As a broker we often have access to more specialist underwriting services than applying directly to the bank. The main reason is because the role of the broker is to not only advise the client on why the lender is suitable, we are also here to advise the bank on why they should lend to the client. The client accepted our advice and requested we apply for a loan of 85% loan to value. This is much higher than what is achievable via a bridging loan, but keeping the deposit low means the client able to keep funds for much needed works.

The property had not been occupied for a number of years and there were signs of some structural movement and damp. When the property was valued, the surveyor requested to see a copy of specialist reports for both, which confirmed essential remedial works were required to value of 1% of the purchase price. The works and the cost were deemed acceptable, with a mortgage offer issued shortly after. The client is estimated to save £38,460 over 12 months by taking a mortgage instead of a bridging loan. This demonstrates the value in approaching a broker who is able to advise on both.