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There was never any doubt that Boris Johnson’s plans to help as many Brits as possible get on the housing ladder would be anything but a big disappointment. We already knew much of what he was going to say before his already infamous remarks were voiced in Blackpool this week.

“We’re going to look to change the rules on welfare, so 1.5 million working people who are in receipt of housing benefits and want to buy their first home will be given a new choice: to spend their benefit on rent as now, or put it towards a first-ever mortgage,” he said.

 “Doing so removes a significant barrier that currently prevents hundreds of thousands of families from buying their own home.”

“We’re going to explore discounting lifetime and Help to Buy ISA savings from Universal Credit eligibility rules”.

Support for ‘trapped’ housing association tenants?

In addition to the above, he talked about an extension to the existing Right to Buy scheme, which will give up to 2.5 million housing association households the opportunity to purchase their properties at a discounted price.

“They’re trapped; they can’t buy; they don’t have the security of ownership; they can’t treat their home as their own or make the improvements that they want,” he said.

 “So, it’s time for change. Over the coming months, we will work with the sector to bring forward a new Right to Buy scheme.”

All of this is somewhat predictable, as was the reaction from those within the housing and mortgage sectors who were quick to lambast the ailing prime minister.

“There are real practical problems; to qualify for Universal Credit, you’ve got to have savings of less than £16,000, which means that most people who the government is trying to reach with this announcement are not going to have anything near the amount that they need for a deposit,” said Shadow Levelling Up Secretary.

Her sentiments were echoed by Edward Checkley, managing director of London-based property finance specialists, who highlighted the dangers of plunging struggling households into further debt.

“This policy would go against all sensible lending practices, considering housing benefit is typically awarded to assist with rental payments if unemployed or on a low income, and to households with less than £16,000 of savings,” he said.

 “With the cost-of-living crisis already affecting lower-income households, how can saddling them with debt be responsible?”

Elsewhere, the founder of Mansfield-based Shaw Financial Services, Lewis Shaw, gave the prime minister both barrels and joined the growing call for his resignation.

“Mortgage lenders already allow people to use state benefits to support a mortgage and have done so for years. It varies from lender to lender exactly which state benefits they’ll take into account, so I’m not sure what a new policy could be,” he said.

“It’s almost as though they don’t know how the mortgage market works already. If we’re to believe they want higher LTV mortgages, there’s only one place to go, and that is 100% LTV. However, again, we already have 100% LTV as a couple of lenders allow you to take a personal loan as a deposit.”

 “It’s more bluster from the blond blancmange. Just resign for God’s sake and let someone with an ounce of competence and integrity have a crack.”

The ‘strength in numbers’ approach to home buying

Increasingly, millions of prospective first-time buyers are counting themselves out of the running as far as home ownership is concerned. Even when coming up with the required deposit to qualify for a mortgage is possible, skyrocketing house prices are pricing many out of contention.

With average house prices now hovering around £300,000, lenders’ policies on salary-based maximum mortgage sizes are proving increasingly unrealistic. Capped at around 4.5 times the applicant’s salary, even a £35,000 per year earner would fall drastically short of the mark.

A mortgage of £157,000 has been more or less useless across much of the UK for years, thus painting an even more unfortunate picture for many millions earning closer to £20,000.

This is where a product known as a Joint Borrower Sole Proprietor (JBSP) mortgage could help; a JBSP mortgage works by effectively combining the annual incomes of up to four family members in order to increase the maximum loan amount.

Responsibility for the mortgage is effectively shared between all who sign in to the agreement, usually the person or couple looking to buy their first home, and the parents of one of the buyers.

Like a conventional mortgage, a JBSP mortgage can be taken out with an LTV as high as 95%. Maximum loan sizes and terms vary on the basis of the ages of the supporting applicants, and all borrowers named in the application must be in employment at the time.

Where the conventional pathway to homeownership seems implausible at best, considering the alternative options with the help and support of an experienced broker is highly recommended.

For more information on any of the above or to discuss the benefits of joint borrower-sole proprietor mortgages in more detail, contact a member of the team at UK Property Finance today.

 

Whether you are looking to pick up your dream home at a rock-bottom price or turn a quick profit with a fixer-upper, auction property purchases can be just the thing. Buying homes at auction is quicker and easier than becoming part of a conventional property chain, and the savings on offer are unbeatable.

But as properties purchased at auction call for prompt payment, typically within 28 days, conventional mortgages have little practical value. With the typical residential mortgage currently taking around three months to arrange, this 28-day payment deadline calls for an alternative funding solution.

The benefits of property auctions

One immediate benefit of buying properties at auction is the speed and simplicity of the transaction. Within 28 days, the property purchase and transfer process in its entirety is complete. You benefit from the lower prices afforded to cash buyers, and there is zero risk of being ‘gazumped’ by competing bidders.

If yours is the winning bid on the day, the property is yours, and at the exact price quoted.

In addition, a much broader range of homes go under the hammer at auction than appear on the conventional property market. Homes that need to be sold as quickly as possible, properties in need of repairs and renovations, and non-standard properties considered ‘unmortgageable’ by major banks—all potential bargains in the making.

You can even buy rental properties at auction that already have tenants living in them, enabling you to begin collecting regular rent payments in less than a month.

The drawbacks of property auctions

On the downside, the shorter transaction times associated with auction property purchases can prove problematic. If your bid is successful, you will be expected to pay a non-refundable reservation fee on the spot.

This may be 2.5% of the property’s agreed price (plus VAT) or a set fee of around £5,000. The contracts do not need to be signed and exchanged right away, but you will forfeit this initial reservation fee if you back out of the deal.

Upon signing the contract and agreeing to purchase the property, you will be expected to pay a 10% deposit. At this point, you will usually have 28 days (sometimes slightly longer) to come up with the rest of the money.

Another drawback to property auctions is the risk of being outbid, which could happen after paying for a formal survey of the property. There are also no guarantees that yours will be the winning bid, irrespective of how many lots you bid on and how many auctions you attend.

Financing an auction purchase

The time-critical nature of auction property purchases calls for something much swifter than a conventional mortgage. In addition, it is essential to arrange the necessary funding before the auction, in the form of pre-approval or a decision in principle. This will enable you to access the funds you need if your bid is successful without having to start your application from scratch.

Most buyers pay the 10% deposit on the homes they buy at auction out of their own pockets, or perhaps by way of a personal loan or a credit card payment on the day. It is therefore important to ensure you have access to this 10% deposit on the day itself, or your bid will be cancelled and the property sold to someone else.

Bridging loans for auction property payments

One of the most convenient and cost-effective ways to fund an auction property purchase is bridging finance. Where approval is obtained in advance, a bridging loan can be arranged and accessed within a few working days.

Bridging finance can be secured against most types of property or land and can also be used to purchase any type of property, irrespective of its condition. This makes it a particularly suitable facility for auction property purchases, where non-standard homes in questionable states of repair often go under the hammer.

A strictly short-term facility, bridging finance is designed to be repaid within a few months and charged at a monthly rate of around 0.5%. It can therefore be ideal for investors looking to flip properties for fast profits, using the funds raised at the point of sale to repay the loan.

It is also possible to repay a bridging loan by transitioning it to a conventional mortgage or similar long-term repayment facility.

Auction Preparation

In the weeks and months leading up to an auction, full details of the properties set to go under the hammer will be released. This will include a “guide price” for each home, which in most instances will be significantly lower than the price it sells for.

If there is a property you are interested in buying, you will need to arrange an in-person viewing and a professional survey. Particularly if it is a home in need of renovations and repairs, you need to know exactly what kind of work will be needed to bring it up to an acceptable standard.

At this point, you could also contact a local architect or builder to provide you with an estimate regarding the proposed renovations. They may be willing to conduct a survey and provide an estimate for free if you subsequently use their services if and when your bid is successful.

Take a good look at the legal pack for the property you intend to buy and have a solicitor examine its contents on your behalf. If this is to be your first property auction, visit one or two auctions as a visitor in advance to get a feel for how the whole thing works.

On the day of the auction

Arriving early will give you the best shot at securing a good seat in the auction room. Ideally, you should be in a spot where you can see your competing bidders but also where the auctioneer can clearly see you.

When the auction begins, don’t be tempted to exceed your budget, and try to keep your emotions in check. Even if you have your heart set on a property for sale, you need to remain grounded and bid objectively.

If your bid is successful, you will need to provide two forms of identification, along with evidence that you can pay the deposit.

Should the property you are interested in fail to sell, having not reached its reserve price, request the contact details of the seller; you may be able to negotiate with them directly and perhaps pick up the lot for less than you intended to spend.

Can you buy property at an auction with a mortgage?

In terms of conventional mortgages, the answer is no. Based on standard mortgage processing times alone, it would be practically impossible to arrange a traditional mortgage within the 28-day time limit.

There may be an occasional exception to the rule where an agreement is reached with a lender in advance to secure the required funds as promptly as possible. But this simply isn’t an option with most major lenders, where typical mortgage application processing times average around 12 weeks.

In addition, many (if not most) of the properties that go under the hammer at auction would not qualify for a conventional mortgage with a mainstream lender. Auction properties are often deemed ‘non-standard’ or ‘unmortgageable’ due to their repair and renovation requirements.

Fast-access funding is available in the form of bridging finance, along with specialist auction finance and development finance loans for established investors. Issued as short-term facilities, fast-access loans like these can be repaid using longer-term mortgages once the property has been restored to an acceptable standard.

Consult with an independent broker ahead of the auction to discuss the most cost-effective funding options available.

What happens if you can’t meet the completion deadline?

If a buyer is unable to pay for their property in full within the 28-day deadline, the transaction is cancelled, and they forfeit their deposit. Depending on the terms and conditions of the agreement, they may also be liable for the costs of listing the property once again at a future auction.

However, there is usually some leeway where buyers raise their issues with the vendor ahead of time. For example, if you simply need an extra few days or weeks to come up with the money, they will most likely demonstrate a good deal of flexibility.

After all, it is in nobody’s best interests to take the whole thing back to the drawing board.

If you have any questions or concerns regarding your ability to meet the completion deadline, ensure they are discussed with the seller at the earliest possible stage.

Pros and cons of buying at an auction

In summary, a brief overview of the pros and cons of buying properties at auction:

Pros

• The opportunity to secure an unbeatable bargain
• A much faster and simpler transaction
• No reliance on risky property chains
• Zero risk of being gazumped by competing buyers
• A broader range of properties to choose from

Cons

• There are no guarantees you will walk away with a property
• Full payment is required within 28 days.

Auction property purchases can therefore be advantageous in many ways, but they will always call for careful planning and forethought.

For more information on how to fund auction property purchases or to discuss the benefits of buying at auction in more detail, contact a member of the team at UK Property Finance today.

Uninhabitable homes are not without their points of appeal. Particularly in today’s housing market, an affordable ‘fixer-upper’ can be just the thing to sidestep impossibly high property prices.

With an uninhabitable home, you have the opportunity to buy into a desirable location and gradually shape it into the home of your dreams. Unfortunately, the vast majority of lenders fail to see the potential in these ‘non-standard’ homes.

Consequently, most homes considered uninhabitable at the point of sale are also considered unmortgageable. As the name suggests, this means that conventional borrowing options are out of the question.

But this doesn’t mean that affordable financing for uninhabitable properties is unavailable. It simply means you have to extend your search beyond the High Street with the help and support of a specialist broker.

What makes a home uninhabitable?

All lenders have their own policies regarding which types of properties are considered unmortgageable.

In most instances, any of the following will classify a home as uninhabitable:

• There is no working bathroom or kitchen inside the property.
• Inadequate protection from adverse weather (windows and rain)
• Issues with mould or dampness that could be unhealthy
• Staircases considered dangerous or in an unsafe condition
• A lack of basic security, such as solid doors and locks
• Any kind of non-standard material used in its construction
• The presence of asbestos or Japanese knotweed
• Any potentially dangerous structural issues

Even if the required repairs and renovations are fairly straightforward, securing a conventional mortgage for homes affected by these issues is practically impossible. Irrespective of how cheap the property may be and the applicant’s financial status, their request for funding will be refused outright.

Does the property need a working bathroom and kitchen?

These are the two rooms major lenders consider most important of all when it comes to a home’s appropriateness for habitation. If either the kitchen or bathroom is not in good working order and in acceptable condition, a mortgage will not be issued against the property.

This applies to both home buyers and buy-to-let investors alike, who are restricted to properties with functional bathrooms and kitchens. Even if the buyer’s plan is to tear out both rooms and have them fully refitted, their application will be rejected.

Does the property need to be weatherproof?

Yes, an appropriate level of weatherproofing is needed for a home to qualify for a conventional mortgage. This basically means that whatever the weather, the occupants of the property and its structural integrity must be sufficiently protected.

How about central heating?

Policies again vary with regard to central heating, given how many older properties do not feature such installations. The surveyor’s report on the property will usually determine the outcome, as they may deem the property to be safe, warm, and habitable in the absence of a central heating system.

Are listed buildings categorised as unmortgageable?

It depends entirely on their state of repair at the time they are placed on the market. Even so, qualifying for a mortgage for a listed building can be complex and long-winded.

During the inspection, it is highly likely that the surveyor will uncover a long list of essential repairs and specialist restoration requirements; the older the property and the more unusual its configuration, the higher the likelihood of ‘non-standard’ issues affecting its eligibility for a mortgage.

If you are considering purchasing a listed property of any kind, consult with an experienced broker in advance to discuss the available funding options.

Does asbestos render a property uninhabitable?

The presence of asbestos is always concerning, but its location and prevalence will determine whether it affects the mortgage on a property.

For example, if asbestos is present in small quantities and has not been damaged, a mortgage valuation may simply recommend its removal before the purchase goes ahead. Likewise, an undamaged asbestos roof is not frowned upon in the same way as other asbestos-containing materials and components.

But if the presence of asbestos in a property is deemed a direct threat to the safety of its intended occupants, it is highly unlikely it will qualify for a mortgage.

What is a non-standard roof in mortgage terms?

Mortgage lending policies based on roof materials and configurations differ from one lender to the next. Some types of roofs that could make it more difficult to qualify for a mortgage include the following:

• Flat Roofs With a flat roof, it will typically be the condition of the roof and the materials it comprises that determine whether it affects mortgage eligibility.
• Felt Roofs: Many mortgage providers consider felt roofing to offer inadequate protection and may therefore refuse to lend against homes that feature it.
• Thatched Roofs: Qualifying for a mortgage with a traditional thatched roof can be surprisingly difficult unless comprehensive evidence of its condition and safety can be provided.
• Tin Roofs: Several factors are taken into account when assessing mortgage eligibility for homes with tin roofs, including their size, configuration, and general state of repair.

If you are considering buying a property that may be affected by any of the above issues, call UK Property Finance anytime for an obligation-free consultation.

Mortgage valuations after essential repairs

Some lenders will agree to issue mortgages for ‘problematic’ properties like those listed above, but only after the required repairs and renovations have been conducted. The process involves feeding back to the estate agent or vendor and requesting that the work be conducted on your behalf.

Unfortunately, this means spending money on a home that you have not yet taken ownership of. In addition, there is no guarantee that the lender will subsequently issue a mortgage if they are not completely satisfied with the condition of the property.

It is therefore a completely unrealistic option for most prospective buyers and one that must be approached with extreme caution.

Bridging loans for uninhabitable property purchases

One of the simplest and most affordable ways to fund the purchase of an uninhabitable home is with bridging finance. A bridging loan is a strictly short-term facility for major purchases and investments, with significantly fewer restrictions than those that apply with conventional mortgages.

From uninhabitable homes to auction property purchases and more, a bridging loan can be used for any legal purpose.

Here is how bridging finance can be used to purchase an uninhabitable home:

• A property in need of a new kitchen and bathroom goes under the hammer at auction for significantly less than its true market value.
• The buyer obtains pre-approval for a bridging loan to cover the costs of the purchase and the subsequent renovations.
• Their bid is successful, they pay the 10% deposit on the day, and the bridging loan agreement is finalised.
• The funds needed to pay for the property and the necessary renovations are released within a few working days.
• The property purchase goes ahead, and the remaining funds are used to install a new kitchen and bathroom.
• At which point, the home is once again considered habitable and is eligible for a conventional long-term mortgage.

The short-term bridging loan can subsequently be transitioned to a standard mortgage, enabling the buyer to repay the balance on their home over several years or decades. In the meantime, the bridging loan has been accruing interest at a rate of around 0.5% per month, adding up to a hugely cost-effective transaction.

For more information on bridging loans for uninhabitable property purchases, contact a member of the team at UK Property Finance today.

Can I use a second-charge mortgage to buy an uninhabitable property?

Another option for getting around the usual mortgage obstacles is to consider a second-charge mortgage. This is where you take out a second mortgage against the equity you have built up in your home.

For example, if you have repaid £200,000 on your £300,000 mortgage, you have £200,000 in equity. This could then be used to procure a second-charge mortgage with an LTV as high as 75%, enabling you to borrow around £175,000 against your current home.

These funds could then be used to purchase an unmortgageable property as a cash buyer, and the second-charge mortgage can be repaid when your property sells.

If you have built up enough equity in your current home, this can be one of the most cost-effective ways to invest in an uninhabitable home.

For more information on any of the above or to discuss uninhabitable property investments in more detail, contact a member of the team at UK Property Finance today.