Many people are quite fond of the idea of creating a property portfolio to fund their retirement.
Not everybody necessarily likes a pension plan, but they do understand their property. I know that over the past 20 or 30 years it has been a sound long term investment despite both the ups and the downs.
In this case study, we look at one way we helped a client in taking her very first steps on the road to becoming a landlord with a buy to let mortgage in Nottingham.
Penelope is a self-employed mum of two, working as a Director of two small businesses in Nottingham. She and her partner had a rather sizable amount of equity in their home and were interested in raising some capital to buy a low value buy to let property, possibly at an auction.
Penelope felt she would be able to find a few bargains at auctions, but she never had enough money to attend and make a purchase as a cash buyer.
She had looked into remortgaging her own house in Nottingham in order to achieve this, but had been advised that unless they could provide an address for the property they wanted to purchase, this would not be possible. A chicken and egg scenario, where neither can exist without the other.
Penelope also mentioned that once or twice a year, she received a dividend in the region of £3000 from one of the companies she was a sleeping partner in, and she has been prone to splashing some of that cash for luxury, without perhaps giving it some thought.
I could tell that Penelope was a very busy person but also an astute businesswoman. The dividends she received could be put to better use, especially as she had never particularly earmarked it for anything specific.
I recommended that she take out an offset remortgage in Nottingham, that Penelope and her partner secured on their home.
I found a lender who was happy to release the funds needed on completion, to be assigned to a future buy to let purchase without insisting on a specific property, giving them the opportunity they were looking for.
Penelope simply deposited the additional funds into the offset savings account that comes as part of the mortgage, and the money was left to simply sit there until it was needed.
The offset savings accounts do not attract interest but instead is offset against the mortgage balance.
To clarify, Penelope had £85,000 surplus funds from a total remortgage of £215,000. While the money is in the savings account, Penelope only pays mortgage interest on the £130,000 difference between the two figures.
The £85,000 is on instant access and is available at any point in time when she needs it.
Three months after completion, Penelope identified a suitable property that was in need of some desperate work. It was probably not mortgageable itself, but of course, Penelope had access to liquid funds to make the purchase as a cash buyer.
Penelope secured the property at a knock-down price of £55,000, but this amount needed to rise to a total of £70,000 to fund legal costs and a refurbishment program of works.
After an additional 9 months of work, with everything that needed to be done now completed, Penelope found it fairly easy to find a tenant. The house was now worth £90,000, and we raised a remortgage of £67,500 against it to fund the purchase of property number two.
Penelope had no initial intention of becoming a full-time landlord, but she can now see a way forward to owning three or maybe even four properties in the future, helping to fund her and her partners planned retirement lifestyle.
She loves the flexibility that her offset mortgage brings, having the freedom to spend some of it as she sees’ fit (which she can do!), yet without fail, half of it is deposited back into her offset savings account. This allows her money to work “for her”, in reducing the total amount of interest repayable.
If you are interested in offset mortgages or building your investment property portfolio, please feel free to book your free mortgage appointment today, and our remortgage advisors in Nottingham will be happy to assist you.
Many people are, to a greater or lesser extent in debt at some point in their lives. Sometimes due to personal circumstances, this can spiral out of control. When this happens, it can feel that once you have paid all your bills at the start of the month, there is little or no disposable income left.
One route out of this for some applicants is to consider a debt consolidation Remortgage in Nottingham, as we explore here in this case study.
Deborah was a divorcee living on her own; her children have flown the nest. Her debt had started to accumulate with legal bills after her divorce and increased gradually over the years, having to live on one income with unreliable maintenance from her ex. Finally, her daughter became pregnant quite young, and as any mum would, she tried to help her out financially, although arguably, she couldn’t afford to do so.
Luckily Deborah had paid her mortgage off some years ago so that asset was there to potentially borrow against. Her take-home pay was £1100 per month, and her credit commitments were taking up more than half of this.
She had not missed any payments on credit commitments, but she had no emergency fund, and while Deborah’s credit score wasn’t too bad, she was no longer able to obtain new zero% credit cards to transfer her balances.
She was recommended to me to see if there were any options available to improve the quality of her financial life.
When I met, Deborah was feeling quite low. She had cut back on all luxury spending, and it was evident that she was desperate to take ownership of her financial situation before it got any worse.
We explored the possibility of a personal loan, but the debts had mounted too high for that. Deborah had no family members who were able to help; downsizing was not an option, and we agreed the right way forward would be to remortgage the house to pay off the debts and reduce her outgoings.
We managed to find a Lender to meet Deborah’s requirements. Although it has to be said given her low income, it was hard to find a lender who would lend her enough. We managed to get her an Agreement in Principle, but regrettably, when we submitted the formal mortgage application, it was declined.
The reason the case was declined was that the Underwriter who assessed the situation felt that because Deborah had been using cards to pay off other cards and not then closing down the cards.
When she had transferred balances, there was a high risk that she should re-offend and rack up debts again.
Deborah was devastated. She understood the concerns, but in her eyes, she had accepted she had a problem, and by engaging us had taken a positive step to remedy her position. To her, their risk was minimal – the loan to value was under 40%, she had never missed any payments, and if the remortgage was successful, she could be a whopping £500pm better off.
All the above was indeed correct, but clients don’t always appreciate that taking a property into possession is the last thing a Lender wants or needs. It reflects poorly on the numbers they are required to report each year. In the event of repossession, they have the considerable hassle of securing the property, ensuring it, marketing it, selling it, and paying the surplus of equity (if any) back to the previous owner.
As such, if there is reasonable doubt, then an Underwriter has the discretion to decline an application, even if it is within their published lending criteria.
We pride ourselves on getting our recommendation right the first time, but this one didn’t work out that way due to the Underwriter’s adverse comments at the full application stage. However, we knew this remortgage wasn’t as risky as the Lender had made out, and it ought to be the right outcome for her.
Deborah perhaps felt like she wanted to give up, but we went back to the drawing board to find a different Lender. Sure enough, we found one and armed with the information we had from the previous Lender. We were able to provide better supporting comments for the second roll of the dice, and luckily this time, it was successful.
Deborah didn’t take this step lightly. She has now secured debt that was previously unsecured and may end up paying back more interest overall, depending on how quickly she can get the mortgage paid off.
However, in the short term, this has worked well for her. She now has had the burden of debt relieved from her shoulders, her credit score has improved, and she can save a little each month.
The savings we were able to help her make amounted to over 50% of her net take-home pay monthly and it has changed her life. Upon completion of the remortgage, Deborah cut up all her credit cards except one to use in emergencies only, and she has now got her financial life back on track.
If you are like Deborah struggling with debt but are a Homeowner with equity please call us to discuss your options, ideally before the situation gets out of hand. The earlier you take back control of your finances the better you will feel about things. We offer debt consolidation Remortgage Advice in Nottingham & surrounding areas.