Many people like the idea of creating a property portfolio to fund their retirement. Not everybody is a fan of pension plans, 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 the peaks and troughs.
In this case study, we look at one way we helped a client take her first step on the road to being a Landlord.
Emma is a self-employed mum of two, who is a Director of two small businesses in Durham. She and her partner had a substantial amount of equity in their home and were interested in raising some capital to buy a low value buy to let property, possibly at auction.
Emma felt she could get some bargains at auctions, but she never had enough money to attend and be a cash buyer.
She had looked into Remortgaging her house in Durham for this purpose before but had been told it wasn’t possible unless they could provide an address for the onward property they wanted to purchase – the proverbial “chicken and egg” scenario.
Emma 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 wasting some of that cash when it arrived, perhaps unexpectedly.
I could tell that Emma was a very busy person but also an astute businesswoman. The dividends she received could be put to better use as she never had it earmarked for anything specific.
I recommended an offset Remortgage in Durham for Emma and her partner secured on their home.
I found a Lender who was happy to release funds on completion to be assigned to a future buy to let purchase without insisting on a specific property.
Emma simply deposited the additional funds into the offset savings account that comes as part of the mortgage, and these monies simply sit there until she needs them.
The offset savings accounts do not attract interest but instead is offset against the mortgage balance.
To clarify, Emma had £85,000 surplus funds from a total remortgage of £215,000. While the money is in the savings account, Emma only pays mortgage interest on the £130,000 difference between the two figures.
The £85,000 is on instant access and was available whenever she needed it
Three months after completion, Emma identified a suitable property that was in a state of disrepair. It was probably not mortgageable itself, but of course, Emma had access to liquid funds to buy the house outright.
Emma 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.
A further nine months went by, and with the works all done, Emma had no trouble finding 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.
Emma has no 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 to fund her planned retirement lifestyle.
She loves the flexibility that her offset mortgage brings, and while she still ‘squander’ some of her dividend, which is her right to do. Without fail, half of it at least is deposited back into her offset savings account, her money working “for her” to reduce the total amount of interest repayable.
If you are interested in offset mortgages or building your investment property portfolio, please get in touch, and our mortgage advisors in Durham will be happy to assist you.
Many people are will experience some level of being in debt at some point in their lives. Sometimes due to personal circumstances, this can spiral very quickly out of control from a situation that would’ve been manageable, into something that is not.
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 for you to enjoy.
One route out of this for some applicants is to consider a debt consolidation remortgage in Durham, as we will take a look at here in this case study.
You should think carefully before securing other debts against your home. By adding your unsecured debts to your mortgage, which is secured on your home, you are potentially putting your home at risk if you cannot make the required repayments.
Although the total monthly cost of servicing your debt may have reduced, the total cost of repayment may still have risen as the term of your mortgage is longer than it may have taken to repay the debts originally.
Layla was a divorcee living on her own after her children had moved out. 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 Layla had paid her mortgage off years prior, so that asset was there for her to potentially borrow against. Her take-home pay was around £1100 per month, and her credit commitments were taking up the majority of this.
She was not missing any of her payments on credit commitments, but she didn’t have an emergency fund to rely on. Furthermore, whilst Layla’s credit score wasn’t actually that bad, she was no longer able to obtain new 0% credit cards to transfer her balances.
She was recommended to me to see if there were any options at her disposal in order to improve the quality of her financial and in turn, personal life.
When I met, Layla was feeling quite down about herself. She had cut back on all luxury spending, and it was evident that she was desperate to take the steps necessary to finally control her financial situation, before it got worse.
We explored the possibility of Layla taking out a personal loan, but her debts had mounted far too high for that to be a plausible solution.
Layla had no family members who were able to lend a helping hand, and downsizing was not an option. We agreed that the right way forward would be to remortgage her home in order to pay off the debts and reduce her outgoings.
We managed to find a lender to meet Layla’s requirements. Although it has to be said that due to her low income, it was hard to find a lender who was willing to lend the right amount.
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, noticed that Layla had been using cards to pay off other cards and then not closing down the cards she had paid off.
They felt that because she had transferred balances, there was a high risk that she should re-offend and rack up debts again. Layla was noticeably and understandably 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 very large £500pm better off.
All the above was of course correct, she did have a point, but clients don’t always appreciate that taking a property into possession is the last thing a lender wants or needs. Doing so 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.
That being said, we knew this remortgage wasn’t as risky as the lender had made out, and it ought to be the right outcome for her, if we could find the right place to go with it.
Layla perhaps felt like she wanted to give up, but we went back to the drawing board to find a different mortgage lender. Sure enough, we found a new one who was willing to help.
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.
Layla 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.
Fortunately for Layla, in the short term, this has worked out pretty well. 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, Layla 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 Layla 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. Book a free appointment to speak with one of our expert mortgage advisors in Durham. We offer debt consolidation remortgage advice in Durham & surrounding areas.