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Other Mortgages

Joint Borrower / Sole Proprietor

With first-time buyers struggling to get onto the property ladder, many are teaming up with their partners, friends and family to combine two deposits and incomes.

This type of mortgage is aimed at bridging the gap between salaries and property prices. With a 3% stamp duty surcharge recently introduced on second homes Joint Borrower Sole Proprietor mortgages applications have started to become popular.

What is a Joint Borrower Sole Proprietor mortgage?

It’s a mortgage that enables an applicant with a lower salary to get support from someone, usually a family member (depending on lender), to apply for a mortgage. The supporting applicant would effectively be a guarantor to help increase the amount of money that an applicant can borrow. A potential lender would consider both the applicants and the supporting persons income, so the potential to borrow more money increases significantly. Any borrowing amount would need to be set based on what the applicant can realistically afford on their own, taking in to account potential future interest rises.

This arrangement could mean that the supported applicant will potentially be able to get a foot on the property ladder when they may not have been previously able to.

What else needs to be considered?

The applicant that is supporting the purchase will not be named on the deeds to the property which means that, as a non-legal owner, they won’t be able to be entitled to any gain in the property – be that via rental yield or property value.

If, as can be the case, the relationship between the two parties breaks down, it could be difficult for the non-legal owner to have their name removed from the mortgage.

With such a bespoke mortgage that is only dealt with by certain lenders, speaking to an independent mortgage adviser is imperative for this sort of application.

Second Charge Mortgages

Second charge mortgages are often called second mortgages because they have secondary priority behind your main (or first charge) mortgage. They are a secured loan, which means they use the borrower’s home as security. Many people use them to raise money instead of remortgaging, but there are some things you need to be aware of before you apply.

How does getting a second mortgage work?

  • You are only eligible for a second charge mortgage if you are already a homeowner.
  • You do not necessarily need to live in the property.
  • A second charge mortgage can be a loan of anything from £1,000 upwards.

How much can you borrow on a second mortgage?

A second charge mortgage allows you to use any equity you have in your home as security against another loan (Equity is the percentage of your property owned outright by you (i.e. the value of the home minus any mortgage owed on it).

It means you will have two mortgages on your home.

Value of property £250,000
Outstanding mortgage £150,000
Equity £100,000
Maximum second charge £100,000

Are you eligible?

  • Lenders have to make the same affordability checks and reviews as for a main or first charge residential mortgage.
  • Borrowers will have to provide evidence that they can afford to pay back the loan.

Why take out a second charge mortgage?

There are several reasons why a second charge mortgage might be worth considering:

  • You might be struggling to get an unsecured loan, such as a personal loan, perhaps because you’re self-employed.
  • Your credit rating may have gone down since taking out your first mortgage, remortgaging could mean you end up paying more interest on your entire mortgage, rather than just on the extra amount you want to borrow.
    If your current mortgage has a high early repayment charge, it might be cheaper for you to take out a second charge mortgage rather than to remortgage.

Example

Jack and Jill have a £200,000 five year fixed rate mortgage with three years to run until the fixed rate deal ends. The value of their home has risen since they took out the mortgage.

They have decided to start a family and want to borrow £25,000 to refurbish their home. Should they remortgage or take out a second charge mortgage?

  • If they remortgage, they’ll have to pay the £10,000 penalty and there’s no guarantee that they’ll be able to get a better interest rate than the one they are currently paying – in fact they might have to pay more.
  • If they take out a second charge mortgage, they will pay a higher interest rate on the £25,000 than they pay on their first mortgage, plus fees for arranging the second charge mortgage. However, this will be far less than paying the £10,000 early repayment charge and possibly a higher interest rate on their first mortgage.

Jack and Jill decide to take out a secured loan that doesn’t have any early repayment penalties beyond three years (when their main mortgage deal ends). At this point they can decide whether to see if they can remortgage both loans to get a better deal overall.

When not to use a second mortgage

In 2014, 447 properties were repossessed by second charge lenders. Source: Finance and Leasing Association

Although second mortgages can be useful, taking one out is a big step and you need to weigh up the pros and cons.

  • If you’re already only just managing to repay your mortgage. You could lose your home if you cannot keep up repayments on either your mortgage or the second charge mortgage.
  • To consolidate debts. Using a second charge mortgage – which can run for up to 25 years – to pay off smaller debts, such as credit cards or small unsecured loans, will mean you might end up paying more interest in the long term. You are also converting unsecured credit into secured credit, which could increase the risks of having your property repossessed.

What if you move house?

If you sell your home, you will need to pay off your second charge mortgage or transfer it to a new mortgage.

Why use a mortgage broker?

Getting advice from a qualified mortgage adviser is crucial in helping you find the loan that best meets your needs and financial situation. They will have to follow the rules as set out by the FCA when dealing with you.

The risks and alternatives

  • As a second charge mortgage works very much like your first mortgage, your home is at risk if you don’t keep up the payments.
  • If you sell your home, the first charge mortgage gets cleared in full before any money goes towards paying off the second charge, although the second charge lender can pursue you for the shortfall.

Personal loans and remortgaging

  • If you need to borrow a small amount of money you’re better off going for an unsecured product such as a personal loan.
  • If you don’t have a large early repayment charge on your mortgage, you have some equity in your home and your circumstances haven’t changed, you’ll probably be better off remortgaging or taking out a further advance from the same lender.

Commercial Mortgage

What is a commercial mortgage?

They work like normal mortgages but let you buy one or more properties to:

  • Use for your business
  • Rent out as an investment

How do they work?

  • Depending on your business, you could be offered quotes for interest only or repayment mortgages.
  • The loan is secured against the property
  • You can get a loan to value of up to 75%.
  • This means you need a deposit or equity of at least 25%. Some let you use equity in another property you own instead of a deposit.
  • You pay back monthly over a term of between a month and 30 years.
  • Customarily you can borrow between £50,000 and £40 million.

How much do commercial mortgages cost?

Fees: Business mortgages come with many of the same fees as a domestic mortgage. Each lender has different charges, which can include valuation and arrangement fees. The amount could be a set fee like £995 or depend on how much you borrow.
Interest rate: The rates you’re offered depend on how much you borrow and your company’s finances.

Will you be accepted?

Each lender will evaluate an application based on:

  • Your company’s income, assets and credit record
  • Your personal finances
  • If your profits are enough to meet monthly payments

If you plan to rent out the property, lenders may also look at the finances of your tenants. Our advisers can review your finances to evaluate the best lender and products for you.

Are commercial mortgages regulated?

Commercial mortgages are not regulated by the Financial Conduct Authority (FCA).

What properties could you buy?

You could get a commercial mortgage for:

  • Commercial or residential buy to let investment properties
  • Warehouses and factories
  • Shops and retail premises
  • Office buildings
  • Pubs and hotels
  • Farms and land
  • Professional practices (e.g. solicitors’ offices)

What types of company can get a commercial mortgage?

You can get a commercial mortgage in your own name or held by a:

  • Limited company
  • Limited Liability Partnership (LLP)
  • SPV (Special Purpose Vehicle)
  • SIPP/SSAS
  • Trust
  • Offshore company

Bridging Loans

Bridging loans are a short-term funding option. They are used to ‘bridge’ a gap between a debt coming due and the main line of credit becoming available. Or they can simply act as a short-term loan in pressing circumstances.

They can be invaluable in facilitating a property purchase that otherwise would not be possible. But as you might expect with a stop-gap measure, they can be significantly more expensive than a ‘normal’ loan.

What are bridging loans and how do they work?

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

As banks and building societies have grown more reluctant to lend in the wake of the financial crisis, there has been an influx of bridging lenders into the market. However, rates can be high and there can be hefty administration fees on top. As an example, if you take out a bridging loan, you could face costs of up to 1.5% a month – meaning 18% a year.

Who are bridging loans aimed at?

Generally speaking, bridging loans are aimed at landlords and amateur property developers, including those purchasing at auction where a mortgage is needed quickly. They may also be offered to wealthy or asset-rich borrowers who want straightforward lending on residential properties.

When should you use bridging loans?

Bridging loans can be used for a variety of reasons, including property investment, buy-to-let and development. While a bridging loan may sound tempting, if you’re thinking about taking one out, you need to think carefully about your exit strategy. This might, for example, involve getting a mainstream mortgage or a buy-to-let mortgage, or selling the property altogether.

Put simply, bridging loans should not be viewed as an alternative to mainstream lending.

Where can you get a bridging loan?

Bridging lenders can come in all shapes and sizes, ranging from one-man bands up to professional outfits regulated by City watchdog, the Financial Conduct Authority (FCA). If you want to take out a bridging loan, it’s advisable to go to an FCA-regulated broker because they will only recommend a bridge if it is appropriate for you and your particular circumstances.

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