Buy To Let Agreement in Principle
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Buy To Let Agreement in Principle
Adam Nunn and Jon Porter talk to us about an Agreement in Principle for a Buy to Let property.
What is an Agreement in Principle and why do I need one for a Buy to Let?
An Agreement in Principle provides you with a good indication of whether your application will be accepted by the lender, based on the information we’ve presented to them.
It’s important that the information presented is backed up with sufficient documents and a satisfactory property valuation, once the application has been submitted.
Having an Agreement in Principle certificate ready to present to an estate agent can put you in a better position. It shows that you are organised and you’re ready to proceed.
How do I get an Agreement in Principle for a Buy to Let mortgage?
Go see a broker – we’ll help you out. Basically, a Buy to Let mortgage considers your personal circumstances as in your income and credit history.
A vital part of the application is understanding the rental valuation for the property you potentially want to purchase, and your own personal tax position. That’s how the lender will do the calculation for what they will lend.
Getting a Buy to Let mortgage is very specific to the property. You can arrange an Agreement in Principle in the early stages of planning to confirm your ability to proceed with a Buy to Let mortgage.
However, we would need to adjust it in the future once your offer has been accepted, to make sure the property is right for that particular lender.
Do I have to have an Agreement in Principle through the estate agent I’m looking to purchase through?
You don’t. Estate agents will ask you for your proof of funds and your ability to proceed, as they are representing a client who’s selling and they don’t want to waste time.
They’re well within their rights to offer their own mortgage broker services, but you certainly don’t have to use those – and they cannot insist that you do. Whether you use us or another broker that’s not associated with the estate agent, you can, of course, still present that Agreement in Principle.
Alternatively, you can provide the estate agent with your broker’s details. That broker would happily give the estate agent a call to confirm your suitability to proceed.
Can I make an offer on a Buy to Let property with an Agreement in Principle?
Yes, and it’s highly advisable. Speak to a broker, get the Agreement in Principle and find the property. The estate agent should allow you to proceed with that Decision in Principle and make an offer on the property.
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How do I apply for an Agreement in Principle (AIP)?
We would arrange a meeting with you, to get an understanding of your actual investment goals for Buy to Let and your current circumstances. It’s key to our Agreement in Principle process that you provide us with proof of ID and address, proof of income, bank statements and your credit report – plus details of your deposit.
Once we have this information, we know exactly what we’re dealing with. We then talk to you about what you’re looking to buy. You typically need a 25% deposit for a Buy to Let mortgage – so based on how much you have saved, we can establish how much your property budget will be.
We need the estimated valuation of the property and the type of letting arrangement you’re going for – that’s really key. If you’re looking to buy a holiday let, it will be a different lender than for a single tenancy. We also need to know the expected rental valuation for that property.
Ultimately, the information about the property will dictate what a lender will lend. That meeting will take us typically about an hour.
And of course, assuming you’re keen and eager to proceed with that Agreement in Principle, once we’ve completed the sufficient research and due diligence, we’ll arrange it.
How long does it take to get an Agreement in Principle?
Lenders often give an instant decision. How quickly we can do it will depend on how complex your requirements are. For a fairly straightforward Agreement in Principle, we’d look to do that the same day for you.
What information or documents do I need to get an Agreement in Principle for a Buy to Let mortgage?
It’s your personal documentation such as income proofs, the details of the property and the specific type rental you’re going to be doing. Is it a standard Buy to Let, a HMO (house in multiple occupancy) or a holiday let? That drives which lenders we can go to.
The key thing then is the rental figure, so we know what we can do and where we can apply.
How is affordability calculated for a Buy to Let mortgage Agreement in Principle?
Lenders determine how much they’re willing to lend based on a ‘rental stress test,’ which takes into account your ability to afford the mortgage payments based on the rental valuation.
We can do some due diligence for you prior to finding a property. But once you’ve found it, we need the property specifics, because the lender will look at the rent on this property, the mortgage interest rate and the potential impact of interest rates rising.
Then they’ll take into account your tax position for that rent. If you’re a higher rate taxpayer, you’re going to pay more tax and therefore have less disposable income to afford the mortgage.
It’s basically a check that you can afford to cover the mortgage once you’ve paid tax on the rent. That will ultimately determine how much that lender is able to offer you.
Is an Agreement in Principle guaranteed? Can my Buy to Let mortgage be declined after an Agreement in Principle?
Because it’s in principle, it’s not guaranteed. Things can change when you go through to a full application. A mortgage can be declined after an Agreement in Principle, because it’s not property-specific at that stage.
If anything comes up from the survey or on the legal side with regards to the property or personal circumstances, that could stop it going through to a full mortgage offer.
Will I need a credit check for a Buy to Let Agreement in Principle? Does an Agreement in Principle affect credit score?
An Agreement in Principle will always involve a credit check. Each lender will have a different approach. Some will do what’s called a soft credit check or soft credit footprint, which doesn’t negatively impact your credit score.
Other lenders will do a hard footprint. Again, this is where we come in. We always ask our clients to provide a credit report prior to getting the AIP, and this will give us a complete overview of your financial picture.
If we have any concerns about credit score being low or you’ve got adverse credit history, this will help us to decide which lender we should be going to in the first place. That might be a lender that runs a soft footprint rather than a hard credit check at this stage.
How will bad credit affect an Agreement in Principle?
That’s the purpose of coming to a broker. If somebody has bad credit and wants to do a Buy to Let, we can go through to different lenders for an Agreement in Principle.
We can start with some of the mainstream lenders. But if it’s quite severe adverse, we can approach lenders that specialise in those areas.
That’s not a guarantee that we can get a mortgage for everybody, because that may not be achievable in every circumstance. But we will do our very best to give you the mortgage you want.
I’ve been declined an Agreement in Principle. What are the next steps?
The key thing is understanding why. Was it credit score or criteria based? The best thing to do is speak to someone like us – a whole-of-market mortgage brokerage.
We aren’t just going to jump straight into doing an Agreement in Principle with another lender. We’re going to explore your individual circumstances and get that credit report.
If it was credit related, we will then understand the details of that adverse history.
We’re not therefore going to waste time with a lender that simply isn’t suitable for that situation. But it’s not always about credit history. If you’ve gone to your bank, for example, you’ve found a property and put a certain rental figure in but you can’t borrow sufficient funds to buy it, we will assess everything.
We would find a lender that has a more suitable rental stress test to get you an Agreement in Principle for the figure that you need.
What are the benefits of getting an Agreement in Principle with a mortgage broker?
We go through your individual circumstances and the property you’re looking at. We then tailor the right mortgage to the property and your future plans.
You might just do a Let to Buy, where you keep your existing property and buy a new home. That’s an area we can consider. Or you may be a portfolio landlord adding another property to the collection – or starting as a portfolio landlord by beginning to buy multiple properties.
We can advise not just about that purchase, but about the future and what you’re trying to do. I wish we could predict interest rates, but obviously those and market conditions are outside our control.
We support you not just for the here and now, but in building that whole portfolio for you – ultimately achieving your goals.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.
