mortgage-and-payday-loans

Does taking out payday loans affect your chances of getting a mortgage?

No, taking out a payday loan does not affect your chance of getting a mortgage. According to different mortgage advisors and brokers that we have confirmed with, most providers consider a payday loan to be like 'any other loan' regardless of the fact that it is commonly used by people who are pay cheque to pay cheque.

When applying for a mortgage, you will commonly undergo checks of your credit history and affordability - and this will include looking at any previous credit cards, personal loans and bills that you have had and how well you have repaid them.

Many applicants worry that having a payday loan in the past will affect them for future mortgages and bridging loans - but this is not the case.

What is a payday loan?

A payday loan refers to borrowing a few hundred pounds (around £100 to £1000) and receiving the money upfront, and repaying in full on your next payday. It is often used by people who cannot wait until their next payday to pay for something and need the money upfront. It is best suited for emergencies like car repairs, household bills and medical bills, although is often abused for shopping and gifts.

Around 5.4 million payday loans online were issued in the last year in the UK by around 40 lenders, according to the FCA.

Note that the number of active payday lenders in the UK is decreasing rapidly since the number of lenders able to withstand FCA regulation is falling.

Why is a payday loan considered bad for a mortgage?

For some mortgage brokers and lenders, they consider payday loans to be bad for mortgages. This is because such loans are regularly used by people who are behind on their bills and desperate for funds, hence their eligibility for a mortgage should be questioned.

Some lenders will consider, if a person cannot make it until payday, how can they pay for a mortgage and bills every month?

However, rest assured, most mortgage providers look at payday loans as being 'like any other loan' because many will consider that emergencies can occur that can put you behind your payments.

For instance, if you live in rented accommodation and have a large heating bill, have to help out your family or pay for a funeral, borrowing £500 and repaying it back on time should not stop you getting a mortgage and moving up in life.

Some lenders will be stricter than others

Regrettably, some mortgage lenders will be dismissive of payday loans and people that use them and it may jeopardise your ability to receive a mortgage offer.

However, it is noted that every mortgage lender is different and in this day and age, we live in a world of specialist finance companies. The requirements for someone like NatWest and Barclays is going to be very different to someone like Masthaven and Precise Mortgages.

Depends on what terms - how long ago, did you repay?

Some mortgage companies are willing to look at payday loans on a case-by-case basis. For example, if it was taken out several years ago by the individual and repaid on time, this should not impact your chances of getting a mortgage. Lenders may differ as to whether this is 1 year, 3 year or 5 years ago.

Equally, did the borrower take out one payday loan or are they a habitual user and still owning funds. This will be taken into consideration.

Naturally, lenders are concerned about managing risk and if they determine that an individual cannot afford a mortgage, they will base this on multiple factors and not just payday loans.


remortgage

How To Use Remortgaging to Release Equity

Many homeowners in the UK are taking advantage of low mortgage rates and through remortgaging, are finding ways to release equity from their homes. According to Remortgage Quotes Online, you can switch your standard variable rate (SVR) from around 4-5% APR to a fixed remortgage rate of 1.3-1.7% during the introductory offer.

The result of record low mortgage rates means that you can potentially borrow more money against your home, whilst keeping your mortgage payments each month roughly the same.

Releasing money through remortgaging is mostly used for:

  • Home improvements
  • Debt consolidation
  • Christmas shopping and presents
  • Family holidays
  • Gifting to other family members

How Can You Release Equity Through Remortgaging?

To be effective, you will need to have the following:

  • Good amount of equity in your home
  • Good/fair credit rating
  • Good affordability to remortgage
  • Stable income (not recent fall)

In order to remortgage, you will need to meet the checks from the mortgage provider, which have become more stringent over the years. They want to seem a strong affordability, which means that your salary is stable or going up (not falling drastically) and your expenses are not going beyond your means.

If you have a poor credit rating since getting your original mortgage, this can impact your chances of getting a new mortgage deal - or you could be stuck on your standard variable rate.

Naturally, to release money from your home, you will need some equity in it, which is achieved by paying off your mortgage on time for several years.

We review some of the options below:

Release Money When You Remortgage

When applying for a remortgage, you can ask to release or borrow money too - and the payments will just be adjusted to your existing mortgage loan. You may have heard the phrase or your parents complain "Well, I will need to remortgage the house for that one." And this is exactly the case.

remortgage

The more equity you have in your home the better, otherwise releasing through a remortgage with little equity will just increase your monthly payments.

Second Charge Loan or Advance

You can get a 'top-up' when you remortgage, also known as an 'advance' or simply a second charge loan.

In this instance, you are getting an additional loan to your mortgage and this will mean having two loans on different terms. One could be fixed for 5 years and the other could be variable for 2 years. You cannot borrow as much with the second loan as with the first and the amount you can borrow is based on your affordability. Failing to keep up with repayments can have a negative impact on your credit history and cause you to lose equity in your home.

Equity Release

This is only available to homeowners over the age of 55 and this allows you to release equity from your home, and pay off your mortgage at the same time. This is becoming an increasingly popular for the ageing population in the UK and is currently used by around 60,000 households per year, who borrow on average around £80,000.

 

Through equity release, you are able to receive one large sum amount, upfront, which is completely tax-free. In exchange, you simply give up some equity in your home, which is claimed by the lender when you die or go into long term care. There are monthly interest repayments or you can choose to have an interest only or rolled up interest added to the full outstanding amount. You also benefit from the house increasing in value, which is then used to pay off your outstanding debt.

You can typically borrow around around 25% to 60% of your property's value through a lifetime mortgage, which is a type of equity release product designed to last your lifetime. Or if you want to borrow money, you can use a home reversion scheme to borrow up to 80%, but this will mean physically selling of your home and you will not be able to benefit if it goes up in price in the future.

 


Why your ground rent 'doubling' is causing hell for so many homeowners

Mortgage lenders including Barclays and Nationwide have become even stricter with their mortgage lending criteria and recently the implication of your lease agreement saying that your 'ground rent will double' in the next 25 years, is causing all kinds of problems for homeowners.

The clause only applies to new build properties and has affected large developers including Taylor Wimpey.

What is behind this?

In the Brexit apocalypse, mainstream lenders are being more stringent than ever and the idea of ground rent doubling or anything doubling by the matter is something that they do not want to lend against.

This is part of the 'freeholder scandal' where clauses have been put into place that state ground rents must double, leaving huge bills for households and something that the Government has expressed a strong interest in banning.

Banks do not want homeowners to be tied down and the idea is that once ground rent doubles, it may only be a few hundred pounds, but it continues to grow and grow and no potential buyer wants to be left with this kind of clause.

What are your options to get out of it?

Buy the freehold

This is likely to cost anywhere from £10,000 upwards per household and to include numerous people within the development. If people within the road or development do not want to pay it, they will pay their ground rent to the new owners of the freehold (their neighbours).

Get a lease extension

Likely to take up to a year and also cost up to £10,000. With a lease extension for another 99 years, these clauses become void.

Sell to a cash buyer

Cash buyers looking to downsize do not require mortgages so they will not be held back when buying this property. But it does leave this issue for the future if they want to sell it or if it goes to their children as inheritance.

Ask the freeholder to change the terms

You can ask your freeholder to change the terminology from 'doubles' to 'reviews' every 25 years. This will likely come at a cost, since the freeholder has got a good deal tying you in at the moment.

Use a specialist finance company

You can use a specialist lender to get a mortgage for this type of thing. The rates are likely to be higher than a mainstream bank like Barclays or Nationwide. You can apply for Residential bridging loans for this type of thing and the loan will be regulated because it is secure upon an individual's primary residence - so things like credit rating will be very important in this scenario.

If you would like more information about this or would like assistance getting a mortgage under these circumstances, please contact us at sales@octagoncapital.co.uk


portfolio

Ways to diversify your property portfolio

For experienced investors that are already feeling the success of property investment, then you are probably looking to further expand your portfolio to maximise your returns. Through diversifying your property portfolio, you have more scope and opportunity to earn money from multiple sources, not to mention the capital appreciation that can be gained from more than one investment.

A diverse property portfolio can help to mitigate risk by spreading assets across different properties that have a different appeal or draw. Whether this be across different locations, through different types of property, or to have a different target tenants, all properties can help to build and strengthen an existing property portfolio. By following simple tips on how to diversify your property, you can help to keep your assets safer, and your income high.

Consider Studio Living

Studios are a great form of investment which can allow investors to diversify their portfolios with a tighter budget. This type of apartment is an emerging form of living, which has become quickly accepted from the likes of students who wish to live in one modern space whilst still being affordable. Young professionals and students are willing to compromise on space for a better location, and as studios are predominately in city centre locations, the proximity to transport links and universities are appealing for many. Although small in size, this does not compromise on quality. New developments from property investment companies such as RW Invest offer studio living in the midst of bustling city centres, drawing in tenants due to the fantastic location. As city centre living becomes more and more popular, the demand for studios increases, which will see their value rise significantly and make them a secure investment for strong capital gains.

Look for a lower price point

One of the best ways to diversify your portfolio is to source apartments at both ends of your budget. Invest in those that are low cost and more affordable to attract a type of tenant that is not willing to pay over the odds and secure yourself a higher priced property to catch business professionals and alike that require a higher standard of living. If you live in an area that is particularly expensive it may be worth looking at other property more further afield. More affordable areas in the UK are Liverpool, Manchester and Leeds, which provides a stark contrast to the likes of London which is experiencing escalating prices, therefore hindering investors from investing in the capital city.

Think about different property types

Another strategy you can use is to own different types of property. One example of this is student accommodation, which has become one of the UK’s most popular forms of investment in the UK. High demand through a growing student population and reliable yields create the perfect opportunity for investors.

Commercial property may be another form of property to consider, which will help to expand your investment portfolio. Shops, offices and storage spaces are available for property investors to purchase, whilst still producing stable returns despite being a different type of asset.

Houses of multiple occupancy are another form of investment that is becoming more popular for landlords as quite often they gain more rent from having the same size space. All in all, through having a wide variety of property, investors can give themselves stronger protection from potential risks and as a result generate more income across several different properties.

 


inheriting-a-property

A Guide on Inheriting a Property

Your property could be the most valuable thing that you own and if you do not have a partner or spouse, it is likely that you will want to pass on your home, flat or properties to your loved ones i.e children. However, what are the implications for someone inheriting the property? Is there tax involved? Do they have to continue making your mortgage repayments? Octagon Capital explains below.

The role of who gets your property falls under the guise of estate planning, which includes things like will writing, funerals and what happens to your estate. When you die, your property and belongings are typically handled by your solicitor that you have instructed and the executor of your will that you have allocated, who will be able to make sure that everyone gets their fair share.

Do I inherit the property immediately?

Yes, although do not worry that things are going to change overnight and you are going to be given heavy bills to pay. Most mortgage lenders are very lenient when it comes to inheriting a property and are willing to offer you a grace period to get everything organised and inheritance tax does not need to be paid for up to 12 months. Until the will is executed and you officially take on ownership, there is no one to collect from anyway.

What can I do with the property that I inherit?

Once the will has been executed, then you own the property and can do with it as you wish including sell it, rent it out or indeed live in it. You may find that you can make a residual income by renting it out to tenants or you may wish to make one lump sum by selling it outright when the market is performing well. You could also hang onto it as a long-term investment if you believe that it will go up even more in price.

In the event that you wish to do any development or refurbishment work on the property, you could look at bridge finance to provide a few hundred thousand pounds over 3 to 24 months. You may find that add an extension or conversion to the property could increase its value by 20% or more, helping you make a better return on the property you have inherited.

 

Who makes decisions about the property?

As per the will, it is the executor who makes the key decisions about the property and successfully passes it over to the recipient. The executor is usually someone that the deceased person knows but isn't necessarily in the will itself, otherwise it would impact their impartiality. So it could be a solicitor, in-law, friend or colleague. The executor is responsible for the payment of any tax, clearing any debts and distributing the estate to the beneficiaries as outlined in the will.

Do I have to pay the mortgage on a property that I have inherited?

If there is a life insurance policy for the bereaved individual, this can be used to pay off mortgage payments. If there is no life insurance policy or no money allocated, the responsible will lie on the person who has inherited the property to make mortgage repayments each month.

As mentioned above, you are not expected to make payments immediately, you are given a grace period. Of course, if the previous owner owned the property outright, then there is no mortgage and you simply own it 100% with zero payments.

What other costs are there for an inherited property?

In addition to mortgage fees, you may have buildings and contents insurance for any fittings, skirtings and belongings in the house. You need to be insured in the event of a fire, flood, theft or vandalism.

If you are not planning on living there, there are other forms of insurance that can be important such as landlords insurance if you are renting it out to tenants, or if you are leaving it empty, then it is things like unoccupied home insurance and second home insurance.

What tax do I pay on the property?

Inheritance tax

Inheritance tax on a property is huge. If the property is worth less than £325,000, then you are not required to pay anything. Once it is over £325,000, you are required to pay 40% of the value on top.

Income tax

Any revenue you generate from the property from renting it out to tenants is considered to be extra income and is taxable. Depending on how much income you make after costs such as mortgage fees and insurance, the amount of tax you pay will vary depending on the profit you make.

Capital gains tax

If you sell the property, and it has increased in value since you acquired it, you may be required to pay capital gains tax on the difference. This only applies on properties that are not your main residence of living. In some cases, it is better for the inheritor to move into an inherited property immediately, making it their main residence, in order to pay a lower rate of tax.


What to expect when working with a bridging loan broker

Octagon Capital is a broker which is designed to helping you find the best bridge finance for you and your requirements. The main advantage of working with a broker is that you get a full range of products from one place, rather than having to go to each lender separately trying to get the best deal. In addition, the broker only receives a fee if the loan application is successfully funded, so they will be determined to helping you find the best terms and lender most likely to accept your application.

We highlight what you can expect from working with Octagon Capital and similar brokers in the industry.

Phone Call

Once you fill in your details on our homepage or product page, you will receive a call back from someone in the SPF Short Term Finance team. This is our partner who are one of the most established mortgage brokers in the UK.

A team member will call you back to confirm a few details and understand your requirements better, so that we can be in the best position to place you with the lender who is most likely to successfully approve your loan application and deliver the terms you require.

Initial Application Form

Provided that your phone call with our staff member was successful and we can help you proceed, you will need to complete a short application form which requires you to fill in some basic details including:

  • Name
  • Occupation
  • Loan purpose
  • Loan amount and term
  • Address (both current and address of property)
  • Any other relevant information about your existing and future property

This information gives us an essential overview of your requirements and acts as a foundation for the loan that you wish to apply for. Assuming this meets the criteria of our initial lenders, we will pass this onto the next stage.

Indicate Quote

Your loan application will be put through a filter and returned with a number of indicative quotes from the lenders that we work with. Each lender has their own criteria and amount that they will allow you to borrow and the rate they charge. As a bridging loans broker, we can formulate this quickly and you will be given a quick overview of the loan amount and rates. Here is an example below:

Masthaven 80% LTV - £400,000 - 15 months

MT Finance 70% LTV - £350,000 - 14 months

Precise Mortgages 70% LTV - £350,000 - 8 months

Roma Finance 70% LTV - £350,000 - 7 months

As a borrower, you can decide which lender you would like to pursue or all of them in fact. You can then get your paperwork ready in order to proceed.

How to Proceed

The next step before we proceed is always a valuation of the property which determines how much it is worth according to today's market. The cost of a survey will depend on the size of the property, ranging from £300 to £1,200 to larger, more complex builds. The survey is always carried out by a RICS qualified surveyor and can typically be arranged within 2-4 days of enquiring.

The property's valuation is essential to ensure that it stacks up with the figures that you have provided and this may coincide with what the lenders have offered or cause them to change their loan offers.

Assuming everything is good to proceed, you are in a position to introduce your solicitors to the lender and allow the parties to liaise. To be approved for a bridging loan, you will need to provide additional proof of identity to the lender including your:

  • photographic identification
  • two proofs of current address (of over 3 months) such as a gas bill and council tax bil

Your solicitor will then prepare the mortgage deed and whilst some bridging applications can take a few weeks, there are many which can be arranged in just a few days.

negotiation

What Fees You Can Expect

As a customer working with a bridging loan broker, it is important to know what other fees to expect with your application:

Broker fees: Depending on the broker that you use and the lender, there is a broker fee of 1% or 2% of the total loan value. For a loan of £500,000, this will therefore come to £5,000 to £10,000. This might seem like an additional cost of working with a broker, however, the broker may also help you get a lower interest rate and better chance of approval earlier on - so you may save money overall.

Arrangement fees: A lender typically charges arrangement fees which relate to the organising of the loan, the work of their solicitors and their administration. The cost of this is typically also around 1% to 2% and depending on the lender, may be a requirement before the loan is funded or it is rolled up into the full loan amount.

Valuation fees: The surveyor you use or is allocated to you will charge around £300 to £1,200 for carrying out a survey of the property. You can use your own surveyor provided that they are RICS qualified, however, a lot of bridging lenders will typically provide a surveyor for you.

Solicitor fees: Naturally, your solicitor is very involved with arranging the mortgage deed and receiving the funds from the loan. You will therefore have to incorporate your solicitor's fees into the mix and obviously having an expensive professional may impact the margins and your return on investment.

Early repayment fees: Bridging loans typically come with early repayment fees, with higher penalties in place if you want to end the loan agreement within the first few months. With this in mind, you need to weigh up the costs of repaying early or letting it run for a few more months and paying the interest.


landlord-keys

The Real Benefits Of Becoming A Buy-To-Let Landlord

The number of completed buy-to-let mortgages in London rose by 8.97% in Q2 of 2018, according to Commercial Trust. This is great news for the market as lending for buy-to-let properties previously shrunk by 10%. And it’s not just London which has seen a growth, as the North-West has also seen a jump, taking an 11.11% share during Q2. Therefore, if you're looking to buy a property, it's worth considering the rental potential of it as there are some great benefits in buying-to-let, including being able to utilize a bridging loan to fuel your new business venture.

Anyone can do it

One of the best things about buy-to-let mortgages is that anyone can obtain them. If you’re an existing homeowner or a first-time buyer, purchasing a property for rental purposes is a great way to make an additional income. Self Certification buy-to-let mortgages allow individuals, such as homemakers or those on a low income to benefit from obtaining and renting out property. Some buy-to-let landlords even manage to replace their earnings with the profit they make from their portfolios. And, if you do require financial help to refurbish your new property before renting it out, be sure to consider a bridging loan to assist you with your requirements.

Pay off your mortgage and have cash left over 

Research conducted by Halifax reveals that the average monthly mortgage repayment is £669. Meanwhile, the BBC reports that the average monthly rental cost in England and Wales is £926. Therefore, buy-to-let landlords benefit by paying off their mortgage and having a significant sum of cash leftover to do with as they please each month. As a result, these additional funds can be used to help you pay back your bridging loan.

Investment opportunities throughout the UK

Traditionally, landlords would purchase properties to rent out close to home as this would give them optimum control of the property. However, investment opportunities are available throughout the UK, with some areas providing greater financial benefit. Typically, house prices in London and in Southern England are higher than up north. And, with a 3% stamp duty surcharge for landlords owning more than one property, as well as the revelation that the autumn budget will hike stamp duty up further, profits will be hampered, making it difficult to pay back your bridging loan. But, by buying further north and allowing your letting agent to take over the day to day running of your buy-to-let property, your stress levels and your bank balance will be boosted.

Tax relief

There are numerous ways to save on your tax bills as a buy-to-let landlord. Following the announcement in 2015 that tax relief on rental properties was being overhauled, an increasing number of landlords moved their portfolio of properties into a company to lower their taxes. Moreover, buy-to-let landlords can offset costs against tax, including letting agents’ fees, mortgage interest payments, advertising and repair bills, all of which can help you pay back any outstanding financial agreements.

Buy-to-let landlords can benefit in many ways by investing in property for rental purposes. One of the biggest pros is that almost anyone can do it and there’s a significant amount of profit to be made. Furthermore, investment opportunities are available throughout the UK and there are various ways to save on tax, too.


building-site

The Insurance You Need For a Building Project

If you are running a building project, having the right insurance is essential to protect you from any potential mishaps. You can never be certain if your property will be victim of a flood, fire or fly tipping and the financial repercussions could put your entire project at risk.

Whether it is for buy-to-let or renovating an existing property, you need proper insurance to safeguard your investment and some bridging loans will not even go ahead until you have insurance in place. We highlight the main types of insurance you may need below.

Buildings Insurance

building-site

Buildings insurance comes under the form of home insurance and is used to help protect any damage to physical aspects of the building. This includes covering doors, walls, fences, roofs, ceilings and floors. It is designed to protect you from any accidental or unintended damage to physical fixtures of the property, which could be as a result of fire, flooding, vandalism or other peril.

With builders, plumbers and electricians likely to be working on your project every day and using heavy machinery, you never know when something could go wrong. Whether it is faulty wiring or poor plumbing, it is not uncommon for a fire or flood to occur.

To claim from your home insurance policy, there needs to be proof that any damage caused was a genuine accident. Insurers will always do a full inspection of the property and damage before paying out a claim.

Contents Insurance 

Contents insurance also falls under your home insurance so policyholders are likely to have a buildings and contents insurance in one policy. Contents refers to physical valuable items that are in the house or flat. This includes any machines, electronics, art, jewellery and other valuable assets. If the place is a complete building site, then most of the contents will not be on the site. But, if you are working on a property where other people are still living and all their goods are still on the premises, then having contents insurance is key in case anything gets lost, damaged or stolen.

For contents Insurance, it is advised to value all your items that you are leaving in your house like the computer, jewellery and TV and take out a policy to cover their value. It is worth slightly over-insuring so that your insurance provider will pay out enough to replace your items. Insurers will typically only pay out what the goods were worth at the time. So if your TV is 5 years old and has fallen in value, you may not receive enough to replace it - hence taking out a little extra cover can be useful.

Public Liability Insurance 

Public liability aims to protect any third parties that come into contact with your building project. When you are renovating a property, you are also potentially impacting people around you including neighbours, passers-by or other tenants of the building.

There are plenty scenarios where public liability insurance can be applied. A common one is if your builders are working on the roof and something like a tile falls off and hits the neighbour’s car or hits a pedestrian walking past. The victim has a right to claim damages because you (or your team) were responsible for this. At this point, you would claim on your public liability insurance in order to settle the victim for any replacements, medical bills or compensation.

Other scenarios include what would happen if your building work accidentally set fire to the neighbour's house? Or what if your boiler broke and then flooded other tenants in the building? This types of damages and repairs could be covered by your insurance.

Business Interruption Insurance 

Business interruption refers to any costs that you have to incur due your project being interrupted. Perhaps you are working on a deadline or you will need to refinance due to the project taking longer than expected. Whether it is a fire, flood, snow, fly tipping or squatters on your premises, there are several things that could make your project delayed. After all, we all know that building work can take longer than we expect.

Rather than suffer the financial burden, your business interrupted insurance can contribute to any additional costs you may have whether it is building costs, loss of rent income or extra costs required to repay your loan.

Professional Indemnity Insurance 

Professional indemnity or PI, is less for you but more the people that you hire. Any professions such as builders, architects, plumbers and engineers are using their expertise when working on your building. However, if they give you bad advice or carry out their work poorly, it could have a huge impact on the overall success of your project and the bottom line.

As a result, you may decide that you wish to take legal action and request compensation for any loss of income or delays in your project. Your potential settlements will come out of the contractor's professional indemnity insurance. So it is a common thing to ask any professionals that you work with beforehand if they have PI cover.

Employers Liability Insurance  

Of all the insurance types mentioned above, employer's liability is the only one which is required by law. This is cover for any employees that are working on your premises. They must be your own staff that you hire because any staff belonging to your contractors must go under their own separate policy. Failing to show proof of employer’s liability insurance upon request or a certificate can lead to a minimum daily fine of £2,500 and further prosecution.

The idea of employer's liability is that you have a duty of care for any of your staff members and are responsible if they have an accident at work. Working on a building site poses risks, especially with different materials and obstacles that could cause injury. If one of your people gets injured at work, you can claim on your policy in order to pay for any medical bills, compensation or time off work.

You are required to have a minimum of £5 million worth of cover by law of which a policy may only be a few hundred pounds to purchase. The only exceptions are if you run a family business, you are not required to purchase employer's liability cover for your own family members. Also, any freelancers, sole traders or consultants are required to insure themselves and this is not your responsibility.

How Much Does Insurance Cost? 

The cost of insurance will vary on the size of your overall project. Naturally, the refurbishment of a large property which is being changed into 12 rooms will require more staff, budget and insurance than the renovation of a small 2-bed home.

Whilst insurance can easily start from a few hundred or thousand pounds, it is important to cost up the potential risks and what the cost of any damages will be. Using a good insurance provider will help you better understand any risks and levels of cover that you need and it is important to speak to your partners and contractors to ensure that you are all fully covered to carry out the necessary work.


rent-reviews

How Rent Reviews Work

What exactly are rent reviews? If you are renting out a commercial premise such as a restaurant, office, warehouse or shop, the landlord has the right to increase the rent after a certain period of time. As a business owner, you need to be on top of rent reviews to maintain control over your costs.

Perhaps the rent needs to change due to higher running costs, increase in inflation or greater demand in the area. We take a look at how they work, and everything else you need to know about the process.

When are rent reviews held?

Rent reviews will usually occur every five years or less than this, depending upon the lease agreement that is signed between the tenant and landlord. It may very well be the case that for short-term leases there aren’t any rent reviews at all, but to be sure about this it is important to check with your landlord.

How is the new rent price determined?

The new rental price is usually determined by the ‘open market rental value’. What this means is that if the landlord was to put this property on the market at the time of review, what amount would he or she expect to receives given the current rental market in the local area, based on similar agreements made to your lease. Factors that determine the open market rental value may include:

  • How the premises are used (for example whether it is being used simply as storage space or as an office space)
  • Level of rents in the area

Rent increases are not always based upon the open market rental value, they may instead be linked to the Retail Price Index which is heavily linked to inflation.

Who decides the new rent value?

If it has been decided that upon a rent review there will be an increase, it is most likely that your landlord will be the one to inform you of this decision. However, if you believe that the rent review is unreasonable, it is possible to dispute the rent review.

This is usually passed onto an independent expert who can assess the individual circumstances between landlord and tenant and decide what would be the best possible agreement to come to. There are companies that specialise in rent reviews including property and leisure management companies and solicitors.

If you do disagree with the proposed rent increase, it is extremely important that you put this in writing to the landlord as soon as you possibly can. This is because a large number of leases will stipulate a timeframe within which you can dispute a rent review. If you miss this deadline, it could mean that you will have no other choice but to accept the increase.

Do rent reviews take into account improvements made to the property?

Generally speaking, any improvements that you have made to the premises during the term of the agreement will not be considered in a rent review. However, if you do make any improvements it is vital you keep a complete record in the event that you are accidentally charged as you will likely need to provide proof. Nevertheless, you should bear in mind that if you have asked the landlord specifically to make improvements during this term, this may be factored into a rent review.

Do rent reviews ever lead to a decrease in rental value?

A question that is often brought up when it comes to rental reviews is what happens if the open market rental value has fallen in the area surrounding the premises. Could this lead to a decrease rent?

Unfortunately, it isn’t as straightforward as that, and it would most likely require you to refer back to your lease agreement. This is because many agreements will include an ‘upwards only’ clause. That means that should the open market value decrease, the rent can only ever remain the same as opposed to decreased.

How much notice do I get for a rent increase?

In the UK, the amount of notice you are given about a proposed rent increase is usually three months ahead of time, via a written notice by your landlord. However, do check in your own lease agreement the specifications of this timeframe, as it can differ depending on the contract.


faster-payments

Why Fast Payment is Everything

In the world of bridging and online lending, getting finance fast is key for everyone involved. Everyone wants to do business quicker and faster these days and the old days of going to the bank, filling in forms and posting them off and waiting weeks for a response is just unthinkable.

In the bridging industry, people want that fast finance to secure the property they have in mind. For buy to let investors, they are looking to complete on a property with the funds ready, before a competitor or another buyer comes and gazumps them. The company or individual will have plans to renovate and do up the property for the purpose of reselling it or renting it out to tenants.

For the purpose of auction finance, speed is everything. Those that have bought a property at auction will typically have 28 days to come up with 90% of the purchase price. Sure, most people will be able to dip into their savings or profits from other investments or also use money from other investors, but whether it is 20% or 50% of the property finance, they need funds and they need it quickly.

Realistically, most of the bridging companies we feature can actually transfer funds within the space of the just a few days. However, it is getting all the relevant paperwork and sign off that takes time between the you, the lender and your solicitor. Below we give some of our top tips to make the application and funding process faster

 

How To Make the Application Quicker

Finding the right loan product: Well, firstly you have to find the right loan product and you have to understand exactly what you need. If you are looking at construction costs and refurbishing a property, you will more likely need development finance rather than bridging. Therefore, you should not be wasting time researching bridging providers and instead find development specialists like Castle Trust and UTB.

Using an impartial broker like Octagon Capital can help to make your life much easier. Our team has seen every type of application and scenario under the sun and should be able to tell you very quickly exactly what you need. We regularly get applications asking for one thing but needing another, so narrowing down your search can certainly speed things up, especially if its quick loans UK that you are looking for.

Complete a survey beforehand: Most lenders we work with need a RICS survey completed in order to process your application. This obviously needs arranging and setting up an appointment with a professional to come visit your property in question. Surveys from a RICS qualified surveyor are valid for several months until they have to be renewed or a new appointment is required. So to make your application quicker, you can take the initiative and arrange a survey before you have applied or as soon as possible. You will need to fit the bill of this survey yourself and typically, the bigger the property, the more expensive it is - at a maximum of £3,000.

The downside is that if you organise the survey during the application process, the lender will appoint the surveyor and include the cost in the overall loan terms, allowing you flexibility to pay if off much later.

But on the plus side, a surveyor not only gives you a solid valuation of your estate, it also points out any potential flaws or issues with the property which you may have big plans for. Things like asbestos, subsidence or construction issues could save you serious time and money in the long run - so there is certainly an advantage of having a surveyor earlier rather than later.

Get your paperwork ready: Most loan companies will request information about to confirm your identity and address. Having copies of your pay-slips, bank statements and utility bills at your address for at least 3 months can only come in handy when making your application. No need to scour around looking for them if you have them already printed and raring to go. But make sure that they are recent and not ones from last year or a previous address or employment.

Similarly, for those regulated loans that require credit checks in order to approve your application, you can make sure that you are on top of this by checking your credit report beforehand. There are free trials available on the likes of Experian and Noddle and then cost is just a few pounds afterwards per month, or you can always request a one-off statutory credit report for just £2.

You may find that in fact you have some anomalies on your report that are bringing down your credit score and actually there are some things you can do to improve it. For instance, removing any store cards or credit cards that you do not use is worthwhile as it means you have less risk of doing into debt or overspending. For the very least, you should make sure that you are on the electoral roll as submitting your address with the local authorities makes you more credible when applying for a loan.

Do your homework: Some lenders we work with need to see a business plan or some kind of proposal with your plans for the property. As a minimum, you should have a balance sheet with your estimated costs and potential profits. This means getting estimates and quotes for builders, furniture, electrical, architects, gardeners and more, prior to making your application. If you have not got this information handy and available already, it simply slows down the process of getting your funds.

Depends on the amount: Understandably, the more you wish to borrow, the more checks that need to be carried out (typically). If you are borrowing a minimum amount of £50,000, this may be easier for the lender and bank to transfer to your account in one lump. However, if you are applying for £10 million or £20 million, this may require more checks and procedures in order to transfer the money to your business.

Depends on the project: If you are a homeowner moving into another house that is already built, this may require less checks and surveys than something that is just a plot of land. Again, if there is less work for the surveyors and lenders to do, this will fast track your funding.

For more information, read the FCA's policies on making and receiving payments.