Pre-Approval for loan on property?

by Readers Question

6:47 AM, 20th January 2015
About 4 years ago

Pre-Approval for loan on property?

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Pre-Approval for loan on property?

Having read your article Mark on balancing high gearing with high liquidity (v useful info thank you) I’m wondering if I’m doing the smartest thing with my portfolio.

I have three properties, two under BTL mortgages and the third (very luckily) 100% paid up and mortgage free. Its this mortgage free property that I’m wondering about.

My question is, are there any financial arrangements where I could get pre approved to free up some equity on this property when the time is right ?

Here and now at the start of 2015 I have no immediate need for the cash. I *am* looking around though. Auctions / repossessions etc are all of interest to me but I’m aware as well you need access to quick cash if you are to move in these circles.

Is there any way I could go 90% of the way through a mortgage approval process on the currently un-mortgaged property without actually completing until the day I need to press the GO button and free up the cash ?

All thoughts on the matter gratefully received.

Tom Muddpre



Comments

Neil Patterson

6:55 AM, 20th January 2015
About 4 years ago

Hi Tom,

The good news is that you are looking for approval of a secured loan based on a known property. Many people get Agreements in principle before they have found a property, but they are certainly no promise.

You could just get a mortgage offer letter, which is one stage before completion. Make sure you know how long a lenders offer letter lasts though as some are 3 months and some 6. Then you have that period of time to make up your mind. However be aware that in extreme circumstances and if your credit status changes even an offer letter can be withdrawn.

Commercial lender can also offer loans that can be drawn down as you need them, but this is usually more bespoke lending and hence the interest and fees are normally higher.

Before the credit crunch some BTL lenders offered a draw down facility, but I don't believe there are any left. However one of our Property118 brokers I am sure can put us right on that 🙂

Howard Reuben CeMap CeRER

11:23 AM, 20th January 2015
About 4 years ago

Tom, I can confirm that Neil has beautifully summarised the key issues, being; an agreement in principle, or even a full mortgage Offer, may expire before you're ready to actually seal a deal, so you may have to go through the whole approval process all over again, or alternatively, as Neil says too, if approval / an Offer is issued and your credit status changes (many things could affect this, such as you have increased your credit card balances, you may have missed payments or suffered defaults, ccj's or even bankruptcies) then the banks Offer could be withdrawn altogether.

Even with an issued Offer in hand, the banks have the right to re-credit check you at the time of completion, so you may lose the Offer that you have paid fees to secure in the first place.

My suggestion is that as long as you know what your BTL value is and you crunch numbers using a guideline 75%LTV release, and you're confident of your credit status (and occupation and income status, etc, too) then when the time is right you should seek appropriate professional advice and contact a Property118 Broker (http://www.property118.com/member/?id=314) 🙂

I know this is a pretty vague answer however there is NO merit in being approved so far in advance of any action to be taken especially as new products, lenders and the BTL market in general is changing all the time as well.

Hope that helps.

Howard

Ray Davison

13:22 PM, 20th January 2015
About 4 years ago

Just a thought, if the mortgage free property is your residential home, you could get an offset mortgage on this property, leave the funds in the linked cash account which would allow you to use the funds whenever you need them. You would probably have some up front fees to arrange this but I used one of these to great affect whilst flipping properties in the past.

Neal Craven

13:38 PM, 20th January 2015
About 4 years ago

What interest rate could you get if you took a BTL mortgage now and put the money in the bank short term.

Howard Reuben CeMap CeRER

14:13 PM, 20th January 2015
About 4 years ago

Hi Neal

Interest rates are just one piece of the jigsaw. You may also need to factor in valuation fees, legal fees, broker fees, lenders arrangement fees, early redemption penalties etc., in order to determine true 'overall best value'.

It also depends on credit status, age, occupation, income etc., too.

I don't travel to Doncaster unfortunately but if you want personalised advice this could be arranged by 'phone or email? Alternatively you are welcome to visit HD Towers in Colchester anytime 🙂

Howard

Neal Craven

17:31 PM, 20th January 2015
About 4 years ago

Hi

My suggestion was basically if Yom will require the funds at some stage, possibly at short notice what's the holding cost of drawing down the funds sooner rather than later and keeping them in a deposit account. I fully appreciate other costs are incurred, however my understanding was the funds would be required at some stage so those cost will be incurred, its just a matter of when.

Tom Mudd

11:14 AM, 21st January 2015
About 4 years ago

Thank you Neil and Howard . I'm getting a much clearer picture of what my options are now.

Ray - valid point but I can confirm that the property in question is not my Principal Private Residence. Good suggestion though.

Thank you everybody for your input.

Tom

Howard Reuben CeMap CeRER

15:45 PM, 21st January 2015
About 4 years ago

Reply to the comment left by "Neal Craven" at "20/01/2015 - 17:31":

If you're putting to one side the costs for setting up the mortgage, then the 'other' cost is the difference in interest rates between the mortgage and what you can get from the savings / current account. Overall, probably not a good strategy to take the fund sooner rather than later. Our Clients secure formal approval and then draw down when required meaning no interest is being charged on unused monies.

Neil Robb

20:13 PM, 24th January 2015
About 4 years ago

Hi Tom

You probably know this. I do this often. My advice would be as follows

If you are going to buy anything at auction make sure your money is in your account before bidding.

Once the hammer goes down then you have bought the property. If I were you I would mortgage your current property and have the money in the bank ready to go when you find a property. If anything was to go wrong and you could not complete the mortgage on time, you could end up losing your deposit plus also be liable for any loss incurred by the seller if they could not reach the price you offered at a later auction. Unlikely but don't risk it.

With cash in the bank you might find good deals from sellers that are better than estate agents and auctions. I have worked this way for the last few years. You do have slightly higher legal bills. Buying cash then later re mortgaging to release funds but you can normally save on the purchase price by being in a stronger position to buy.

Auctions fees are not cheap. I hope this helps. Even knowing you are in a position to complete is a lot less stressful. I do have an off set mortgage account on my own home so when I borrow money on one of my houses. I put that money in my account until I need it.


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