Buy to Let Agreement in Principle

Can I make an offer on a Buy to Let property with an Agreement in Principle?

Yes, you could. You don’t even necessarily need to have an Agreement in Principle – but it makes negotiation a bit easier.

Having an Agreement in Principle up front gives you confidence that you could get the mortgage agreed. It also gives your estate agent and the seller confidence. It’s proof that you could afford the property, which is obviously what a lot of the sellers want to know.

How do I apply for an Agreement in Principle for a Buy to Let? How long does this take?

If you want to apply for Buy to Let mortgage and get an Agreement in Principle, it depends on a few factors. If you go with a lender that will allow you to get an Agreement in Principle, most brokers could do the research and come back within a day to get that agreement fully sorted out for you.

If you’re in a big rush and you make your broker aware, and we know which lender to look at, we could arrange an Agreement in Principle within an hour and a half. It could be done really quickly.

What information or documents do I need to get in Agreements in Principle for a Buy to Let mortgage?

Every broker is different, so I could only comment on what we do. We want to see proof of ID so we know we’re speaking to the right person. We need a copy of your credit report to see debts, financial commitments and any missed payments in the past.

That way, we could be completely accurate on the application. We also require proof of income, because although a Buy to Let is fully assessed on the rental income of the property, some lenders require a minimum income. Other lenders may be more lenient if you’re a lower rate taxpayer and buying in your own personal name.

Having these documents up front allows us to do the assessment, and apply our experience on which lenders will give you a good chance of being accepted.

How is affordability calculated for a Buy to Let mortgage?

As I mentioned earlier, two properties valued at £200,000 could rent out for completely different amounts. That would mean completely different mortgage sizes.

So one of the big things that you need to assess when seeking an Agreement in Principle is to find out what your target property will rent out for. If the property doesn’t have a great yield – so the rental income is extremely low in comparison to the purchase price – a lot of lenders may not give you the amount you need on the mortgage.

Is an Agreement in Principle guaranteed? Can my Buy to Let mortgage be declined after an agreement in principle?

An Agreement in Principle is not a guarantee that everything is going to go through smoothly. Some lenders may not have picked up all your credit commitments, and it may come up in the document assessment later in the process. Or, the seller could pull out – nothing’s guaranteed.

On top of that, even if everything’s perfect from your end and the Agreement in Principle is fine, the lender might value the property way off what you’ve agreed to pay for it. Or, the rental income is a lot lower than you were led to believe by the estate agent. The lender would then lend you a lower amount at that point.

I’ve been declined an Agreement in Principle. What can I do?

It depends what the situation is. For example, if you spoke to a lender and it was agreed upfront, but then the rental valuation of the property or the property value then changes, you need to assess whether another lender will value it differently. If you are paying too much for the property, we might need to look at a new strategy.

Perhaps you’ve submitted a Mortgage in Principle for a Buy to Let, and the application has been declined because of poor credit. In that case you will need a conversation with your broker to reassess. We may be able to use a lender that specialises in mortgages for those with a few missed payments. So it depends on the situation, but once we find out the reason, we could put a plan together to sort it out.

Will I need a credit check for a Buy to Let Agreement in Principle? Does this affect credit score? How will bad credit affect an Agreement in Principle for a Buy to Let mortgage?

With a Buy to Let mortgage, as with a standard mortgage, some lenders will help. They specialise in helping people with missed payments, depending on how bad they are.

If they’re very recent and you have had quite a few issues, or you’ve been bankrupt or had an IVA, that massively limits the options available. Meanwhile, credit blips that are years in the past could be disregarded by a lender.

It’s just a case of having that conversation with the mortgage broker upfront. Although the rates might be slightly more expensive and you may have fewer options, a lot of lenders may still lend to you.

The type of credit search for a Buy to Let Agreement in Principle also depends on the lender. Some will use a soft search, which won’t have too much impact on your credit report, but others will run a hard search on your account. If you’ve got bad credit, that could potentially reduce your score.

What are the benefits of getting an Agreement in Principle with a mortgage broker? How can an advisor help here?

There are a few advantages in getting an Agreement in Principle with a mortgage broker rather than going directly to your bank.

Firstly, a lender is only ever going to let you know what deal they’ve got available. They’re only giving you their own rates. A broker has access to substantially more lenders, based on your situation.

As we mentioned earlier, if there are any missed payments, defaults, CCJs or any type of bad credit, your Mortgage in Principle could be declined by one bank. You may have gone direct and received an instant no. But with a mortgage broker we could be more flexible/ We would look at lenders based on those credit blips and talk to them direct to get you the Agreement you need.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

MOST BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

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