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Dear Delia

Dear Delia My client owns her home and two buy-to-let properties. She incurred a County Court judgement on one of the buy-to-let properties of 750 but has satisfied it and has no other adverse credit. She is in a comfortable financial position and keen to buy another property to add to her portfolio. Given her history of adverse credit, what are her options?

Delia says: If the CCJ has been settled for more than 12 months, several lenders can help this client. Richard Stokes of The Mortgage Times and Georgina Maun of Mortgages PLC look at the choices.

Have you got a problem for Delia? Email mortgage.strategy@centaur.co.uk

Packager Response
Richard Stokes is head of product development at The Mortgage Times Group

Letting agency management companies charge to look after properties and part of this service ensures tenants register themselves correctly with all the utility companies they use. Landlords may keep track of this themselves but tenants can be unreliable in this regard.

This may lead to the odd minor credit problem or dispute which could fall into a landlord’s lap and this may be the reason for the adverse credit in this case.

But the landlord in question has satisfied the CCJ. This expands her options as the judgement is no longer current and she has proved her ability to settle arrears.

Mortgage Express will certainly consider the case if the CCJ has been satisfied for at least 12 months. The rates it offers are among the keenest on the market including a 5.19% three-year discount and a 5.59% three-year fixed rate. Both carry a 449 completion fee.

Mortgage Express is also happy to lend to landlords whether they are buy-to-let novices looking to purchase their first property to be rented out or experts with portfolios. The number of properties this client has may mean that she is considering forming a limited company for tax purposes. Again, Mortgage Express can facilitate this.

If the CCJ has been satisfied more recently than 12 months ago, two other lenders spring to mind that will be able to help in this case – London Mortgage Company and Mortgages PLC.

The London Mortgage Company rate – a 5.74% two-year discount – has been popular with The Mortgage Times Group for the past 18 months with its light early repayment charge of 3% in the discount period and 495 completion fee. Mortgages PLC has a 5.6% two-year fixed rate with a 1.5% completion fee.

Both these lenders accept the amount of adverse in question and use generous methods of calculating affordability. This will maximise borrowing, which is ideal since the client is looking to expand her portfolio.

London Mortgage Company seeks the opinion of a local letting agent on likely rental return rather than a valuer who will be more cautious by nature and could also be out of touch with local rates. Mortgages PLC works on a 100% rental coverage basis.

Lender Response
Georgina Maun is product development manager at Mortgages PLC

The buy-to-let market is going from strength to strength. Figures from the Council of Mortgage Lenders show that lending in the second half of 2005 grew and outstanding buy-to-let mortgages were worth a total of 73.4bn, which represented 8% of the total market.

The sector will continue to grow as new buy-to-let investors enter the market or existing landlords expand their portfolios. According to a recent Paragon survey, 45% of landlords plan to grow their portfolios in the next 12 months.

It’s not unusual for a landlord to think of expanding their portfolio but what makes this situation different is that the landlord incurred debt on one of her properties. This will affect her options. Few prime lenders will consider this applicant if the CCJ was satisfied recently. Typically, an applicant needs to have satisfied a CCJ for two years to be accepted with a prime lender. The client in question here will have to consider going down the sub-prime route to expand her portfolio.

Sub-prime lenders now offer products to suit a broad range of clients, from those with slight levels of adverse to those with more serious needs, and these include buy-to-let options. The client will find that she has several lenders to choose from, with various underwriting approaches to the buy-to-let market.

For example, Mortgages PLC will lend up to 85% LTV on buy-to-let and will also accept up to a 10% vendor or builder deposit, enabling a client to shop around for the best property to suit their requirements.

As with the prime buy-to-let market, one of the key issues will be the method of rental calculation used by lenders. This will have a bearing on the lender chosen. Mortgages PLC calculates rental cover on 100% of the revert rate, allowing competitive rental cover to be achieved.

Mortgages PLC ignores all satisfied CCJs – even if only recently satisfied – and with no other debt, this client would be accepted onto our Near Prime Plus buy-to-let product where discount rates start at 4.90% for one year and 6% for two years. Fixed rates start from 5.60% for two years and 6.05% for three years. Many of the products do not have early repayment charge overhang periods, allowing clients to remortgage to the prime market at the end of the discount or fixed period.

This client will have to ensure that the circumstances that led to the CCJ do not occur again, either putting in place a competent letting management company or taking a more active role in managing her buy-to-let portfolio. But situations such as these do occur and fortunately solutions exist in the sub-prime market.

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