Watch out for instant mortgage approvals. Try this instead

If you are planning to buy an investment property whether that’s a flip to let, a buy-to-let a flip to sell, whatever it may be. If you’re thinking about buying that property with a mortgage, then watch out for those gimmicky adverts that state “You can get an approval in principle immediately” an instant decision in principle and approval in seconds.

Those things do not exist and they are also quite risky and I’m going to tell you about those risks because you’ll see these adverts everywhere. We all see these adverts everywhere, if we’re buying property and if we’re using mortgages so I want to talk you through the risks and what to watch out for and if you are thinking about taking a mortgage, I’m going to give you a couple of ways that you could get that mortgage through quickly without hassle, but first of all, I’m not criticizing the mortgage lenders that use these adverts, everybody’s just trying to get business, everybody’s just trying to win new customers, and grow their businesses. No criticism there at all. What I’m trying to achieve here is to give you the risks so that you’re aware of them and you know how to progress with that knowledge.

But first, if you are going to buy a property investment then and and it’s going to be with a mortgage, then you’ll go one of two ways. You’ll either go directly to a mortgage lender, whether that’s a bank or another company that provide mortgages or you’ll go to a mortgage broker and they will approach all of the banks and all of the lenders to see which one’s best, that’s how it works.

Now, if you’ve gone directly to a lender you’ll either go to your own bank or you’ll do some sort of search, some sort of comparison and it will show you what mortgage lenders are doing what, and the chances are that some of you will have your attention grabbed by an advert that gives you a decision in minutes or a instant mortgage approval.

Now, they’re great because they are designed to capture your information just to get your email address, your name, your number, those sorts of things. Awesome, it’s just good business practice to do that. Because once they’ve got your email address and your number, then they can start marketing to you and nurturing you and now they know that you’re thinking about a mortgage at some point in the future. And of course, they are a business, they want you to use them. Of course, they do. That’s just business there’s nothing wrong with that, but there are some risks here.

In order for you to proceed proactively with buying a property, there are a lots of pro here for this time of the morning. Anyway, if you are going to proactively proceed with a property purchase, then the first thing you need to do is be able to provide proof of funds or proof of your position to proceed to, either an estate agent or to the seller or whoever’s acting for the seller that’s good. And look, you’re noticing now that a lot more estate agents are starting to request proof of funds, proof of position to proceed before they’ll even let you have a viewing, which some people don’t like, but I personally agree with it. I’m pro that, because I think, why would an estate agent give you their time for free as well, by the way, Mr. and Mrs. Buyer if you’re not verified as being in a position to proceed?

I think that’s unfair and I think it’s right that estate agents should request that proof before giving their time to you, absolutely. Anyway, that’s a different subject.

So you would be required to provide that. Now, if you now go to one of those instant decision in principle companies and they give you that instant decision in principle, you now have a proof of your position to proceed so you’ll give that to the estate agent. The sale and the purchased then progresses.

You then put money on account, your solicitor orders the searches. You know, you might even get so far as you spend out money for a survey, you might spend out money for certain reports, whatever it may be. What I’m saying is you’ve got an instant decision in principle which took minutes and that will cause you to spend out money.

Then later down the line when the mortgage lender, and their representatives, their legal representatives, their surveyors, start carrying out their investigations.

You find out that “Oh, actually, I can’t get a mortgage.” And that could be because of the property type, it could be because of the lease on the property, it could be because of the construction type, it might be because of you, your credit rating, your circumstances, your background, your experience as a property investor and as experienced as a landlord. Whatever, there could be loads of reasons why a mortgage lender would later down the line, decide not to provide you with a mortgage or not to provide you with the level of mortgage or the amount of money that they initially said, they might lend to you.

So, you would then lose out on that money and I’m pretty sure that if you’re going to buy a property and the lender says “I’m only going to be able to lend you a hundred grand instead of a hundred and twenty five grand.”

You know, you obviously fingers crossed the sellers gonna go to take a 25 grand reduction, but probably not. So you would just lose that money, just gone but you do more. If you provide the estate agent with an approval in principle, you proceed with the purchase and later down the line you have to pull out. You are now known as somebody who can’t get that mortgage.

Fair to say and the estate agent is quite rightly going to be less enthusiastic about selling you another property. Because now they think “Oh well, they don’t have a mortgage. They can’t get a mortgage. They’re not in a position to proceed.” They’re acting for the seller, remember, not you.

So, how can we get around this? The first thing to note is that I definitely don’t think that all approval in principles, instant approval in principles, instant decision in principles are bad, I’m just saying, watch out.

If you’re going to get an approval in principle from a mortgage lender, make sure it’s a full approval in principle. Now, your lender will be able to tell you if that is the case or not. Also, you’ll know yourself. Because if they have carried out a quick automatic decision in principle, if you’ve done it online and it comes immediately with a decision “Yes, or no?” Those are not full approvals in principle. If you filled out a reasonable size application form, which contains background information about you, background information about your circumstances, and so on. Then that is more likely to be a full approval in principle, but there is a better way around all this. Go to a mortgage broker.

Trust me, go to a mortgage broker. There’s so many reasons why you would want to do that. The first reason first of all is that they searched the whole of market and that’s the phrase to look for with a mortgage broker. Whole of market, that means they can search through all the mortgage lenders, all the mortgage products and find the best one and they can give you advice on those mortgage products. They can also give you advice if they are a proper mortgage broker that specializes in investment, finance, and mortgages. They will be able to advise you on exit strategies and how you can make this work for you optimally. That’s what they’re good at, my mortgage advisor for an example. He only does investment mortgages and investment finance. He’s an investor himself. He’s got a portfolio of properties, which means we can have really focused conversations around that specific topic. Now, I’m not saying other mortgage advisers won’t be able to provide you with investment mortgages and investment finance they absolutely will, but they may well not be experts in it and the key question is are you an investor yourself? Do you invest in property yourself? I would say that’s a very good question to ask your mortgage broker. Anyway, Sidetrack again. I know. So go to a mortgage broker.

First of all, I can say they have the whole of market at their disposal but second of all, they do it all for you. They do it all for you! It’s incredible! They’ve fill out as much of the paperwork as they can, they collect as much of the information as they can for you, they act as the liaison between the mortgage lender and the agent. You the seller. The lawyers, they are that conduit that links it all together.

And so quite often if you employ a mortgage broker to set this all up for you, you’ll do less work, but also it goes a little bit earlier than that. Remember at the beginning of this I 

talked about watching out for those instant decisions in principle, instant approvals.

When a mortgage broker will give you a proper approval in principle there’s none of this in minutes. Instant, none of that. It’s a proper approval in principle and that’s why you should always use a mortgage broker. They will tell you, from the start, what you definitely can definitely cannot get and that’s a really important point. It means that you lower your risk of losing money, you lower your risk of wasting time going through a property purchase you can’t get is a waste of time so mortgage broker will definitely help you with that.

And Lastly once that mortgage is getting close to completion they will act as a real force, getting it over the line. Making sure that, you know, don’t do things for you if the lawyer is asking for certain information, the solicitors asking for certain information, and the mortgage broker can just get it, they’ll just get it. They’ll send it into the mortgage lender, do it all for you, job done. They also help you with problems.

Mortgage brokers are brilliant at solving problems, especially if you’re buying through estate agents, they work with the estate agents to get these things over the line, get them through their brilliant. They’re worth their weight in gold and also, once you’ve got a mortgage broker and mortgage advisor on your side, then you build that relationship with them and then you can use that person over and over and over and over and over again for any property purchase.

It’s worthwhile doing but look the fact is watch out for those instant decisions in principle. They not real, that’s for sure and whilst I approve of the the business practice all these mortgage lenders will be pleased to know that I approve.

They are not to be relied on. Watch out for spending any money based on those approvals in principle. Go to a mortgage broker.

Hey, if you want to use mine, I always say ”Look, I’d love to connect you up with my mortgage broker.

You don’t pay me to do that at all. I’ll just connect you up by email. Just email me. tom@pinkstreet.co.uk or message me through my Facebook page if you want me to just connect you to my mortgage broker.” And then have the conversation its free to find out if you get on with him or not. If you don’t get on with him, don’t use him, find your own mortgage broker but that conversation is free for you to find out and you know what everyone should use a mortgage broker. I absolutely believe that. So look I hope that helps. Watch out for those adverts, don’t spend any money until you’ve got a full approval in principle or a decision in principle and certainly don’t waste your own time going directly to your bank and ignoring the thousands of other mortgage products that might well be cheaper out there.

Okay, go buy some properties. Speak to you all soon.