Please find below a collection of the most common questions that we are asked about raising finance and brief, easy to understand answers to those questions.
Consent to Search
We need your authority so that any lender with whom we are applying for finance to on our behalf can undertake any independent background checks to determine credit worthiness and or financial standing.
The authorisation is only valid for Andrew Wattsford, or any potential lender that they deem appropriate and / or suitable to our needs and is applicable to the provision and verification of information / details in connection with any loan application that you may make.
An -e-signature document will be sent to the lead applicant only.
EBITDA is a standard of measurement banks use to judge a business’ performance. It stands for earnings before interest, taxes, depreciation, and amortisation.
ERC (early redemption charges)
ERC stands for ‘ Early Repayment Charges’ – generally applied on longer term Commercial Mortgages ( to protect the lenders anticipated margin on the deployment of the funds) if the loan is redeemed in the early years. Many lenders will charge ERC’s up to a three or five year point in the loan usually on a reducing scale but these can be as high as 5% of the mortgage amount if a facility is repaid in year 1.
Finance application support
The support that Wattsford Commercial Finance gives is tailored around you. We support you through the whole application process. For example, some lenders may require supporting information such as a business plan as part of their lending decision which we will help you to prepare.
Potential lenders may wish to meet with you, where this is feasible we will attend the meeting with you.
GDV (gross development value)
The level of property development finance available will be dependent on the project being undertaken, the overall borrowing requirement, and the projected gross development value (GDV) once the project is completed.
As part of our regulatory requirements, we must carry out ID, PEP (Politically Exposed Person) and Sanction list checks on the lead applicant. This is done when we send out Fact Finds as part of your application for funding.
We apply ID Verification to the lead applicant only, as follows:
- Limited Company
The lead applicant, the lead applicant must be either a director or shareholder with holdings of at least 25% of the company
- Sole Trader
The named party (applicant)
- Partnerships and Trusts
The lead-named partner or trustee
Indicative terms provide an indication of how much you may be able to borrow and at what terms prior to making a full application. Indicative terms may also be known as a ‘Mortgage in Principle’, a ‘Decision in Principle’ or a ‘Mortgage Promise’.
For example with mortgages, it’s a document that you can use with an estate agent or those selling a property to show that you may be in a financial position to purchase it. For asset finance, business loans, and invoice finance it provides an indication of the finance terms that we may broker for you.
LTV (loan to value)
LTV is an abbreviation of Loan to Value and is frequently used when referring to mortgages.
An example of an LTV would be where a property has a market value of £100,000 and you require a mortgage of £75,0000. The LTV would be 75%.
Personal credit scores
When applying for credit personally or through a business, a credit search will be carried out by any prospective lender. Your credit score may impact on the choice of lenders that we are able to broker to on your behalf. For information on checking your personal credit score, please visit our Credit Check webpage.
Proof of ID
The following list of items are generally acceptable forms of evidence to prove a customer’s identity and residency. These documents should be valid, in date and include the full name of the applicant (and not just initials). Proof of ID and residency must be certified by either an FCA-regulated broker, licensed conveyancer or solicitor. The documents must be of good quality, with photos, where applicable, clearly visible.
- Current signed UK/EU/EEA Passport
- Current EEA National Identity Card
- Current UK/EU Photo Driving License – Must show current address (cannot be used for both ID and proof of residency)
- Current Full UK Driving License (old paper style) – Must show current address (cannot be used for both ID and proof of residency)
- HMRC Tax Code Notification (this document confirms the tax code for the forthcoming tax year)
- State Pension or Benefits Book/Notification Letter dated within the current tax year
- Firearms certificate or Shotgun license
- Armed forces ID cards may also be accepted by some lenders
- Current UK/EU Photo Driving License – Must show current address (typically cannot be used for both ID and proof of residency)
- Current Full UK Driving License (old paper style) – Must show current address (typically cannot be used for both ID and proof of residency)
- HMRC Revenue Tax Code Notification – Must be in relation to the current tax year
- State Pension or Benefits Book/Notification Letter – Must be in relation to the current tax year
- Current Tax Awards Letter – Must be in relation to the current tax year
- Current Council Tax Bill/Statement – Must be dated within and relevant to the current tax year and must relate to the customer’s residential address
- Mortgage Statement – Must be dated within the last 12 months
- Bank/Building Society/Credit Card/Credit Union Statement – Must be dated within the last 3 months and cannot be an internet produced print out or printed out in branch
- Utility Bill – Must be dated within the last 3 months (gas, electric, water or landline phone – typically mobile or broadband bills are not acceptable)
- Current Local Authority rent card or tenancy agreement – Must be dated within the last 12
Property use classes
The Town and Country Planning (Use Classes) Order 1987 (as amended) puts uses of land and buildings into various categories known as ‘Use Classes’ which are detailed on the Planning Portal.
SIPP and SASS mortgages
A growing number of company owners are setting up small, self-administered schemes to take advantage of a rule that allows businesses to borrow from pension assets to buy commercial property, whether that’s outright or through a mortgage.
There’s a great article on the website, SIPP or SSAS Commercial Property, that explains the difference…
SPV (special purpose vehicle)
SPVs (special purpose vehicle) are limited companies set up solely to own and run residential or commercial investments.
An SPV can be used to isolate financial risk, securitize assets, and perform separate financial transactions.
Stress tests look at whether or not a borrower will be able to meet their monthly repayments plus all other necessary budgeted expenditure if mortgage rates were to increase to a specific amount. Typically, a stress test will be calculated on the following basis…
(Mortgage required x Stress Test % x Rental Cover) ÷ 12
Rental Cover is a %, for example a typical Limited Company and basic rate tax payer will be 125%, whereas a higher rate tax payer will be 135% and an additional rate tax payer will be 139%
Assuming the mortgage required is £150,000, the stress test is 6.5% (typically the lender’s interest rate) for a Limited Company…
(£150,000 x 6.5% x 125%) ÷ 12
The rental income received would need to be equal to or greater than £1,016 per month to pass the stress test
Tax Calculation (SA302) Forms
The Tax Calculation (SA302) form is your official tax calculation from HMRC. It’s a statement based on your Self Assessment tax return for the previous financial year (April 6th to April 5th) and is really important as it proves your income.
Officially, the SA302 is now called the Tax Calculation form
If you’re registered as self-employed with HMRC and have (or your accountant has) submitted your Self Assessment tax return, then you’ll be able to get your SA302 form online.
You can get the tax calculation and SA302 details for each of the past 4 years online, which is more than enough to satisfy the underwriting needs of your lender.
Where can I find my SA302 form online?
- Log into your HMRC online account
- Go to Self Assessment
- Choose More Self Assessment Details
- Select Get Your SA302 Tax Calculation
- Select the option to Print Your Full Calculation
- Select the year you require from the Tax Return Options menu
- Select View Your Calculation
- Click View and Print Your Calculation
Trading business mortgages
If you are buying a trading business with freehold premises, a professional report will confirm the overall value of the business, including the bricks and mortar, fixtures and fittings, and goodwill where applicable. Subject to satisfactory confirmation it may be possible to secure an advance against the overall business valuation.
Where the sale of the trading business also includes machinery, vehicles equipment, stock etc. it is generally more appropriate to structure a separate loan to acquire these assets on a short- term lease or stock finance arrangement.