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Archive for the ‘Landlord Tips’ Category

BTL Tip – Read and understand the Mortgage Illustration

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Take your time to go through the document which shows you everything about the product which includes all fees including arrangement, product, broker and valuation fees and also gives you details on any exit penalties or early repayments.

It also explains the rate that it will go to once the initial product is finished and if there is a free valuation or legal costs.

Ignore the amount specified under legal costs as unfortunately, most lenders keep this very very low and unrealistic.

When can bridging finance be used?

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Standard bridging is ideal for customers looking to secure the purchase or refinance of a residential or investment property
including:

Chain break – whilst waiting for an additional property sale
Raising funds for short term requirements
Auction purchase
Capital raising for any legal purpose
Meeting tight transaction deadlines

Light refurbishment:

Light refurbishment is used where short term finance is needed for items such as:

  • Modernising properties
  • Replacing kitchens and bathrooms
  • Properties deemed uninhabitable/unletable by long term lenders

Heavy refurbishment:

Heavy refurbishment is where you may require short term finance for works that require building regulations or planning permission.This could help with:

  • Conversion and reconfiguration of residential property
  • Commercial to residential
  • Completing a development that is wind and water tight
  • Extension, loft conversion and basement digs

What is a small HMO to a lender?

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• A HMO with C4 planning use specifically relates to smaller HMOs

• The classification of C4 originates from C3 with the added benefit of permitted development.

• Permitted development allows for a change of use from C3, up to a maximum of 6 occupants, without a full planning application as long as there is no Article 4 direction in the area.

• Valued on a “vacant possession” basis by most lenders: the property is valued in its present condition with full benefit of vacant possession. The surveyor uses comparable evidence to support the valuation figure.

• Article 4 is whereby the local authority is looking to restrict the number of HMOs and restrict permitted development in a geographical area

• This may affect the valuation in the sense that if a HMO has the benefit of planning in an area then there is a value in the scarcity of the HMO

• Valuers confirm whether a property sits within an A4D area, and if so, how much proportion of the MV is in essence ‘scarcity value’

Multi Unit BTL Mortgages

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A freehold property split into self contained flats. Make sure it has the correct planning permission if it has been converted, along with building regulations.

These can be as simple as a terraced house converted into two self-contained flats or a new build on one freehold title split into multiple flats.

We have a wide range of BTL and specialist lenders which can provide options for all types of multi unit BTL mortgages.

Bridging Finance Risks

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I deal with bridging finance risks on a daily basis. Like everything in life the vast majority of lenders and brokers are perfectly acceptable and do a good job but there are a few issues that not everyone is aware of.

There is a lot of paperwork and you can’t always easily compare one lender to another. You might be under pressure financially or need to complete quickly.

Always make sure you know what you are signing and pay particular attention to the points below. This list is not exhaustive but the main points to consider. If in doubt talk to a reputable broker who has experience in bridging and your own solicitor.

The term of the loan. If you can’t apply for a remortgage until you have owned a property six months then why is the loan six months or less? On average it takes 6-8 weeks to complete a remortgage so the term should be at least nine months. Is it so the lender can charge you extension fees or default interest? Or that the transaction hasn’t been explained to them fully?

Interest – Monthly or daily. Loan set up 7th October and repaid 7th December. That’s 2 months and one day or three months depending on who the lender is. At an average margin of 1% that can be a lot of money.

Retained, rolled up or serviced. The latter is straightforward in that you repay the interest each month when it falls due. Retained is when you borrow from the bridging lender the interest payments due on the loan. If you have a six-month loan then the total of these interest payments are added to the amount you wish to borrow. Rolled up is when interest is added to the loan each month and you pay interest on that amount. There is a vast difference in the total cost when looking at these alternatives.

Changing the rate during the application. The rate you get offered should be the rate you pay unless there are issues with the valuation or additional information comes out during the process that increases the risk to the lender. Some brokers offer headline rates to get you interested which are never available

You have a loan for eight months and repay after three. Interest has been retained so you are expecting five months back. With some lenders, you won’t – they keep it. Always ask what happens when repaid early.

Don’t be swayed by the rate. Add all the costs up to compare including valuation.

Exit fees, admin costs etc. Make sure you know everything that is being charged.

Default interest. If you are late paying then rates can stay the same go up to 48% or worse. Some lenders even backdate this!!. Always ask what their policy is if the loan is late being repaid

Reputation. Don’t be swayed by FCA or any other membership. It’s no guarantee that you will get the best terms

And the worst to last. You or your broker should start on how the bridging loan will get repaid and obtain evidence of that, an agreement in principle etc. I regularly see loans taken out that don’t have this. It is usually either a remortgage or sale. Don’t enter into a loan unless you have more than one option to repay it.

Searchlight Finance Limited is registered in England and Wales No.07929050 Searchlight Finance Limited is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register (http://www.fca.org.uk/register) under reference 743220. The FCA do not regulate Business Buy to Let Mortgages or most Commercial Mortgages and Bridging Finance. ICO Number Z3109319. Your property may be repossessed if you do not keep up repayments on a mortgage or any debt secured on it.

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