Posts Tagged 'mortgage'

• 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’

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.

We all understand why property is not flavour of the month for some lenders who have historic bad debts and we are seeing many long established landlords having their funding lines cut from certain lenders.

I have seen 40 year connections told, please repay we don’t want you any more.

It’s important you have a lender who understands property, has a good reputation and is clear and transparent about credit policy.

Thankfully there are banks that are open for business and more are coming into the sector.

https://www.irpm.org.uk/consumer-leasehold-guides 

I’m surprised how many just focus on the monthly rate. The way interest is charged is equally as important as it can make a big difference in how much you pay.

Firstly you should have been made aware of this before the application stage.

There are three ways for lenders to calculate interest:

Serviced

This is when you will pay a monthly amount calculated on the interest rate so no deductions are taken from the loan to cover the interest for the period. Some lenders do not offer this facility and the ones that do require proof that you can make these repayments from your income.

Retained interest

An amount which covers the total number of monthly interest payments and the setup fee is deducted from the initial loan. With some lenders, you can choose the number of months that are retained and service the rest. The retained interest is still part of the amount that you borrow so interest will also be charged on this amount by the majority of the lenders. This way at the end of the loan you will not exceed the lenders LTV.

Rolled up interest

This is a better way of calculating interest and again is aimed at borrowers who are not able to make the monthly interest payment. Interest is compounded which reduces the overall costs.

We have direct access to lenders that will consider:-

• Limited Company applications
• Single Freehold split into multi-unit
• Multi Lets
• HMOs of all sizes
• Portfolio Finance
• Student Tenants
• DSS/LHA Tenants
• Flats above shops, restaurants
• Rental valuations on HMOs
• No minimum income
• Limited Company applications
• Pension and Trust applications
• Professional landlords

A flip is buying a property and then selling quickly, hopefully at a profit. It may be a refurbishment to increase the value or you may just be trading property. There are only two ways to finance these:

Cash, which may be from a remortgage of another property
Bridging Finance

Don’t use a mortgage to finance them as it will seriously affect your future prospects of getting a mortgage. Lenders look at your credit file to see when mortgages are taken out and repaid. If you are using BTL mortgages for this type of transaction don’t as you are using long-term money for a short-term purpose and it’s mortgage fraud.

Refurbishment Finance is not for everyone as there are strict criteria but it does show there can be an alternative to bridging.

For a property that requires a level of light refurbishment which doesn’t involve any structural work or change in planning then it’s a very cost-effective way of adding a property to your portfolio.

You have to be an existing landlord and you are buying the property personally to get these rates. The initial loan is based on the lower of the valuation or purchase price. The valuer also estimates a valuation and rent figure after the work has been completed and the final loan is based on these figures. The difference between the two loans is retained by the lender until the work has been satisfactory completed.

You do the work normally within three months and you need savings to also cover the mortgage payments for that period. Once the work is finished the valuer reinspects and if all OK the retention is released.

The minimum property valuation is £100,000 and as with all lenders you need to be in receipt of income that is provable.

If you need to complete quickly, the value is lower or you need help with the refurbishment costs then bridging finance may be the answer.