As the month and third quarter draw to a close, we are focusing on pushing through the last few completions. It’s been a tough month, with delays at lenders and legal’s and the uncertainty of the market reflected in some of our valuation reports.

 

We are doing all we can to get your deals completed although a lot of it is outside our control – this means ensuring cases are put in the queue as soon as possible, and solicitors are chased and chased! This week that has involved late nights and a lot of chasing people we should really have to, but we have to remain in control as much as we can!

 

I would like to share a case study this week to demonstrate where it doesn’t quite go to plan and how it can still work as a good investment.

 

Our client, Oakhurst Property Investments, came to us earlier in the year to buy a property to convert to a 5 bedroom HMO. They bought the property for £150,000. This is what we did for these clients, which may be different to what we can do for you so feel free to give me a call for a personalised quote.

 

The clients used a bridge to purchase the property, allowing them to convert the property into an HMO whilst adding value to the house. We were able to lend 75% of the value of the property with no minimum term or exit fee.

 

The budget for works was £78,000 to convert to a high end HMO for professionals. Once the property was finished we were able to refinance to a term mortgage. We try and use the same lender where we can, to reduce the costs and timescale to refinance. The client was looking for a valuation of £240,000 but achieved £220,000. This is obviously disappointing but with the market as is it is not unexpected. We were able to lend 75% of this figure, even though it was within 6 months.

 

We work with lenders who are happy for you to refinance without paying your early repayment charges at some point in the future when hopefully things have settled down and house prices have recovered. This can help mitigate the risk of refinancing at the moment. You have got to balance the opportunities available at the moment, and also the rental yields that you can achieve with the risk of not achieving what you need to refinance. This allows you to mitigate that risk, albeit not immediately.

 

The property is still a great project and example of a HMO, which I am sure will be filled with tenants who love where they live and stay for a long time!

 

If you have any questions about how this example could work for you then please give us a call.

 

 

This week I would like to continue on the mortgage processing theme as we had such a great response a few weeks ago. Getting mortgages completed seems to be getting tricker and this seems to be coming from both the client and lender. I am going to run through a few important points that we all need to be mindful of when buying an investment property.

 

Get your due diligence done right, and at the beginning!

 

As soon as your deal lands on the desk of the lender’s underwriter they will carry out a credit search, companies house search, Google you and check for any adverse media. So, have you ensured they won’t find anything?! Keeping track of your credit file and ensuring Companies House is up to date is vital, as is being totally upfront with your broker about anything they or the lender may find. It’s far easier to explain these things at the beginning than it is when you’ve been caught out.

 

Getting the right valuer and hopefully the right value!

 

This is the one thing we don’t have as much control over, and it’s easy to think that we are ‘in the hands of the valuer’ but there are actually a few things we can do.

 

Firstly, don’t always go for the quickest or cheapest quote. If you need a particular value to make it work, then it’s often worth paying the extra or waiting to get the right person. You can find out a lot about local surveyors by networking and speaking to other investors in the area, but a good broker will also be able to help. With good relationships with lenders and surveyors, we can make a few calls and get a feeling for what figure we might get with some lenders. With others we may not have as much influence, but we can often specify that we want to use one from a shortlist, or request not to use a firm.

 

It’s all about being upfront about what you need, and what experiences you have had. We will always do what we can to accommodate your requirements but we need to know on day one. Once the valuation has happened we can’t do much!

 

Understanding where the deposit is coming from

 

We have seen a big shift in what lenders will accept in terms of where deposit money is coming from, but we are still seeing clients being quite cagey about it so I think this is worth reiterating. The specialist mortgage market is changing to keep up with the needs of property investors, which is fantastic. We have lenders who are happy that you are borrowing funds from friends, family or private investors. They understand you will be paying rates similar to bridging, and that often interest will be rolled up and paid on sale or refinance. As long as we know what is happening from the initial enquiry we can find a home for it. What you as an investor need to understand is that the more ‘prime’ (for example high street, low rate) lender are more picky, so you do need a more commercially minded lender and for that you are going to be paying a higher rate. What you need to look at is the over all return on investment – is it worth paying a higher rate to do the deal? We can talk to you about specifics if you would like more information on this.

 

This is similar for when you are looking to refinance a property within 6 months or refurbish and/or convert the property and refinance at the new market value.

 

Legal work and helping speed up the process

 

We generally don’t like to instruct solicitors until at the least the valuation is back, or usually when the case is formally offered as we don’t want to start spending money until we have some certainty that the deal is going to complete. We can of course instruct sooner if that is a priority to you.

 

What you can do in the mean time, especially if it’s a purchase, is to ask your solicitor to order the searches. Lenders will generally need these (except some refinance cases), they aren’t expensive and it will really speed up the process later on. Ask us about using personal searches instead of local authority searches as they may be much quicker.

 

Once we are ready to start the legals, the undertaking needs to be paid as soon as possible so that both solicitors can start work. As the client you are liable for both the lender’s and your own costs, and the lender’s solicitor needs to have the funds held on account at your solicitor in case the mortgage doesn’t complete.

 

Getting the right solicitor

 

Different lenders have different requirements, and it’s important that your broker understands and explains this all to you at the beginning. You need to know whether you will need to visit your solicitor before you instruct them, you don’t want to be trekking half way across the country to sign a legal charge if you don’t need to! You need a solicitor who is part of your power team, and the most important factor is whether they have experience in the type of property and finance you require. In the same way as you need a specialist broker, you need a specialist solicitor who has dealt with the lender you are using before. Your solicitor will make such a difference to your experience, they can make or break your deal.

 

Other legal aspects to consider are whether you will need legal advise, whether your new lender will put a debenture on your limited company (if it’s a limited company transaction) and what other lending is already in place with your limited company. We can help you navigate through all of this.

 

I hope this has given you a snap shot into the type of things you need to consider, and how we can help you get your deal completed as quickly as possible.

With all the tax changes and rising standards required on buy to lets, many landlords are looking to increase their yield and profit through alternative ways to let their property.

 

Why short term lets or serviced accommodation?

 

With the PRA stress tests that have been brought in, single let properties are just not cutting it in many areas of the country. Landlords are also trying to maximise their income in a time where tax and licensing changes are bringing down profits.

 

We are seeing a rise in HMO properties, but short term let’s are another way for landlords to diversity their portfolio. This allows a balance between more regular income at a lower yield and then a potential higher yield, but with that added risk. It’s important to balance  risk in your portfolio, but short term lets can be a really important income stream as part of that.

 

How do short term lets work?

 

There are two main ways you can let property short term. You can manage the properties yourself by advertising through various websites, I don’t think you need me to tell you where! This works well where you have a good demand for holiday lets, or short term holiday type rentals. It can be very maintenance heavy, and will require you to manage the property yourself or outsource cleaning, handovers and so on. This is usually referred to as serviced accommodation or SA.

 

The alternative is to hand over the management to an agent who can manage the property for you, and let it out on your behalf. This will usually mean a long term contract with the management agent, and then an agreement as to how much you will be paid. It could be a percentage of the rent they receive or a set amount each month. This works well where you have professionals needing short term lets for work as an example.

 

How does it work with lending?

 

Different lenders have differing opinions on short terms lets, as you can imagine. It is a higher risk for many reasons, and it’s important to be upfront with your broker about your plans so they can find a lender who will work with you.

 

Although this may lead to an increased interest rate, it’s important to think about your return on your investment. Using the actual rent may mean you are able to borrow more as they won’t be using the single AST rental figure to calculate the maximum loan . Also, carrying out a refurbishment and then refinance allows you to recycle your money and use it for your next project.

 

How will lenders calculate the rental?

 

There are a few ways:

 

– where you have a management agent they will use the rental you receive as long as the contract is in place. You need to watch out with the contract, ensuring you are always able to get vacant possession of the property. If you have a long term let then this can have an effect on the valuation, as the lender will struggle to sell the property if they have to repossess.

 

– If it’s a holiday let or serviced accommodation then the lender will usually look at an occupancy rate of 70% and use the market rent based on comparables for room rentals of a similar standard.

 

– Some lenders will use the market rent based on a tenancy agreement and then let you use it how you wish. This works in some areas of the country and can make the mortgage application very straight forward.

 

So don’t be afraid of short term lets or serviced accommodation. And defiantly don’t be afraid to tell your broker that’s what you want to do. A specialist broker will have a sensible home for it!

 

As always if you want to chat anything through then please give me a call.

So its been a while since we’ve had a Baya fiancial business update from our Director Jackie, so this week shes given us all the exciting news…

We have a new member on our team…

I am pleased to say that Shareena Pickford started with us this week to head our processing department.  She comes with a wealth of experience from both Barclays and Weatherby’s Private Bank.  Her wealth of experience in both residential and commercial finance together with HNW client management, give an extra breadth to Baya financials offerings.

 

As Processing Manager, Shareena will work closely with Jackie and Ellie in Sales and Hannah in compliance. Shareena’s arrival reinforces Baya financials’ capabilities at a time of strong growth. This will further enforce Baya financials commitment to excellent customer service and pulling out all stops to get the completion.

A note from Shareena…

I am delighted to be joining Baya financial; they have an excellent track record, combined with a business model that particularly resonates with clients revolving around outstanding personal service, along with a culture of integrity and transparency.

Market update

Although we still have a constant steam of enquiries, and a steady flow of completions, there is definitely a change in the timescales to get these over the line.  Lender’s legals have become very heavy on the information gathering and what would have been a sensible overview, requires more and more enquiries back to the client’s lawyers.  This needs to be factored in, particularly if there is a tight completion date.

 

As a specialist in refurbishment funding, this area has not slowed down at all.  We are dealing with refurb to HMO and other assets where value can be added.  Valuations, as always, can be a challenge, currently demand timescales can make or break a case.  Get your facts and figures in place to make sure there are no surprises.

 

Is this to do with Brexit and the lingering uncertainty of what will be happening? Perhaps.  It is definitely an exciting time in politics, of which we are unlikely to ever see again, but you have to stay sharp.

Exciting new sponsorship…

Being an all-female company, we thought it fitting to sponsor a local girl’s football team.   From this week we are the proud sponsor of the St Albans under 8’s girl’s Central team.  I was asked to consider it, and it wasn’t that difficult a decision!  The investor market for many is trying to get a better work life balance, so putting our name against something outside the industry that includes families seemed a sensible addition to the marketing mix.