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Month: June 2020

Looking after your credit file in today’s market

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I hope you’ve all had a good week, I’m not quite sure how it’s the end of June already!

This week things seem to be getting busier with more properties secured and some more reasonable prices! Hopefully this is a good sign for things to come.

What I want to talk about today is the importance of looking after your credit file in today’s market. Lenders are being careful with who they lend to, and are more cautious than normal given the situation. This is inevitable really, if there is history of a client not paying a bill or mortgage, they are statistically far more likely to do it again, and with the current financial uncertainty this could become something that is more likely.

Usually, we can speak to the specialist lenders we work with and where there is a good explanation for poor credit they can look to lend. They understand that as property investors you have lots of tenants and utilities particularly can be an issue.

What we are seeing at the moment though, is that this is not necessarily the case. We are seeing some lenders formally restrict their criteria to allow less credit issues, as well as others who usually take a more pragmatic approach have a blanket rule on any blemishes.

So what can you do?

First of all, you should all be checking your credit search each month anyway. You can use a free company such as Credit Karma, who email each month with your new report. they also notify you of any changes to it. This means that if there are any issues, for example something has gone to an old address, or a direct debit hasn’t been paid then you can rectify it immediately – this should stop any future defaults.

Secondly, when you approach your broker for a mortgage make sure you know if there’s anything on the search and give us the exact details of it. This means that neither of us are wasting time applying to lenders who won’t be able to help. It also means you’re not worsening the issue by adding additional credit searches to your file.

How can you future proof yourself?

As well as the above, I think it’s really important to look after two things moving forward.

Cash flow is always key in property development and investment. It’s vital to keep on top of this, and it does nip at your heels. Especially in today’s market you need to be building in contingencies for time and cost to ensure that this doesn’t cause any credit problems down the line.

Being realistic with your costs, timescales and end values are also key to ensuring that things run smoothly over the next 6-12 months. Getting this wrong could impact on your cash flow and credit file. We are happy to run through figures with you on your exit, and where we are looking at a bridge we will always ensure that it fits at a conservative estimate on that exit.

As always, give us a call if you’ve got any questions. Have a good weekend, hopefully the sunshine will continue!

How to navigate through today’s property market

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Hi everyone, I’ve made it to Friday on my week back off furlough! Hope you’ve all had a good week too.

It’s been a bit of a mad week in for us; there had been plenty of enquiries which is great and shows that investors are back to it. There have been so many of you loosing out on properties which have sold for well over what you were expecting though, which has been frustrating. I have likened it to the shops reopening – lots of investors getting excited about being able to attend an auction or visit a property just like we are seeing queues outside every shop this week!

Demand is also outstripping supply, and although new properties are coming into the market there is still a lot less than there was.

Do you want to be an early adopter in this scenario?

Paying above the odds now is not going to do you any favours long term. You’ve got to keep looking at properties at a business transaction and not get emotionally involved. If you’re relying on bridging finance then we need to ensure that the GDV works, and you need to be mindful that if you are refinancing we will need that GDV to work, even if there is a market readjustment over the next 6 months. Now is the time to take advantage of opportunities by making sensible decisions, not to get drawn into a bidding war to win the prize.

With any development loan, whether that’s a refurbishment bridge or ground up, you have to be able to work back from your GDV and have enough profit in the deal to make it work.

How is this affecting valuations?

This is an interesting question! On one hand we are seeing properties selling for in excess of the asking price or auction guide price, and on the other we are still seeing cautious valuations. Valuers are always going to be cautious, and they do have to rely on sold comparable property prices so where sales are only going through now they won’t be available to use for about 3 months. They will also have a potential future down turn in the back of their mind, so they will not want to push the boundaries of what is achievable. Time will tell whether we can bounce back from this quickly, and whether prices continue to rise but I suspect that things will start to calm down over the next month or so. I am not expecting a sustained rise in prices.

Enjoy your weekend, and as always if you have any questions then please give us a call!

Where do you go for a heavy refurbishment bridge?

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Hi everyone. How are you all holding up? Hopefully there is now and end in sight.

I’d like to share a case with you that complete earlier this week. I think it could be a lesson on ‘route of least resistance’.

The client came to us earlier in the year to purchase a Grade II listed building. It is currently an empty solicitors practice.  Planning was submitted to convert it back to a family home, and this was granted prior to completion.

The property has a low purchase price if £135,000 and needed £82,000 of works; it was also near Wales and not in a city. That combination restricts the lenders available, due to their minimum size fund.

The valuation had come back mid March, so a time when some uncertainty was appearing. That said, the lender agreed to get it offered on a 180 day post works value of £265,000. This was now the 20th March. Just before formal offer was issued, the lender called to say all heavy refurbishment cases were being put on hold for 6 weeks.

Having not heard from the lender, I called them in early May to see what was happening and despite the high profit margins, they declined the case without even refunding valuation costs.

We now needed a speedy solution as completion was set for 8th June.  I got in touch with Daryl Norkett at Lendwell. They only launched earlier as a new bridging lender to the market this year, and this was below their minimum purchase price… but they looked at it and liked the deal and the client.  They issued terms on 12th May based on the pre-COVID valuation, using the full market post works figure of £295,000.  Feeling optimistic, we pushed forward with legals.

They are a lender that works towards sensible solutions, with minimal fuss. Even with slightly higher rates, my client was extremely happy with the low stress approach.

Completion was achieved on time, which was 8th June – just 27 days from issuing terms.

Stress and fuss are often an overlooked, significant, cost. It is important not to forget that when micro focusing on the monthly rate.  This is especially important in this market.  Lendwell completed on the original terms, the goal posts were not moved.  This is something we are seeing more often currently and having that trust counts for so much.

I would like to thank Daryl and Jenny at Lendwell, together with Melissa at Lightfoots. A really top team.   We are looking forward to the next one!

The week’s Baya update

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Hello everyone. I can’t believe how quick the time is going through this lockdown. This week I want to update you on a couple things that are emerging as we start applying for ‘post lockdown’ mortgages.

What do property investors need to know about bounce back loans?

Many people have been applying for bounce back loans, and for good reason. There is limited help available for LTD companies, and we welcome all help from the government to keep the cogs of our business moving. Your accountant will say you can use the loan for any purpose as long as it’s for your business, but that’s not the whole story!

However,  I am finding lenders are not looking at these loans as favourably as you may expect. I have been getting a number of lender emails saying they WILL NOT allow use of the BBL funds.

Some are allowing them to be used with your own cash, but they are being treated very differently than Angel investments.

For purchases, especially for properties that need refurbishment, then you cannot solely rely on the bounce back loan as your deposit. Lenders want you to have some ‘skin in the game’ and the loan still counts as borrowing for the purchase. Some lenders will allow it to be used for some of the purchase or refurb costs, but others will not allow it at all. Not a straight arrow at all.

The other potential issue is the refinance, if you use the bounce back loan to fund a deposit or purchase now on a bridge facility, as bridgers are a bit more flexible, when you come to refinance once works are completed then it may be an issue. This again does depend on the lender.

This is something that I am currently trying to gather more clarity around, and am challenging lenders where I can. I appreciate that lenders choose their own rules, but the purpose of the Chancellor’s funding is to keep the companies buoyant.  If a companies SIC code is for property investment, then how can a lender not allow that to be used.  We need investors to be able to buy, which uses valuers, solicitors and lenders – the cogs of our industry wheels. Why is it that investor companies are always treated differently than other companies?

What about looking at your deal costs and end values?

We are starting to receive our first ‘post lockdown’ valuations this week, and are seeing surveyors airing on the side of caution as we would expect, particularly in the 180 day valuation figure. This is likely to continue for some time, as there is so much uncertainty around a second peak, as well as so many employees on furlough so the full economic impact will be uncovered in the months to come.

The important work is at the beginning of a transaction. Managing end values, particularly if they are more than 3 months away, is crucial to the return on investment. Demand is currently outstripping supply of properties, so sale prices are still holding.   A conservative end value, as well as a contingency needs to be worked into figures as a stress test so you can ensure that we will have lending options, and it’s something that will work.

There are opportunities out there, but we all need to ensure we are working within the current parameters. Under estimating timescales and over estimating end values isn’t going to work in the current climate.

Hope you all have a good weekend.