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4th August 2026 | Baya financial

Month: July 2021

Is a green mortgage really a green mortgage?

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 It’s been an interesting couple of hours researching this…. So, 3 years ago I bought and renovated my loft apartment. I wanted it future and green proof, so I had new high grade windows, electric combi green boiler etc etc.  I have just had a new EPC and the is rated as E!!! best will be a D.

 

So I called up the EPC man and questioned this.  His answer was very clear; EPC is not about green it is about low costs to run the property.

 

Good windows and sound insulation lower the rating, but so does a GAS boiler – as it is cheaper to run. Electric storage heaters are also great, as they use night time tariffs, so again, cheaper to run.  An electric green combi boiler adds, as they are more expensive to run even though they don’t need GSC checks and flues.

 

As we all know, a ‘Green’ car is more expensive than a dirty petrol or diesel – so green really isn’t necessarily the cheapest option, which can work against a lower EPC.

 

Now that is clear, what are these ‘Green’ Mortgages.

 

Well the industry is incentivising property owners to look at the ratings on their properties, which is a good thing.  It has to be A-C (or some high street lenders, just A-B) at the point of completion.  They will not lower your mortgage rate after that, even if you reduce the rating.  The reduction can be up to 0.25% pa, so a good incentive for a long term investor; it also covers BTLs, MUFBs and HMOs – some cover new builds, some don’t.

 

So the best option to benefit is when you refurbish your property.  I would highly recommend you getting an EPC specialist round to tell you exactly what is required to get into the lower bracket, best not to assume.  At least this way you know exactly what your options are and don’t confuse new shiny upgrades as positively effecting your EPC ratings.

 

What can you do to benefit from this:

 

It all starts with the refurbishment.  Most investors wanting to add value will go the refurbishment route.  Also, with the climate issues, the green areas will increase, so you really want to future proof your property.

As a wider topic, lender follow the competition; once a lender decides on doing something, then it really isn’t long before the rest will want to be in the party. 

 

If you are buying a property that qualifies for a term mortgage, but is sitting at the E end if the rating, it is worth considering making the changes a condition of exchange, thereby getting a new EPC before completion, therefore benefiting from the lower product rates.

 

Care Provider leases on HMO properties

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Happy Friday everyone – I never thought I’d moan about the weather, but when everything is so busy and taking so long at the completions end, it is pushing a lot of us to our limits.

Today we are covering Care Provider leases on HMO properties.

Having got more investors wanting to get involved in this sector, I thought it good to cover this week.

As some of you know, I have been involved in this area for some time, starting some years ago with refinancing large HMOs for vulnerable women and their children. This was daily emergency housing, so the most difficult to place.  In recent years, lenders have shied away from the vulnerable areas, as they didn’t want the prospect of reputational risk.  Which really made me mad, as it is so important that they have options, which need funding.

Moving on, last July, I worked with one of our investors to get a supported living contract approved – which I did.  It wasn’t for the very vulnerable area, but a start.  Since then we have enabled funding for a number of HMOs on this is basis and this lender has now changed their policy regarding care providers.  This has enabled us to have much more certainty around what we can offer our clients.

So how do you get involved in this area…. 

The assumption is that you need lots of experience, but you actually only need to have had one buy to let (single let) for 12 months. You don’t need to have any previous HMO experience.  The refurbishment part is slightly different if it involves one, but if it is a light refurbishment then yo don’t need any previous refurbishment experience.

The important part is to check out is your potential care providers; a lot of them are not regulated as they cover areas that fall outside CQC etc.  Check their reviews, as the lenders will not tolerate those with poor reputations.  Doing your due diligence early on will save a lot of time and cost later on.

  •  Type of property – each care provider needs a specific type of property, whether it is the number of bedrooms, amount of communal space etc; and so on.  It’s a balance between making sure that it is not so bespoke you can’t do anything with it if this doesn’t work out without spending further money, if for any reason it doesn’t go through.
  • Area – again, this will be dictated by the type of tenants.  Location is so important to your care provider, so make sure you find this out before you start sourcing your property.  Distance to local amenities, transport links, particular things that need to be close (or not!) are vital to your provider.
  • The lease – ask for a copy of one of the care providers draft leases in advance.  Lenders will need to approve them, so it is important that you give us a copy of this to get it approved, in principal, before the transaction starts.  A recent case needed some amendments which the care provider agreed to, but this may not always be the case.  This is really important as the fund is dependent on it.

FYI – if a lease goes over 7 years, then it is registered at HM Land Registry and the care provider will pay SDLT on it.  Something to consider.

As a recent example, a client came to us who had bought a property cash to convert to an HMO.  He had bought it for £130,000 in January of this year.  As he started the refurbishment, he engaged a care provider early on to understand the requirements they had for the HMO.  They are a charity who help young adults leaving care, providing them with supported living as a stepping stone to living alone.  Their ethos is around helping their tenants not only with housing, but also with with their finances, employment and ensuring that they are supported at a time when so many are not.

The refurbishment cost £60,000 in total.

After looking carefully into comparables for the end value the clients estimated this would be around £200,000.  The surveyor inspected the property and lease and gave it a value of £210,000 – a great result, the lease created an uplift in value well as long term security.  The rental income is £2250 per month on a 3 year contract.

We were able to lend 75% of the new open market value, within 6 months of the purchase date. This is on an interest only mortgage too, which historically was an issue for this type of lease.

I genuinely believe that having commercial leases in place, with the current climate of uncertainty, can only be a good thing for both investors and lenders.  There are no void, referencing of new tenants and most of the contracts include the bills – so it is a much more profitable, both money and time for these type of contracts.

I hope that is of help, but were here for a call, as always.

Funding your projects when your usual lenders can’t help

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I think we’ve all now recovered from the excitement of the Euros and now summer has arrived!  I hope you’ve all had a good week.  This week I am talking about funding that’s a bit more outside the box.  As you know, we can look at all sorts of scenarios, and one of our lender’s has really upped their game recently so I wanted to run through what they can help with.

Buy to lets when you don’t have enough experience for standard lenders

We often see clients come to us with a great project, and external experiences which means we are confident it will work – this is usually where they have carried out works in their day job, so not for themselves.  This doesn’t count as experience for most lenders though.  This can cover HMOs (of any size), multi-unit blocks of flats or semi commercial buildings as well as single lets.

We can now help with mortgages up to 75% LTV for these scenarios, at a really reasonable interest rate.  The products are fixed for 2, 3 or 5 years, allowing you to gain the experience you need to move on to a lower interest rate and longer term product.  Its important to balance the lender’s risk and your experience with the rate – and also remember that you aren’t spending time or capital on projects you don’t really want to do before jumping into bigger ones!

Foreign Nationals and Ex-Pats

This is another area which is tricky to fund at the moment, so this lender allows you an easy way in to the UK market.  We can raise up to 65% LTV and the minimum loan size is £50,000 so it is available for smaller properties.  Again, the loans are for 2, 3 or 5 years and the rates are reasonable so with a good yield it is an accessible way in.  you don’t need any experience, or property in the UK at all, which is often a sticking point.  Most counties are covered under this product, and it can be in a personal name as well as limited company.

Slight credit issues

This is another potential barrier to lending at the moment.  Many lenders have become more stringent with their credit rules, meaning that even a slight blip can prevent loan approval.  Having a short term solution for first time buyers and investors is lacking in the market

This lender will allow a small amount of adverse credit, which means that a past issue which has now been resolved will be disregarded.  Some examples could be a satisfied CCJ under £5000 in the last 2 years, or one missed mortgage payment in the last 3 years.

This would cover all scenarios, so buy to lets, HMOs, multi-unit blocks and semi commercial up to 75% loan to value at the same 2, 3 or 5 year terms.  This allows you to build your experience while time is passing on your credit file to allow you to move to a more mainstream lender afterwards for a slightly lower rate and longer term.

As always, give us a call if you want to run through a particular scenario then give us a call.

Add Value to Property Through Bridge-To-Term Product

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Adding value to your property: How can a bridge-to-term product help you? 

What an amazing week we’ve had – we are still flying high from Wednesday night!! Roll on Sunday now…

This week I want to talk about bridge-to-term products specifically. Last week we covered bridging and why it is so important to add value to your property, but there is more to it – and there are ways to reduce your overall cost and this is a big one!

What is a bridge to term? 

It is a product that allows you to use the same lender for the bridge to purchase the property and then use it as an exit onto a term mortgage as well.

How does it work? 

There are two types:

  • You can have it as ONE product, which means that you have two offers at the beginning (one for the bridge and one for the term) and the valuation with cover both products too, so you have certainly over the end value and what you can work towards.
  • You can have it as 2 products, so you apply for them separately and have two valuations and offers (the term gets started once works have been finished). This allows a valuation to take place once works are completed so you often get a more favourable figure, it can also take into consideration the finished property, which really can help. As with the same lender it has the advantage of lower arrangement and legal fees.

What are the differences between this and a standard bridge?

From a cost point of view, you can save on valuation costs (in some instances), legal fees, and arrangement fees. This will help to reduce your finance costs and increase your ROI. As bridging can be very expensive, this is a good way to bring it down.

It also offers you some certainty around the exit for your bridge. The lender will underwrite the case for the exit as well as your initial loan, so any issues with the property should be picked up on before you buy the property. There’s never a guarantee with these things, but it does mitigate some of the risks.

How much can I borrow and what work can be carried out? 

This depends on the type of product.

We have a lender who will look at both parts as one product, as mentioned earlier. This is ideal for light refurbishments before letting out as a single let. For example where the EPC isn’t good enough, or it needs a new kitchen or bathroom. We will know the end value from the schedule of works and the valuer will confirm this. You can borrow up to 65% for the purchase, and then 75% for the refinance. This is a low-cost option and offers some security but does mean you are putting more in the upfront.  The 2nd valuation is only a revisit, to confirm the works have finished – it cannot change the GDV. You have to complete and refinance by 6 months maximum.

For more complex refurbishments, ie conversions from commercial to residential or to HMOs we have another product. This is set up as two products, a bridge to start and moving to a term facility when it’s finished.  The initial valuation will include GDV expectations from the valuer. For light refurbishment projects we can lend up to 85% of the purchase price (subject to some restrictions) and for heavy refurbishments, we can go up to 75%. Heavy refurbishment would also include anything requiring planning or building regulations. You also have up to 18 months to do the work.

For the term exit, we can generally lend up to 75% of the new value.

For both options, we do not need to wait 6 months from the purchase.

As always, give me a call to discuss individual cases and how we can make it work. Have a fantastic weekend and come on England!

Adding value to your property: bridging options

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This week we’re talking practical solutions to adding value to property. I’m often asked about bridging when clients have not used it before – the fear is that it is expensive and not necessary, mainly due to not understanding it or trying to do things without it.

The benefits of bridging?

Let’s start with why you would use bridging:

  • it allows you to buy property which is otherwise unmortgageable – you effectively become a cash buyer. Properties without kitchens or bathrooms, in need of renovations or where the planning or usage needs changing, can be bought.
  • It allows you to move quickly – this may or may not be important, but we can complete in a few days or a few weeks without too many issues. This means if you have a distressed sale, auction or the vendor wants a quick completion then you can offer that (to hopefully negotiate a lower price too!)
  • It allows you to buy property to complete works to then move onto another mortgage (at a higher value) within a quick period of time,  without the need to pay early repayment charges 
  • It allows you to borrow 75% of the purchase price even if the rental figure doesn’t get you to this on a standard BTL mortgage.
  • It allows you to free up your cash for other opportunities that may come along while this one is in progress.

Borrowing for refurbishment costs 

Another big advantage is that it allows you to borrow your refurbishment costs in certain scenarios:

Upfront costs towards your refurb

We have a lender that will allow you to borrow 75% towards the purchase of your property and then an additional 10% towards the refurbishment so a total of 85%. You do need to ensure that you stay under 75% of your GDV, and you need to have completed something similar previously,  but this is a great way to maximise your borrowing. 

This works well for light refurbishments where the EPC isn’t right, or the property just isn’t in a lettable condition due to the decor or floor coverings or something similar.

Refurb costs in arrears 

Where the refurbishment is bigger, you can look to borrow these costs in arrears. There are some caveats to this, as the lender needs to get comfortable with the project as they will be funding it. There needs to be some profit in the deal (a minimum of 10% if you are retaining the asset, about 15% if you plan to sell it). The costs need to be a minimum of about £60,000 to make it worthwhile too, as you need to spend some before you get it back to spend it again. You therefore need some working capital.

This is great for larger projects, developments, commercial to residential conversions and HMO conversions where the profit allows.  It allows you to minimise the amount you are putting into the deal and maximise the number of deals you can complete.

So what about the disadvantages? Are there any? 

If you have access to funds with a lower interest rate and cost then it is a consideration to use that instead. This may be from a refinance of another property, or a gift or loan from family or friends. This can work out less expensive, but you haven’t got the security of a mortgage valuation and lender legals to do those additional checks for you – there are pros and cons and it would be up to you to decide what is best. We can talk it through it that would help.

Bridging is the most expensive form of mortgage borrowing, as it is the most risky. You have got to factor that into your costings and ensure you are still making a profit after your finance costs. 

Where I find that clients have had bad experiences, it is usually due to not understanding the full costs involved – whether that is exit fees, monitoring fees or extension fees. Knowing the full picture and ensuring you fully understand what you are getting into is so important. We only work with reputable lenders who are transparent with their costings and deliver on what they say they do – there are still plenty that don’t though, so be careful! 

As always it’s about doing your due diligence and knowing who you are working with and all the costs upfront. Bridging is a means to an end and it’s so important not to loose sight of the prize at the end!