Eleanor Broadhurst

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.

What to watch out for with payment holidays

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Hi everyone, hope you’ve had a good week.

This week I’d like to share what I’ve learnt this week about payment holidays on your buy to let portfolio.

Firstly, I’d like to caveat this with the importance of asking for help from your mortgage lender if you think there’s any chance you could have an issue paying your mortgage. Payment holidays are a great way of helping your cash flow where you think there could be an issue and the government have said that this will not affect your credit rating and will not show as a missed payment.

What were payment holidays designed for?

The government acted very quickly early on in the pandemic to try and mitigate the economic impact of COVID-19. One of the early interventions was the introduction of payment holidays for those who need it, and in the main this was designed for residential mortgage customers. This was simply because those mortgages make up the vast majority of mortgages in the UK and this was very much a ‘one size fits all’ approach.

The reason this moved to buy to let mortgages, was due to tenants being in the same position of not being able to pay their rent as home owners; I think that’s important to recognise as I go on to explain the impact this may have on your future borrowing as an investor.

So what is the impact of a payment holiday as a property investor?

What we have started to see this week are lenders’ reactions to clients taking payment holidays on their portfolios.

What they have said, in the main, is that a landlord who is stretched financially enough to warrant a 3 month payment holiday is not eligible for further lending. So if you have a payment holiday on any mortgage, you won’t be able to refinance in order to raise capital on your existing portfolio, or buy another property.

Please think carefully about whether you want the option to borrow in the near future, as the payment holidays will be evident on your credit search and bank statements (even though they don’t have a detrimental effect on your credit rating).

Some lenders are giving the option of repaying the missed payments back, as they appreciate it may have not been a well thought out decision at the time, especially as customers may not have been made of the potential consequences.

To be clear, this is only a issue for clients looking for further borrowing, whether that be for a new property or refinance of an existing one. If you want to take advantage of the current opportunities in the market then think very carefully about whether a payment holiday is the right decision.

As always, if you want to chat through your options then give me a call. Have a good weekend!

Communication and information is key now more than ever

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Hello everyone.

As we get to the end of mental health awareness week, I hope you are all keeping a check on your mental health, and focusing on your own oxygen mask BEFORE helping others!  This will be a marathon rather than a sprint, so very important to look after ourselves.

My blog today is focused on how we can keep momentum going with your cases during this time.

Be upfront with your information

There is still a glacier shift in offerings compared to where we were, and many caveats on higher LTV products.  We are able to get to 75% with most cases now where we need to, so please let us know your priorities from the beginning.  With these caveats on certain cases it is so important to be upfront about your whole deal to ensure that the solution we find is appropriate.

Things are changing by the day so I hope that we will have more to offer over the coming weeks, particular in the bridging market.

Time management of your case

As furlough (clearly a life line for a number of companies) is all or nothing, there are either fewer numbers of staff or a bit of a musical chairs way of working within companies.  Staff can be in one week and off the next, so our ability to manage that is key to keeping as much momentum as possible with your case.  This is affecting lenders and solicitors, so all the way through the process.

The best way for you to help us control this is to be timely in your delivering of information and documents.  It is very easy to lose a couple of weeks on a daily accrual basis.  Valuers are now back, although this will be a slow process to get all companies back, so the options currently are limited.  We need to get your property in the queue as early as possible.  We will, of course, act as quickly as we can to keep that momentum going.

Managing valuations around tenants

Please check before instructing your valuation if any of your tenants are shielding.  That information is key to managing a physical viewing.  There are clear guidelines around how surveyors value a property, for example opening all doors beforehand and ensuring all tenants are out of the property for the whole visit.  It is so important to have these conversations with your tenants prior to booking, as your will be charged for additional visits.  It goes without saying that valuations cannot happen where someone is self-isolating or showing symptoms of COVID.

I have managed to get some viewings done via WhatsApp video and photos to avoid the valuer entering the premises, so there are other options.  Lenders are also still using desktops where they can.  As always, it is vital to be upfront and honest with us and your tenants so no time and money is wasted.  Forewarned is forearmed!

Enjoy your long weekend, as always we are here to chat through any cases you have so give us a call or drop and email to book in a conversation.

 

 

 

Are physical valuations back on?

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After a very promising speech from Boris on Sunday, it’s been quite slow in terms of a response from lenders this week.

Some lenders are now getting physical valuations instructed, which adds to the desktops and automated valuation models (AVMs) that we have been using. Valuers will be busy, so get into the queue!!

I am hoping that by next week we will have a more solid direction from RICS and we can see more lenders’ reaction from that.

What we have seen though, is house builders return to sites and construction workers start again. This is great news for investors looking at development and refurbishment projects as they will be able to start looking at potential deals, together with finishing off what’s been started. Where lenders were very averse to larger projects, we are hoping that this shift will now mean they are able to start looking at them again.

The other great news is that house viewings can now resume, meaning that the build up of those waiting can start to shift.  We are hoping that this means an increase in properties coming to the market, and more opportunities and discounts for investors. This rule change also means that renters can start to look to move again, and the prospect of filling an empty property which has just been refurbished is less daunting!

It is small steps this week, but we are starting to see activity increase. We are hopeful that next week will bring more good news and some more policy changes!

Enjoy your weekend, and we will keep you updated next week with any changes that appear.

What is available in the bridging market?

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Hi everyone. How sane is are we all?  A long weekend should help!

The bridging side of funding did take a bit of a hit early doors.  This may have been due to where the funding comes from, together with the risk element of a viable exit.  With potential down valuations further down the road and uncertainty of timescales, it can cause issues to funders.

That said, as always, as time goes by lenders are able to start giving better options.  We are now able to offer up to 75% LTV on standard residential and semi commercial properties.  We are also able to offer both Automated Valuation Model (AVM) and desktop valuations, which lets you complete without the need for a physical valuation.

If you want to borrow the refurbishment funding, then a full valuation will be required. That said, providing it is not an auction situation, we are able to get the case to pre-offer, pending a full valuation report.

I think the important point to be made is there is funding available.  Lenders have a tenacious appetite for lending money and will find ways through the lockdown to achieve this.

The industry is reasonably buoyant and even in this new ‘normal’ we are able to complete cases.

I  am here to discuss opportunities, so call me to chat through your options.

 

The Landlord Investment Show and what we now know about Brexit

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We had a fantastic day at the NLIS Olympia this week. It was our final show of 2019 year and definitely the busiest. It was great to see so many familiar faces and clients who had come specifically to see us. It was also a fantastic opportunity to meet potential new clients and have a chat about how we can work together.

I had the pleasure of listening to a great debate chaired by Andrew Neil on the impact of the election and possible Brexit outcomes with regards to property market. It gave an insight into the potential outcomes of the election taking place in December, so I thought I would summarise it for those who couldn’t make it.

So what do the experts think?

David Smith, the Economics Editor of The Sunday Times and Ian Duncan-Smith had very similar views on the outcome of Brexit. They both suggested that voters need to very careful in the way they vote, and may need to be tactful depending on their preferred Brexit outcome. A vote to the Brexit party could mean less seats for the conservatives and therefore a higher chance of Labour getting a larger minority – which would be counterproductive.

Ian Duncan-Smith commented that this is the most diverse election since Margaret Thatcher gained power in 1979, with the two main parties at such polar opposites in their policies. It’s not all about Brexit either, Jeremy Corbyn has some grand ideas about other areas of policy, which appear to be very controversial within the property industry in particular. Rent controls and allowing tenants to buy their privately rented properties could have a big impact in this market. It’s important that voters look at the full picture, as the next government will be in power far longer than it takes to get out of the EU – hopefully!

What are the Brexit options?

There was much debate around what the Brexit outcome would be for various government set ups. Largely, the speakers agreed that a conservative government would mean that a deal would be agreed and we would leave the EU relatively quickly. The big question is whether they are able to gain power again with a majority big enough to enable this to happen. Given previous political relationships it may be tricky for them to form a coalition or an informal agreement, leaving them unable to form a government at all.

Labour seem to be in a more favourable position to form a coalition, and top of their list at the moment seem to be the SNP. Would Labour be able to persuade them though? The experts seemed to believe that the outcome of a labour lead government (or coalition government) scenario would be a new negotiation with the EU for a more closely tied deal, perhaps including a customs union. It’s likely that this would then be put back to a public vote, and the consensus on the panel was that it would be turned down in favour of remaining in the EU. This would give more control over how it is run as we would be tied to it either way.

This is of course only speculation, and we will have to wait and see what materialises after the 12th December!

Where is this uncertainly leaving UK industry?

Gavin Fraser, managing director of High Street Residential believes that the biggest issue at the moment across the UK is the uncertainty that this delay is creating. We have now had 3 years of not knowing what direction the country is moving towards, and now with very different potential outcomes to the election, it’s making it even harder to predict. Foreign investors are holding out until a decision is made, and that is having an effect particularly in the motor industry but with many other areas too.

More specifically in the property market we are seeing valuations affected, particularly with the demand for future sale. No one knows what will happen at the election, and how that will change property related policy but at the moment it is becoming increasingly difficult to make a decision. In the midst of this we are seeing some lenders reduce rates and relax criteria so there is definitely still an appetite to lend and a willingness to continue.

What about the rest of the day?

Having said all that, there was such a buzz all day around the show. We spoke to so many new and existing investors and they were all speaking positively about investing in the current market and potential opportunities. It is a buyers’ market at the moment, and where buyers are willing to take a risk they may see an increased reward.

All in all it was a fantastic day and a great last show of the year. We are now looking forward to the awards on the 21st November. If you have a few minutes we would really appreciate your vote, voting closes at the end of tomorrow and here is the link.

Case Study: When a specialist broker comes into their own..

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This week’s blog is another case study, but I’m going to talk about it from a different angle. I have had so many conversations this week about interest rates, and I have had some surprised reactions when I say that you are generally looking at rates of about 4.5% on small HMOs. This is dependent on a number of things; mainly your experience, the value of the property and whether you will be happy with a bricks and mortar value or you are looking for an uplift on this. Please see my previous blog for more information on valuations!

 

The reason I generally quote this sort of rate is that there are far more factors to consider when looking at the company you want to use for your HMO mortgage, and one of the biggies is your experience. If you are looking for a lower rate, you will often need to jump through hoops to provide income verification, licenses with conditions and so on, and wait potentially months for the mortgage offer. You will also need to have owned another property for 12 months. Now some of my clients have done this, maybe that was their strategy previously so they have a few, or perhaps they wanted to get a simple buy to let before venturing into the world of HMOs. Some people feel that they don’t want to, or don’t need to as they have other experience that will help them but most lenders won’t look at this as it doesn’t tick their boxes.

 

Today I want to give you an example of how a specialist lender can work in your favour when the others won’t look outside the box.

 

My clients, Anna and Niall, approached me as they were being mentored by one of our existing clients. They had bought a property to convert into a 5 bedroom HMO, and approached us for the refinance. They were looking for an uplift on the bricks and mortar value, and knowing that they had carried out extensive works to the property including en-suites to every room and a high end finish I had a good feeling we would get it. What didn’t quite work though was their experience as they had completed one flip last year and this was the first property they had ready to rent out, so no letting experience. After finding out about some more about the clients and having a chat with Shawbrook I decided it was worth putting it through as an exception. This is where being able to have a chat with an underwriter, and them having a willingness to look at the whole case really comes into its own. I was able to put across all reasons I felt Shawbrook should consider them, and the underwriter agreed!

 

We received a valuation very close to the client’s expectations and overall they were really pleased with the service they received. The valuation was an uplift, although perhaps not quite as much as the clients were expecting! It’s tricky in this current market with all the uncertainty we are facing so we were pleased with the figures. We were able to complete relatively quickly, once the mortgage was offered we completed within a week.

 

There are many positives to take out of this deal as a case study:

 

  • The clients were able to refinance quickly and without having to provide enormous amounts of information in order to move on to their next project. They also didn’t need to spend huge amounts of time gathering information or chasing anyone. What little chasing there was we did, and we were able to keep the clients updated as we are able to quickly see where we are with the lender
  • They were able to leverage against a valuation with an uplift on the bricks and mortar value. In this market it’s really important to maximise the valuation as there is so much uncertainty, most valuations are coming in under what is expected so that would be far worse if you were relying on a bricks and mortar value
  • The clients were able to jump straight into HMOs without a single let. They had completed a flip to maximise their deposit, so having to use this purely to gain experience would have meant a far lower yield and a big delay before they could venture into HMOs

 

As always, please give us a call to discuss your circumstances. Each client is different and has their own needs – what works for one person may not work for another!

Brexit: How we see it effecting specialist mortgage lending!

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This has been an interesting week for government, after a turbulent nine months since the original Brexit date.  Since the vote to leave we have seen various ups and downs in the property market, but the last few months have seen a definite shift in the way surveyors and lenders are looking at the market.  What they expect to happen over the coming months and years is having an effect on lending decisions.

We can split this into three categories; how surveyors are viewing properties, how lenders are interpreting this, and how their own view on risk is changing.

How are surveyors changing their valuations?

The biggest issue we are finding, surprisingly, is the commentary around demand for property.  This can create a number of issues.  The demand for resale is a major consideration for a lender, as they will always be concerned with how quickly they can dispose of the asset if they ever have to repossess it. Pre-Brexit we would expect to see 3-6 months as a standard sale period, but we are increasingly seeing this move to 6-9 months.  This means that the standard ‘restricted sale period’ of 6 months may have a lower value, and the lender may use this rather than the open market value.  We have seen a couple of properties with a likely resale period of over 12 months and this falls outside of many lender’s criteria.

As investors, you need to be mindful of this when looking for property.  What affect has the uncertainty had on your area, as this is very location dependant? There are plenty of resources available to check the demand, so use this to do as much research as you can and give this to your surveyor.

The other part to demand is for lettings, so how likely is it that you will be able to let your property quickly once you have bought it.  We used to be able to value a vacant property on the assumption that demand would be sufficient and the surveyor would use market rent.  This is changing, mainly for commercial property, as surveyors become more cautious and letting retail units particularly becomes more challenging.  Businesses on the high street are finding life tough with current business rates and an increasing preference for online shopping.  We are seeing a trend towards more services in local areas, but there are often planning restrictions.

We need to be mindful of local conditions when thinking about when to value a property, and this again comes down to research and due diligence.  We have one opportunity for a valuation with each lender, it is so important to get it right first time.

How are lenders changing their view on this?

Lenders will always look at a case on a worst-case scenario basis – their main concern is risk!  When you are using commercial or specialist lending they are far more focused on the property than they are the client, so it’s no surprise that we are seeing a bigger change in the way specialist lenders are looking at property than the high street.  Where the demand is limited for a property (the resale or letting period is long) then there is a bigger risk to the lender and they may well want to reduce this risk.  The most frequent restriction is on the loan to value, but we have had part of the loan moved to capital repayment and cases declined.

What has changed more recently is an overall reduction in risk from lenders.  It is moving from a case-by-case basis to a broader criteria change.

Over the last few months we have had a number of lenders increase their minimum loan, and restrict their maximum lending on single assets.  History tells us that when there is a house price adjustment then it is the top and bottom of the market that fall first – this is generally low value properties, often flats, and large detached houses in affluent areas.  Putting a restriction on these type of properties means that the lender is less exposed should this happen.

We are also seeing a more conservative view on refurbishment projects.  Not only are valuers being more cautious on what we call the residual value (the lowest price the property will fall to when you start the rip out) which can affect the overall lending, but we are also seeing the maximum day one loan reduce slightly.  The lender wants the investor to put in that little bit more to reduce their risk.

Despite all this, the market is remaining buoyant and there are so many deals out there.  I think that investors need to factor in these changes when looking at their purchase price, refurbishment costs and end value, as it will affect them.  Profit is key, and you have to factor the finance costs in when calculating your day one offer.

In addition, uncertainty in the market is unlikely to go away any time soon so the demand for rental is likely to stay high.  The long term rental market is what investors should be focusing on, so if that means adjusting short term profit then maybe that’s another shift that needs to happen to help keep the demand strong!