Not Found Uncategorised | Baya financial

Uncategorised

Paying High Interest Rate To Control Valuation

by

Is it worth paying a higher interest rate to have more control over your valuation?

This is a subject that I discuss frequently with clients, so I thought it deserved a spot on the grid!

When clients call me to discuss what products are available for a project, the conversation about valuation methodology is becoming more important – and as you should know by now we really aren’t a rate-driven broker so there are always options to cover this as well as the route of least resistance.

So what can you achieve from your valuation when you aren’t focused on the cheapest option?

The aggregate value for blocks of flats up to 10 units – can add 10% to your value

A commercial or hybrid valuation on small HMOs (5-6 bedrooms). We have seen again and again recently how this means you can pull so much more out of your property.

How does it work?

  • We have access to the lender’s panel of surveyors and are able to give you a few quotes for you to decide who to use.
  • Due to our experience, we are able to let you know who we have used before and our positive and negative experiences with them!
  • We can ask for a quote from a valuer you have used previously if they are on the panel.
  • You are able to call the surveyors to gauge their methodology for your property.

How does that compare to a standard lender?

  • High street and fewer specialist lenders won’t have any of these options.
  • You pay less for your valuation, in some instances, they are free (with an admin fee).
  • But you aren’t given any options, and it’s likely that Allied or Connells will carry out the valuation.
  • They are great surveyors for standard residential properties, but anything outside of that needs a more specialist company to look at their true value.

MYTH BUSTING: Barriers that don’t really exist!

by

You need to own your own home, or already have a BTL to get a BTL or HMO mortgage

Yes, it makes it easier, but no you don’t need one. And if you are tight on deposit funds you need to balance out the increased rate on your BTL mortgage against the money you’d need to spend on buying something you don’t really want and then having to find more money for your next deposit.

Limited company mortgages are more expensive. 

To a point this is true, but there isn’t really much in it once you own a few properties or if you don’t have any non-property income. What’s more important is your tax position, and long-term goals so it’s always worth speaking to your accountant to get advice for your circumstances. Once we know that, it’s my job to find the mortgage for you.

Bridging isn’t worth using, it’s too expensive. 

This is something I strongly disagree with!! Yes it adds the expense to the deal, but if the numbers work then it has so many advantages – it allows a quick purchase, you don’t need planning or it is in mortgageable condition and it allows you to realize any potential uplift in value quickly.

The lowest rate is always the “best option”.

When looking at your mortgages, I would always suggest thinking about where you want to be in 5 years and working back from that point. So releasing more equity, or releasing it quicker could help. As could using a lender who is more flexible in experience. There is so much more to it than just looking at the rate, so be careful with quick comparisons, and find out the whole story.

Importance of Your Credit File

by

The importance of looking after your credit file in the current market.

Lenders are being careful with who they lend, and are more cautious than normal given the situation. This is inevitable really, if there is a 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 fewer credit issues, as well as others who usually take a more pragmatic approach and have a blanket rule on any blemishes.

So what can you do?

  1. First of all, you should all be checking your credit search each month anyway. You can use a free company such as Credit Karma, which emails you 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 direct debit hasn’t been paid then you can rectify it immediately – this should stop any future defaults.
  2. 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 is 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?

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 is also key to ensuring that things run smoothly over the next 6-12 months. Getting this wrong could impact 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.

 

CASE STUDY: Lenders’ Flexibility In An Uncertain Market.

by

Why flexibility with your lender is so important in an uncertain market?

 

What do I mean by FLEXIBILITY?

Most lenders will tie you into a product with early repayment charges if you leave it.

The only alternative would be a tracker rate, but they are rare and expensive. And don’t offer you much certainty with the base rate on the move currently!

So, how can you get the flexibility to refinance when you need to??

Why would I need flexibility??

With an uncertain market, would you like the option to refinance and pull some more money out at a point that suits the market rather than a fixed date?

Do you want to do some work on the property, but not yet so you don’t want to put it on a bridge yet?

Is your property tenanted so you can’t complete work until some point in the future?

How does it work?

We have a lender who will allow you to refinance with them at any point and they will waive the early repayment charges.

They will offer a new product, with a reduced arrangement fee and legal, but a new valuation (the one thing you need!)

This allows you true flexibility when you choose to refinance, and you can move to and from a bridge to carry out work at a much lower cost.

 

As an example…

A client bought a property to convert to a 6-bedroom HMO with a bridge (before they knew about us!)

They refinanced to a term mortgage with a yield-based valuation in December 2020 when the market was so uncertain and valuations weren’t the best! The value was £570,000 (in Bath)

They are currently refinancing now that valuations are more positive and we have just got the new figure of £695,000.

We lent 75% of both figures, so that’s over £90,000 released for another project!

Bridging vs Standard Mortgage

by

How does bridging differ from a standard mortgage?

I am often asked what the benefits of bridging are, and you all know I’m a big fan!

But…..

How does bridging differ from a standard mortgage?

and how does that help with your next deal??

Lenders do not assess the mortgage on affordability

This means that it doesn’t matter what the rent would be for the property in its current condition, they won’t restrict how much you can borrow based on that figure.

For example…

If the property is in poor condition, the valuer will give a lower figure of say £600 pcm. When it is refurbished you may be able to rent it for £800, but the £600 may not be enough to borrow the full amount.

The Legal Process is much quicker.

The lender’s requirements for searches and documents from your solicitor are so much smaller than a standard purchase so we can often complete quicker than even a cash purchase, where you would usually want full searches.

The property can be in any condition, as long as you have a plan that works!

You don’t need a kitchen or bathroom, there can be structural issues, and dampness… the list is endless!

As long as you have a plan for the works, the funds to do them (and some experience if they are extensive) then we can do it.

This will open up the properties available to you, you aren’t competing with everyone else.

The property is appraised on your schedule of works and costings

We provide the valuer with your schedule and costs of work, so you will get the current figures, as well as post works figures.

You will have a guide for the GDV and rental potential once it is completed. This will give you some certainty over your project and whether it is viable.

If you are happy with the figures we can usually use the same valuer for the survey for the exit.

If you would like to have a chat about your project and how bridging could help then please give me a call or drop me a dm…

Maximizing Bridge Loan by Borrowing More Than 75%

by

How can you maximize your bridging loan by borrowing more than 75%?

I’ve spoken about the benefits of using bridging, 

But how do you ensure you are borrowing the maxmum amount so you are putting in the least amount possible?

We can lend 85% of the purchase price on day one

This is the simplest way to give you some extra funds to purchase the property.

There are some caveats as usual!

  • The gross loan needs to be under 75% of the GDV
  • 10% of the loan needs to be for the works so there needs to be at least that much to spend.
  • Works need to be light, so no structural or change of use.

We can lend you all the costs for the work.

This is more complicated, particularly at the moment.

Lenders are moving the goal posts and increasing their minimum loan sizes so please check with me before you make any assumptions on figures.

As a general rule we can lend up to 65% of the GDV, with all works covered (in arrears) so whatever is left from the total loan is your day one loan (minus fees and interest)

We can lend 75% of the open market value on day one

This is seen as the unicorn product, as it all depends on your figures!

You need to be confident that you are purchasing a property under full market value, but we do see it quite often

We can lend up to 75% of the open market value, and up to 90% of the purchase price

This is a great way to maximize your loan with no additional costs.

More options for first time landlords!

by

We’ve had some criteria changes this week…

The unicorn product for first-time HMO landlords is now an option!!

There will always be some sacrifices with your first HMO as a first-time landlord. 

But now, achieving a hybrid or yield-based valuation is not one of them! 

We now have an option, with a competitive interest rate and terms.

This is really a game changer for your first project. 

As always, please give me a call and I can talk through the figures and see how it can all work.

 

Common Mortgage Mistakes

by

Common Mortgage Mistakes: How to avoid them?

I am often asked to ‘fix’ issues that have come about from clients not using the right mortgage, and it is sometimes pretty tricky to do. So I thought I’d run through some examples of things you shouldn’t do as a property investor…

Use a Residential Mortgage for an Investment Property

This sounds like an obvious one, but you would be surprised how much it comes up!

Yes, there are some tax advantages to buying your home over an investment property – but that doesn’t mean you should do it!!

Once you have lived in a property (or your credit file looks like you have) it can be difficult to obtain a BTL mortgage on it, particularly if it’s an HMO.

So please don’t do it!!

Use a Standard Mortgage when You Intend to Refurbish or Convert the Property

This is probably the most common mistake I see made by investors.

You’re going against the terms of your loan. The lender won’t like it and may not want to work with you again.

If you are looking to refinance and you haven’t let your property out then the new lender will see this on your bank statements and it could present a problem.

Not Speaking to your Broker before Instructing Solicitors

There are many types of solicitors, each with their own specialism – and bridging/development is very different from residential mortgages!

Using the wrong solicitor can stop your mortgage from completing, so it’s really important you get the right person for the job.

Some lenders will allow you to use the same solicitors to act for them and you, saving you time and money so check if you can do this before deciding who to use.

Not Exploring all the Options before you Commit

We have had a few cases recently where the client has paid for a valuation or received an offer before realizing that the product they are looking at doesn’t work.

This may be because the rate is too high, it doesn’t release enough inquiries or the terms just don’t seem right.

It’s important to know that you are working with a broker who does that type of business and ask for examples of previous cases.

It’s expensive to swap halfway through!!

so please speak to us (or a broker who does lots of what you are looking to do) before you start.

and if it sounds not quite right, then it probably is!!

CASE STUDY: Lack of Planning and Refurbishment Funds

by

Getting around the lack of planning and refurbishment funds.

Ryan came to me in August last year with a property he wanted to convert to an HMO. It easily converted to a 6 bed but had an option as a 7 bedroom with a rear extension. He didn’t have planning before the purchase, and only had funds available for the 6-bedroom option due to other commitments.

So we had to think outside the box a bit!

Stage One

The first part was simple; we arranged a bridge for the purchase of the property with the intention of converting it to a 6-bedroom HMO. Ryan had the funds for this, and it didn’t require planning so the lender was happy too. We were able to lend 75% of the purchase price and Ryan funded the refurbishment.

Stage Two

When the refurb was almost finished, planning was approved for both the rear extension and the change of use to a 7-bedroom HMO.

We used the same lender as the original bridge to refinance into another bridge to raise funds for this. This meant a reduced arrangement fee, valuation, and legal costs. It allowed the client to raise an additional £80,000 for the work (and also gave him the deposit to purchase another property!)

Stage Three

Another big advantage of this structure is that the lender could see that the client had followed the correct process. Ryan didn’t push the boundaries of what you are allowed to do on the original bridge and therefore wanted to keep him as a client.

Through the relationship we have with this bank, we were able to ensure the refinance was a smooth process with the same lender. Again this meant a reduced arrangement fee, valuation, and legal costs. We were able to lend 75% of the market value, and use a commercial valuation.

Summary of the numbers:

Purchase price £135,000

Initial refurb cost: £85,000

Valuation at the first refinance: £260,000

Additional refurb costs: £30,000

End value: £300,000.

Precise have expanded their bridge to term product!

by

How does it work?

  • You have one valuation carried out to give you a today figure and a GDV. 
  • You receive two mortgage offers – for the bridge and the term.
  • You have the offer for the term before you start.

For the bridge:

You can borrow 75% LTV to purchase the property

They allow a light refurbishment, including a change of use to an HMO

You have 6 months to move to the term mortgage

For the mortgage:

You can borrow 75% of the GDV figure.

The fees are reduced across both products.

There are very little legal fees to move from bridge to term and it is quick!

What are the benefits?

  • It keeps the costs down of bridging – arrangement fees, legal fees, and valuation fees are reduced
  • It offers certainty over the exit.
  • The process to move from bridge to term is quick and simple.