How many ‘curve balls’ can Baya conquer?

Baya has a reputation for delivering on challenging cases.  This one was no exception….

The summary of the case included the following areas. By themselves they can be easily dealt with, but the more areas of challenge; the harder it is to find a lender that will accept them all.

  • High net worth, elderly clients
  • Personally owned portfolio
  • High concentration – single postcode
  • Low yield
  • High Equity
  • Need £8.5m from £13m portfolio

The important thing was to fully understand exactly what the clients wanted, together with a full fact find of the exact situation.  We can all be busy fools if we don’t fully understand things.

The clients were slightly older High Net Worth, so being open, transparent and patient was imperative.  Once I had all the facts, it was clear that we needed a creative lender that would cover both retained interest and serviced interest, based on affordability.  The lender also had to be happy with the concentration risk … not a case for the majority of lenders.

Fully understanding the properties and the demand was very important to give the lender some comfort around the risk of them all potentially being marketed at the same time.

All the way through Baya was in contact, both by email and phone, to all parties involved; namely the lender, client and solicitors.  This kept the momentum up and allowed anything unexpected to be dealt with immediately.  The valuation report highlighted a few issues relating to the titles, which we successfully resolved prior to completion.

The case completed on a blended rate of 6.09%pa, giving the clients the full £8.5m, paying off a small % to another lender.

The case competed in 3½ months, which was very impressive considering there were 14 properties.  Both site and lender visits were necessary as they really highlighted the positives around the case, lowering the risk perception.

The client was extremely satisfied with the outcome and all parties involved.

The ‘Need to know’ for new Investors

So this week I had the pleasure of speaking to a group of new investors. We discussed all things finance related, and some of the questions they had were really great questions, so I thought i would summarise some of the Q&A for our readers.

What are the differences between personal name and limited company mortgages?

Firstly, we are not tax advisors! The person to speak to in relation to tax and and to seek advise in this are, you need to speak to your accountant. Find one who is tax qualified, with knowledge of the property industry, to ensure that you get the right help.

When applying for a mortgage in a limited company, the lender will still assess the credit worthiness of the Directors and Shareholders of the business because you are the driving force behind the company. You will sign a personal guarantee so if the business can not repay the debt, then you will be liable for repayment of the loan. The lender may also take a debenture or ‘floating charge’ over your company, for additional security.

From a lenders perspective, the stress test (the calculation to ensure that the rent covers your mortgage payment at an inflated figure to cover voids & interest rate increases etc), is lower than in a personal name, so it can mean you can borrow more where you’re rental income is tight. With some lenders, however, the interest rate and associated costs such as legal fees can be higher in a limited company. This does depend on the type of mortgage you are applying for and we can always talk you through your personal situation and the differences. This is more likely for more straightforward transactions. For more complex cases, HMOs and blocks of flats, for example, it is unlikely to make a difference.

With mortgages in your personal name, the stress tests are higher, so in some circumstances it can mean you can borrow a lower amount. Whether this is something that would affect you would depend on the type of property and individual figures. When we speak to you about your case, we will go through whether this is a consideration.

Are there any restrictions on timings when buying a property and then refinancing?

In short, no! Some lenders will have a ‘6 month rule’, which means you cannot refinance with them within 6 months of purchase but that doesn’t mean every lender does. It is generally high street lenders who do this.  Where you have a more complex property or personal scenario (and are not relying on high street lending) it’s less of an issue. We can always compare rates and costs to see if it’s worth doing it quickly or waiting for 6 months.

How does experience affect what is available to you?

This really depends on your personal circumstances and the type of property you are looking at. Each lender has its own appetite towards risk, and it’s my job to match the lender to your circumstances. Generally a lender will want to see that you are growing your portfolio at a steady pace, so each new project can be a step up from your previous one but not too much – there are exceptions to this rule though.

We can talk you through your options, but there are lenders who will lend to first time landlords (for HMOs and single let’s) first time buyers for a buy to let and more complex properties with limited experience. What you need to remember is that it is always a risky decision and where you have less experience, the lender options are going to be more limited and generally more expensive.

It is worth thinking about your overall plan for the next 3-5 years for example. Where do you want to get to and how are you going to get there? Rate isn’t necessarily the most important consideration where you want to gain experience and you have a limited pot of money for deposits!

As always, please give us a call if you have a specific project you want to talk to us about.

When a ‘simple’ case requires a specialist Broker

Our blog this week is about the total cost; of both time and money; for a client when a broker does not give a quick NO!

The client ticked all the right boxes; the property was a higher priced single asset worth £1.8m, unencumbered. Borrowing was 54% LTV.

The client was referred to Baya financial after three valuations and zero offers.  The point of referral to us was approximately 3-4 month’s after the client made their initial enquiry.

This particular property was registered in error at the point of purchase. It should have been in a Limited VAT registered company, but instead, it was registered in the applicants personal name.  The result was the formation of a Deed of Trust from HMRC so as to avoid duplicating Stamp Duty Land Tax (SDLT).  The Deed of Trust recognises that the beneficial interest in this property is the company, but the legal interest is the individual.

The client was, then, advised incorrectly, to move to a new Special Purpose Vehicle (SPV); a company set up specifically to own a single asset. At this stage, the advisor failed to recognise that it would always have to link to the original Ltd company because of the existence of the Deed of Trust.

The important thing with ALL cases that have a curve ball is to take the time to have a fully comprehensive fact find.  Once there is transparency between the client and the Broker, the Broker is best equipped to find a solution or to give a timely NO!

With this particular case, it helped that the client was absolutely transparent and efficient with providing the information.  We also have extensive knowledge of company structures, which definitely helped with this case.

A fee of 1% was agreed, but not applicable unless we got a formal offer– no upfront fee was charged, even though it was a previously declined case. We completed the case for the full amount required in just five weeks.

One thing that you can’t put a price on is the cost of the undue stress and time.