Is a green mortgage really a green mortgage?

 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.

 

Cash Vs. investor or bridging borrowing  – which is king..??

Happy Friday everyone.   I hope you are all digging deep, it seems a lot tougher nearing the end.

As we work with so many property investors, the question of whether they should use cash or bridging to fund a project often comes up… so I thought this week’s blog would give both sides of the coin.

Your Own Cash

It’s easy to say it’s cheaper as you aren’t charged interest or fees – and at the moment when bank interest rates are so low it is tempting, but tying up cash stops it being used for something else, which will give a return. You could use your cash to fund two or three rather than just one project if you used bridging finance too.  It’s really important to always look at all options and what the net cost actually is. It all depends on how many projects you are planning on completing at once, and whether you have contingency funds if your project runs over time or cost. If you want to grow quickly then having cash available for the right project is important.

If you are buying solely with cash then another consideration should also be to use a solicitor that is used to working with lenders solicitors. If the legal work has only been looked at as a cash purchase then it can make it difficult when refinancing.  There is more work involved when someone is placing a charge on the property, and this can then cause delays at the refinance stage of its not been dealt with initially.

Using Other People’s funds

This really does keep your cash available for a profitable opportunity, and is the lowest cost borrowing option if you can access it at a reasonable rate given that there are no arrangement fees, exit fees and lender solicitor fees. Considerations would be:

  • Is there enough profit in the deal to ensure that your investors are repaid within the timescales you have agreed, and what’s your back up option?
  • You will usually need to borrow the full amount for the full time period, so your interest payment needs to be calculated ok this basis.
  • If you are using it with bridging, Lenders need to ensure the right people are on the application, so you need to have some experience to bring to the project before the lender will be happy for you to use investor funds.

Bridging Finance 

So after all that, why would you use bridging finance? The biggest advantage is the security; of having a mortgageable property that a bank will lend on, and a lender’s solicitor having seen the legals and being happy with the property. There is never a guaranteed exit to a term mortgage but it does help.

As we touched on before, it frees up your capital to look at multiple properties, or it can allow you to look at bigger projects with bigger profits. If your total spend becomes a 25% deposit (and maybe refurbishment costs) suddenly your budget is much bigger.

There are ways to mitigate costs too, especially when you’re looking at keeping the property:

  • If you are borrowing the refurb costs as well as the acquisition, then you will obtain the refurb costs in arrears as you spend them. This reduces the interest payable by about 40% and therefore can balance out the arrangement fees, exit fees and legal costs.
  • There are some bridge to term mortgage options, where there is a reduction in arrangement fees, valuation costs and/or legals when you use both products with the same lender. This can mean that you’re not paying out as much, and may therefore mean it’s a lower cost option to private investor funds for example.

As always, it does depend on your circumstances and the project you are looking at so please feel free to give us a call and chat it through.

Could you use investor funds or a bounce back loan for your next deal?

It’s blog time again! We are feeling more optimistic that we may be nearing the end of this lockdown, and some warmer weather definitely helps!

This week I thought I would cover investor funds and bounce back loans; there does seem to be an air of money floating around within the property world at the moment and I can see why. Bank savings rates are at an all time low, even lower than the previous all time low! We have seen a 400% increase in bank savings in the past year; a combination of being unable to spend money and an uncertainty of what’s to come means that lots of people have got more money than they usually have. We’ve also seen so many people take out bounce back loans for their property companies, as they have been affected by Covid.

So how can you take advantage of this as an investor?

There are many ways. Bounce back loans are a simple way of increasing the funds you have for your next property purchase. There has been many changes over the last year of how lenders view these loans, but on the whole they are now acceptable to be used for your deposit or refurbishment costs. What the lender doesn’t want to see is that you are stretched and have only got the bounce back loan funds available, but as part of your funds available that is fine. It’s also very important that you don’t have any outstanding payment holidays on your portfolio.

I have to caveat this by saying that each lender has their own risk appetite and therefore there are some lenders who won’t be comfortable with clients that have taken a bounce back loan, or they can have taken it but can’t use it for this property. This is mainly more high street or as we like to call the ‘vanilla side of specialist’ lenders. What this means is that you may need to use alternatives lenders, or bridging finance (which you may need anyway) to be able to use this money. Please speak to us about your scenario and we can talk you through the options.

What about investor funds? 

It’s unsurprising that there are so many people wanting to invest in to property at the moment, with so few alternatives. It also offers investors a short term option when they are indirectly investing, or an opportunity to use smaller amounts of money to dip their toe in. The returns are far higher than many other options, and the risk may be more comfortable to them than investing themselves.

As an property investor, using other people’s money is a quick way to grow your portfolio. It’s something that lenders are becoming more comfortable with as it becomes more popular.

It is so important to look at a few things before using investor money:

  • Do your due diligence, this is so important. You are entering into a financial commitment with someone so you need to be comfortable with them and where the money has come from.
  • Have a clear plan with a number of exit strategies. You need to know that you can repay the loan within the timescales. Make sure your investor knows what your plan is, and gauge how they would be if it runs over the time. You need to build trust with investors by delivering on your commitments
  • Have you demonstrated that you can deliver on your promises with a previous project? You need some experience to show your investors, as well as your lender than you are capable.

As with bounce back loans, some lenders are not happy with using investor funds. What we usually see, however, is where you would use these funds for the purchase or refurbishment and then the investor will be repaid on refinance or sale. Bridging lenders are on the whole happy with investor money, as long as you are putting in some cash and have some experience.

Please let us know if you have any questions, we’re happy to run through any deals or scenarios you have. Have a great weekend, and happy property hunting!