lenders

Have I got enough experience?

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Simple Buy to Lets

You don’t need any experience for this! If you own your residential property then this opens up your options, but there are still lenders for first-time buyers.

Be aware there may be a minimum income requirement, so make sure to be really upfront with your broker.

HMOs

For small HMOs (up to 6 bedrooms) we have a number of options for first-time investors.

What has changed is that we now have options not only for first-time buyers but also large HMOs for first-time investors or buyers.

These are medium-term products to allow you to gain experience in this area.

Mixed-use Properties

We now have a lender for first-time investors for simply mixed-use properties!

This is a great opportunity for investors to move into a different area, look at longer-term lets and be able to look at more properties.

The commercial element needs to be let, although we can use a bridge if we need to first.

Importance of Your Credit File

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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.

 

Maximizing Bridge Loan by Borrowing More Than 75%

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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.

What do you need to know about care provider leases for HMOs?

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They used to be an issue with lenders but we now have many options!

So what do you need to watch out for?

Experience

The preconception is often that you need plenty of experience in this sector but that is not the case!

You only need to have had one BTL for one year to be eligible for an HMO with a care provider lease in place.

Type of property

Each care provider needs a specific type of property, whether it is the number of bedrooms, amount of communal space, etc. 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, and 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 principle, 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.

What are the benefits?

  • Less uncertainty of tenant turnover.
  • No void periods or non-payment.
  • The contract usually includes all bills.
  • No referencing or upfront costs.
  • Property is handed back as you left it.

 

Speed-up Your Mortgage Application

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What can you do to speed up your mortgage application?

With everyone so busy, and delays from all angles it seems, it’s more important than ever to ensure that we are as proactive as we can be to keep it running smoothly…

First up… EPCs!

You now need a valid EPC for all term mortgages, residential and commercial.

Some lenders will now give you a discount on rate and/or arrangement fee so it is in your interest to have a new one carried out if you have recently carried out a refurbishment.

So please ensure you have a valid EPC (A-E) to ensure completion is not held up.

Planning and building regulations

The lender’s solicitor will want your solicitor to confirm that all planning and building regulations have been signed off before the completion of term mortgages.

Please ensure that this is the case, and if there are any areas that could present an issue then tell us immediately so we can help resolve them or use a lender who would be happy to use title insurance and avoid the issue!

Engage with your broker early!

It can take a week or so for an AIP, and then another 3 weeks to book a valuation so you need to give yourself enough time.

Rates are also changing so much at the moment, and they are only going one way! So get your application in early to secure your rate.

Don’t instruct your solicitor until you have an AIP from a lender

Most lenders have a small panel of solicitors they will use, and most offer a ‘dual representation’ service where they can use one company to act for you and the lender.

So speak to your broker as they may have a preferred company to use out of the panel.

This will avoid unnecessary costs of searches with the wrong company – and many lenders don’t need searches anyway.

Be prepared for it to take longer than you expect!

We used to comfortably be able to complete it in 8 weeks but it taking at least 12 weeks at the moment.

we can mitigate some of this by starting early, but legal is taking a long time!

Make sure you are factoring in this time with bridging/investor finance, as well as the plans you have for these funds.

 

Personal Guarantees and Associated Costs

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Keeping an eye on the purse – Personal Guarantees…. and associated costs

Pesky costs….

Hi everyone, honestly having a regular blog slot is seriously speeding up the end of lockdown, they come around so quickly!…

Looking at cases recently, I thought I would do a bit of a rant/chat about Personal Guarantees and associated costs that need to be considered when thinking about the overall cost of your mortgage.

Personal Guarantees (PGs)

As most of you will know, these are required 99% of the time for Ltd company applications.  Lenders insist on them as most limited companies paid up capital is so small, it offers a guarantee to the lender from you personally in case anything goes horribly wrong. In the early days of limited company lending a couple of banks were caught out in court, meaning that it became the norm.

Most investors accept that this is just part of the process and just sign and proceed, as do I. It is worth thinking about though as not all lenders have the same rules. If you do have paid-up share capital then that can be negotiator to reduce the amount on the PG.

What we have seen more of recently, is more of the ‘vanilla specialist’ lenders offering funding for HMOs, MUFB and so on. With  lower rates than the more specialist lenders, it can look very attractive to go with them.  Having gone through the process recently for 4 of my properties I can tell you it’s not necessarily the route of least resistance.

It is important to look at what PGs with these lenders actually mean…

Most will want 100% guarantee of the borrowing plus any lender fees. That is jointly and severely between all applicants. What that means is they can come to any or all of the applicants for the full loan (no more than the loan), that may be from one person if they are easier to get hold of or have more assets than the others.

On top of that they will want Independent Legal Advice (ILA) when signing the PG – even though you are in the responsible position of being a Company Director.  This means that you need to pay to receive advice on signing the guarantee with a separate solicitor to the one acting for your limited company. With these lenders, waiving the advice is not possible, even though most of us are of sound mind and under 70 years of age.  Aside the fact I don’t agree with this belts and braces approach, that is how it is.  ILA is a cost consideration, as the minimum price is usually around £400 per person.

I have always tried to challenge the necessity, depending on the applicant but I have only been moderately successful!

Not all lenders want 100% of the loan guaranteed, some will go down to 25% (jointly and severally between all borrowers).  This can be an important factor when making a choice between lenders and should be properly considered.  Rate is not the only factor for choosing a lender as we often discuss.

The more specialist lenders do not require ILA for those in sound mind and under the age of 70.

This is particularly important to consider on smaller properties, these additional costs really make a difference to your return on investment.  Make sure you get as close a breakdown from your solicitor and get as good an idea of total costs for the comparison. We will outline these costs to you when we are looking at options so that you can consider the full cost of the mortgage – as you know we are big on transparency to enable you to make an informed decision.