Focus on HMOs: Do you need a hybrid valuation and why you want a specialist lender

So here we are at Friday again – for many of us the Friday we have been waiting for! We’ve also had a solid budget this week, with an extension to the stamp duty relief which is great news.  With all this, as well as a clear roadmap out of lockdown, it does seem like there is some vibrancy to the market this week.

I’d like to talk about HMOs this week.  It’s a hot topic at the moment and we have had many enquiries asking about how to value properties and what rates we can do.  These conversations don’t always go the way clients expect though, so I thought I’d explain it in a bit more detail.  As you know we are big believers in looking at the bigger picture and not chasing low rates so this should help explain why.

Do you need a Hybrid valuation or will a bricks and mortar work?

Before we go on to hybrid and bricks and mortar methods, I just want to mention commercial valuations.  The words ‘commercial valuation’ are used a lot in the property world, and not always correctly.  The lender decides on the type of valuation we use, so we can’t request what to have; and no, it doesn’t always mean a yield based valuation!  We would only be able to use a commercial valuation for HMOs where it is 7 bedrooms or more.  There will always be a ceiling price for a property in an area based on the location, size, condition and demand and that needs to be taken into account when looking at the yield calculation.  It’s really important that as investors you do the same to be as accurate as you can.

Hybrid valuations are also something which I don’t believe are explained very well a lot of the time!  It is something that some lenders allow, but it is up to the valuer to decide what that means and what the figure would be.  I have written a blog on it here, but what I wanted to talk about today is whether it is important to you and your property.

I am a big advocate of using a hybrid valuation, but there are only a few lenders who truly use it, and it is more expensive.  So do you need it? 

If you have spent a significant amount on your refurbishment, and the total cost (refurbishment and purchase price) is significantly higher than the bricks and mortar comparables then it is worth exploring, but if not then it may not be.  I have had examples recently in Suffolk and Kent where the bricks and mortar value is significantly higher than the hybrid calculation, but areas in and around Manchester, for example, have lent themselves to a hybrid model.  It allows you to pull out what you have spent on the property when that figure is more than the bricks an mortar.  We do sometimes see the elusive ‘no money left’ situation sometimes, but that is rare, especially at the moment.  When we have seen it is where the client has done really well negotiating on the purchase price and they have made the extra money before they have even started works – you can only get this back out on a refinance through.

So why would you want to use a specialist lender?

There are so many benefits to using a true specialist lender.  Their rates will be higher than the ‘specialist side of vanilla’ lenders, but as you know we are big believers of looking at the bigger picture:

  • They work with property investors regularly, so they understand that your income may be low due to carrying forward losses.  There is generally no minimum income requirements as long as the situation makes sense
  • The required documents that you need to provide are simple and straightforward.  There is no new list once the initial requirements have been satisfied!
  • We are able to speak to the underwriter directly, so if there are any issues then they are usually quickly resolved with a phone call.  We have a good relationship with our lenders so are able to pre-empt any potential issues a lot of the time and have a good idea of what will work and what won’t.
  • They are far more open to investor funds, which is a big deal at the moment.  I have mentioned previously that there is plenty of money within the property world, with private investors looking for better returns than they can in bank savings.  There are also plenty of bounce back loans within the property investor community, and both of these options aren’t acceptable to many less specialist lenders.  Even having a BBL in your account could present a problem, so if you want to take advantage of these funds then you need to know where to go.
  • You have far more choice of how to structure your limited company in terms of SIC codes, number of directors/shareholders and group structures.  Often less specialist lenders have restrictions around this that can cause issues with the way your company is set up.

As always, if there is anything you want to chat through then give us a call.  Enjoy your weekend – the evenings are lighter and things are definitely on the up!


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!

How Covid has changed the property market

We are half way through lockdown, hopefully! How are you all finding it – is  it tougher than previously? This week I am talking about how Covid has changed the investment property market. I spoke about this at last week’s PIN meeting, but I wanted to go into a lot more detail on the blog as I think it’s such an important topic at the moment.

There are two aspects to this; the types of investors who are now coming to the market, as well as the types of property and tenancy.

Who could be the new investors on the block? 

There are plenty of reasons why people may be looking to get into property at the moment. We have had such a massive change of lifestyle and direction this year; many people have spent more time with their family and have realised that they want a career that is more flexible around that. We have all had time to stop and reassess what is really important to us – stepping off the hamster wheel can make you reluctant to get back on it!

Property can offer so much more flexibility in your life, it can be YOUR career on YOUR terms. It will be full of challenges, but also comes with autonomy…  and, of course, the potential for growth.

Grabbing an opportunity…

With plenty of working people having been furloughed for possibly a lot of months, then being made redundant, this may give some the push to use the money and put down a deposit on a property.

A lot of you will also have gained some extra time with less social activities, therefore allowing time to spend dedicated to researching potential areas to invest in and work on strategies.  Netflix or new career research…..????

Also, I think that having gone through this year and the uncertainty it has brought, it has increased the importance of having a diversified income stream. Property can be something to add to your income pot, adding an asset to any savings and/or pension, but importantly it gives an income to take the pressure off in a changing jobs market.

There are also a number of ways in which Covid has changed the way we view particular tenant profiles.


This is a far more resilient market than I think anyone was expecting! Back in March lenders were worried that this academic year would be completely online learning from home; yet we have seen students return or go to university. They are craving any kind of normality it seems! There are also benefits to house sharing in HMOs over student accommodation at this time. It’s generally smaller bubbles and you have got more communal space if you are limited with your external social life. There’s also the option to encourage a two year letting period taking away the need to find and view somewhere new to live. This gives you the option of somewhere to stay during the summer if you’re not able to go home.

Long leases 

In this uncertain market, lenders and landlord are crying out for some guarantees, and that’s what this can offer. For a long time any lease over 12 months was a big problem, but now we have at least three lenders who are looking at this, and at competitive rates, on a 75% loan to value, interest only product as we discussed previously. The yield may work out slightly lower, but when you take out voids and repairs you aren’t far off what you would get for a professional tenant. This is definitely a growing market and something I’m sure we will see more of.

Holiday let’s

UK holidays are going to be the way forward for the next few years. I’m sure many of us (myself included!) enjoyed a fantastic UK holiday this year, and it’s made us all realise how many places there are for us to explore in the future. It’s a cheaper option, and for many that will be a big consideration next year. It’s also far more flexible with bookings and pets – abs is far more environmentally friendly!

As an investor, your self contained unit is going to be far more attractive than a hotel or B&B in these covid times. Lenders are becoming more open to these options too. We have a lender who will now allow you to purchase on a bridge to carry out some works and then move to a term mortgage in 9 months so you don’t need to worry about initial rental voids. This gives you some time to get it all ready to hopefully open once the weather improves and restrictions are over (big fingers crossed on that one!).  Also, there is a market for working away from home – which gives potential for the times of the year not traditionally busy.

We are again seeing lenders more open to holiday let’s, using both the market rent as a 12 month tenancy or the passing holiday let income if we have a proven track record.

Cities vs Suburbs

Priorities are changing for tenants. It’s no longer so important to have access to cities and towns and tenants are now favouring larger spaces both inside and out. Outdoor space has become far more desirable, and a home office or space to work is now a massive selling point. Other, more rural locations are becoming more attractive, which may open up new opportunities as investors – perhaps your local area, or something which is affordable that wouldn’t have worked previously for an investment property.

With change comes opportunity, and as a resilient group of investors I really feel that over the next few years we will see so much of both.

As always, call if you have any questions. Look after yourselves, only two more weekends to go – fingers crossed!

Thinking outside the box: Options for your HMO

Happy Friday all, welcome back to lockdown! This time things do feel different; the housing minister has been clear that it is ‘business as usual’ and we will be doing all we can to keep it that way.  We have been working from home since March so nothing changes for us! 

This week I want to talk to you about some options for your HMOs. There has been talk in the industry that the boom of HMOs is over, of which I disagree! In the HMO market we are seeing the need for diversification, though.

During these times we are seeing that tenants are becoming less likely to want to share facilities if they can afford the a choice. HMOs for professionals are perhaps less popular as people are working from home more, aren’t travelling for work and don’t need to be in a specific place. So what else could you use your HMO for? 

Longer leases for the whole property 

This is an area that has traditionally been tricky to obtain lending, but as banks crave certainty as much as landlords in such an uncertain market, things are changing. It has been a contentious issue for some time, but we are now seeing a change in lender appetite, allowing longer leases as well as vulnerable tenants in the property.

There are certain caveats to the lease, but we are able to have the draft lease checked by the lender’s legel team prior to submitting the application.  This allows you to have a level of certainty from the beginning. 

The product is available on a standard HMO interest rate, so you aren’t paying a premium, and you don’t need any specific experience as long as you have had an HMO for more than 12 months.  This really has opened up a new option! We have completed cases using this scenario and it is a straightforward process.  I would suggest engaging with your provider early on.  You need to understand what they need from a property in terms of facilities and location to ensure that you don’t spend money before you know it’s a viable option.

The student sector

Six months ago as we entered the first lockdown we were worried about what was going to happen to student let’s and some lenders even stopped allowing them entirely. What we have seen since September, however, is very different.

We are seeing students who are craving some sort of normality moving into their new homes as planned. We are also seeing students preferring a shared home rather than student accommodation, and wanting to commit for two years rather than one to create some stability.  

Lenders are back in the market after this shift, and so it may be worth thinking about this as an option for next year if your location allows.  As always, diversification is key, and we are seeing this through a variety of methods; different types of property, alternative locations and thinking outside the box for lease or tenant options. 

As always, we’re here to let you know how this could work for you so give us a call to discuss it further.

Stay safe, and try and enjoy your first lockdown weekend! 

How to take advantage of lender delays

Well it’s Friday again and things seem to be closing in a bit… let’s hope the valuers keep working.

I thought, as this industry is definitely one of the winners during this pandemic, I would discuss managing timescales and how we can take advantage of them.  Currently the property market is incredibly busy.  That is great, when so many businesses are really struggling… BUT we have to keep abreast of timescales when we are starting our projects.

We are seeing a lot of investors overlapping projects. Not knowing the delays, particularly if you need the funds from a refinance, will cause cashflow and stress problems.

These are the main areas to concentrate on as an investor

  • The timely return of documents.  Lenders have service level timescales, which really can range from 24 hours (bridging) to 15+ days (term).  Our job is to get as full a pack as possible up to the lender, so we don’t keep going into a queue.
  • Use the time we will have to wait for a valuation report to be returned to your advantage.  This can be dead time, so making sure we have a full set of documents required can save many days, as we can get that in ready for them to meet the report – therefore requiring the underwriter to look just the once.
  • Do your groundwork, so you minimise the surprises.  Make sure that your lawyers have seen Land registry documents, so there are no curve balls later on.
  • Source of deposit.  Lenders need the audit trail – so keep those documents in one place for ease.
  • Buildings insurance – put that on risk, ready for the reinstatment value confirmation from the valuer, again that eases the last minute stresses.
  • Valuations – we have covered this a couple of weeks ago, but as we move towards another lockdown, keep abreast of how your tenants are, so you are aware of any quarantine issues and giving them plenty of notice and contact details so they can let you know if there is a problem.
  • Be realistic of the value if it is a refinance.  If it is needed for another project, make sure  you are working towards the most conservative value – you don’t want drop on the value scupper your plans.

As always we are here to talk you through any questions you have. The advantage of using a broker like us is that we stay one step ahead as much as possible!

Back to basics: what you need to know about JVs

So here we are again, it’s Friday! It’s been a busy week for us this week, the new lockdown rules don’t seem to be putting off investors which is good to see. It’s important to get your figures right and factor in additional time in these uncertain times – for the purchase, refurbishment and refinance – but on the whole we are seeing serious investors pushing forward.

Today I’m going to talk about joint ventures. It’s a popular topic at the moment, for two main reasons. Investors are looking for an alternative or addition to bridging in this uncertain time, especially when there is planning involved or if it’s a complicated transaction. Many people are looking for an alternative to their savings, and with share prices so uncertain and the premium bond rules changing there fewer options for your cash. Investing in property through another investor is an alternative. You may not have the time or experience to invest yourself, so joining with an experienced investor can work well if done right.

How does a joint venture work?

There are two ways you can structure a joint venture; by using Angel funds, or setting up an SPV which includes your JV partners.

What are Angel funds?

This is where you borrow money on an unsecured basis, as a loan from your investors. You can structure it in many ways, the important factor being that it has got to work for both parties. Usually it is a short term investment used to fund the purchase or refurbishment and then once you can refinance the property it would be repaid.

How does it work alongside mortgage lending?

Lenders will want to see a few things to ensure that they are happy.

  • There must not be any charges on the property relating to the investor
  • The funds must be borrowed for a reasonable interest rate – not too high or low
  • There must be a clear repayment method. This is usually the refinance, so the end value and term mortgage have got to allow this, but if the investor funds have a monthly payment then this must be worked into your affordability
  • You need to be bringing something to the deal yourself. Ideally this would be some cash and the experience.
  • The lender is likely to want to know the source of funds, so your investor may need to provide bank statements or an explanation as to where the funds have come from.

Pros and cons?

The biggest advantage of this way is that it is usually a short term agreement. It’s a way to start a relationship with a JV as once their loan has been repaid then the relationship is over.

Where is can go wrong is that your investor has no control over the deal, it’s all in your name. They need to be ‘hands off’, so make sure they are happy with that arrangement. You also need to add in the contingency of not being able to refinance and pull all their funds out. Make sure you have a plan b, and that they understand what could happen and how you will move forward in that scenario.

What about using an SPV?

This is where you set up a company which involves the investor and you. You can set up the director and shareholder arrangement to reflect who has brought what to the deal, and any directors as well as shareholders with over 20% of the shares will need to go on the application. Bear in mind that your directors are the ones in control of the company, and the more directors you have the longer the decision making progress can be!

Pros and cons of this method?

You have got to be so careful with your due diligence in this scenario, you are entering into a financial application with your JV partners. You will be financially linked with them for a long time, so you need to be sure there is nothing in their background which could cause you issues. Use your solicitor to draw up agreements and understand exactly what you are getting into.

Before you start, you need to understand what your JV partners’ priorities are and ensure that you want the same outcome from the deal. Everything needs to be discussed at the beginning, as things are likely to change and you need to be on the same page as the deal progresses.

The big difference to using angel funds is that this is likely to be a long term relationship, where each member of the company is taking an interest in the deal and therefore you will all win or loose depending on how successful you are.

Make sure you go into this with your eyes wide open. JVs can be a great way to grow your portfolio but they don’t come without their own risks. Due diligence is the key word here!

Have a great weekend!

Diversifying your portfolio: Serviced accommodation

Hello everyone, in what seems a very wet week for most.

I am, however, writing this from an apartment in Belaggio, Lake Como.  I have realised that you really can work anywhere and at a time when we have been so isolated, a new set of walls is as good a break as any at the moment.

The changes due to COVID have made us realise just how easy it is to have a working break.

Holiday lets are now back on the product lists for a lot of lenders – rightly so, as they are really in demand.  Staycations are seeing quite a surge in bookings, even going beyond the usual end dates of school holidays.  It makes sense as we currently have 155 countries on the quarantine list, so holidaying abroad is not always an option.  This is not going to change any time soon with a combination of a significant increase in price for foreign holidays for next year, cautious holiday makers and a new love from many of UK holiday destinations.  Many people (Ellie included!) have had a lovely holiday in the UK this year and are far more likely to do the same next year.

What we can offer

Lenders are far more keen on holiday lets rather than serviced accommodation; the difference being that a holiday let is somewhere you would stay for a long weekend or a week, rather than something that would be used for a single night’s stay.  City centre apartments are more tricky to place so think about your location and the types of tenant you will attract.

Ideally the mortgage would fit based on the 12 month AST figure.  This does give us more flexibility with lending, and in these uncertain times does give the lender, and you as the borrower,  more options.  If it doesn’t fit on the single AST figure, then we would need to see to see a track record of this or another similar property.

In terms of experience, we do require you to have another buy to let in the background, or if it’s a refinance then you need to have owned it for 12 months.

You can use any platform to advertise your property, Air BnB did have a bit of a bad reputation but this seems to be over now, it is far more important to look at the type of client you will attract.

As always, please give us a call if you want to chat through any enquiries you have.  Have a good weekend and enjoy the sunshine!