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Paying High Interest Rate To Control Valuation

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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.

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.