valuations | Baya financial

Outside Portfolio Stress Tests

Eleanor Broadhurst — Mon, 07 Nov 2022 07:13:10 +0000

Not a glamorous topic this week, but one that’s so important!

As rates start to creep up, and property prices are stabilizing/reducing this is something that will become more of an issue. So it’s important that you understand it.

You become a portfolio landlord on your fourth property purchase. And at that point lenders have to check your outside portfolio with some additional checks – it needs to be under 75% LTV, and the rent needs to cover your mortgage payment by 125% (assuming your mortgage interest rate is at 5.5%).

Different lenders do have slightly different rules, and one has just increased it to needing to cover the rent at a rate of 8.5%! (Not 125% though, just 100%).

Simply put, if your portfolio doesn’t work then you won’t be able to borrow any more money.

So what can you do?

1. Keep track of your portfolio as you grow.

2. Think carefully if you’re borrowing more than 75% (I know the 80% products are so tempting but this is why we need to be careful of them!)

3. Diversify your property portfolio if your rental is short – holiday lets, HMOs, and blocks of flats are all ways to increase your income so think about your next steps. A different location may be needed too.

3. Speak to your broker early if you are concerned, there are some lenders who don’t use this, although they are reducing. Be upfront as always!

CASE STUDY: Lenders’ Flexibility In An Uncertain Market.

Eleanor Broadhurst — Thu, 11 Aug 2022 06:47:20 +0000

Why flexibility with your lender is so important in an uncertain market?

What do I mean by FLEXIBILITY?

Most lenders will tie you into a product with early repayment charges if you leave it.

The only alternative would be a tracker rate, but they are rare and expensive. And don’t offer you much certainty with the base rate on the move currently!

So, how can you get the flexibility to refinance when you need to??

Why would I need flexibility??

With an uncertain market, would you like the option to refinance and pull some more money out at a point that suits the market rather than a fixed date?

Do you want to do some work on the property, but not yet so you don’t want to put it on a bridge yet?

Is your property tenanted so you can’t complete work until some point in the future?

How does it work?

We have a lender who will allow you to refinance with them at any point and they will waive the early repayment charges.

They will offer a new product, with a reduced arrangement fee and legal, but a new valuation (the one thing you need!)

This allows you true flexibility when you choose to refinance, and you can move to and from a bridge to carry out work at a much lower cost.

As an example…

A client bought a property to convert to a 6-bedroom HMO with a bridge (before they knew about us!)

They refinanced to a term mortgage with a yield-based valuation in December 2020 when the market was so uncertain and valuations weren’t the best! The value was £570,000 (in Bath)

They are currently refinancing now that valuations are more positive and we have just got the new figure of £695,000.

We lent 75% of both figures, so that’s over £90,000 released for another project!

How to take advantage of lender delays

Eleanor Broadhurst — Fri, 30 Oct 2020 09:13:46 +0000

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!