THE QUESTION

I'm going to purchase a furnished holiday let (FHL) through a limited company with a friend via mortgage. What terms should be made, prior to buying or considerations/ advice as this is the first time I've done this.

I'm looking for expert advice from a legal standpoint to safeguard myself and ensure the partnership is successful going forward.

THE ANSWER

What you will find is the reverse - mortgage lenders will be actively safeguarding themselves from you and your friend winding up your limited company at short notice and depriving them of the regular monthly payments of your mortgage.

You will both be required, as the shareholders of the limited company, to sign Personal Guarantees to make good any remaining debt (if any should remain) after the property has been repossessed and sold to recoup the lenders capital. You will further be required to receive independent legal advice to ensure that you understand your responsibilities in this respect.

From a legal...

BTL lenders have a very 'vanilla' approach to what they want to lend on, based on their view of the worst case scenario i.e. how easily could the property be disposed of if it was repossessed?  They look for properties with broad market appeal.  If it’s not a regular freehold house let on a single AST, they start to put up the barriers.

Unmarketable properties include:

• Non-standard construction
• Flats above commercial units
• Flats in high rise blocks
• Properties let by the room and many other quirky features
• Houses divided into flats

If you’re requesting a mortgage for any of these they prefer to play safe and decline to lend.  So when you are planning to buy a building that has been converted into flats you have to jump through some hoops. 

The first – and critical step – is to establish whether the property is a legal conversion. In other words, does planning permission exist with the local council for it to be separate flats rather...

THE QUESTION

We have quite a big garden and have managed to get planning permission for both an extension to rear of our property and also a new dwelling to the side of the property.  Ideally, we’d like to do both at the same time.

The plan is for it to be a build-to-let.  We have been looking for a lender that would give us a mortgage that would give us enough to at least build the new dwelling, at the moment we’ve only been able to find mortgages that would allow us to extend the property but won’t cover the new build.

I wonder if a self-build mortgage would be our best option or if there are other financing options we could look at.

THE ANSWER

You need a radical re-think here, as you are barking up several wrong trees -

1. If you plan to build next door to let it out, you can stop wasting your time thinking about self-build mortgages.  Not only is it not your best option, it’s not any option, it’s a complete non-starter.  These...

The phrase ‘a bridge too far’ has always been used to describe something that is unrealistic or unreasonable.  Bridging finance has often fallen into that category by uneducated investors.  In most people’s minds bridging is ‘******* expensive!’

This still largely true if you’re using it for its original purpose, buying a new main residence before selling your current one but that is a small percentage of the bridging market. Commercial use is the main way bridging is now used i.e. to make money on properties you don’t actually live in. 

More than a decade ago, bridging interest rates were approx. three times higher than mortgage rates.  Back before 2010, the standard rate for bridging finance was 1.5% a month – i.e. 18% pa, At that time mortgages were running at around 5-6% annually.

The credit crunch caused mortgage interest rates to drop, and they’ve stayed low for more than a decade, sitting at around...

THE QUESTION

We are in the process of purchasing a property that we are planning to use as a furnished holiday let (it is already currently used as an Airbnb). 

We will be purchasing it in joint names.  My husband's income is close to tipping into the next tax bracket, whilst mine is far from it.  

I have been told that we would need a deed of trust to say that the taxable income from the property will be in my name i.e. 0% of the income for husband and 100% for me.  However, having looked at the government website it would appear that a deed of trust is not necessary for a furnished holiday let and only for regular rentals.  It would appear that for a furnished holiday let we can just decide between ourselves who's getting the income and pay tax as such. 

Am I reading it wrong? 

THE ANSWER

The simplest solution is to buy it jointly, but set it up on a 'tenants in common' basis rather than the normal 'joint tenants' basis.  I know you are the...

This is a case study with two different investors with £100K to invest:

Amy decided to use her £100K to buy a property cash, refurb it and refinance it. 

George was looking to invest his £100K in four buy-to-lets (BTLs) in good areas and in good condition. 

Amy was really lucky, she got a property below market value, the refurbishment went well, there were minor additional costs as the team uncovered problems when they lifted up the floor but, overall, upon refinance Amy had a deal that generated a healthy return. 

She left only £23K in the property meaning she got all of her money back apart from £23K. 

George however went for a different strategy, he purchased four turnkey BTLs in areas that provided good capital appreciation and rental demand. George's properties were located in two of the best cities for growth predicted by Savills. George only spent a total of £98K as he's purchasing on a mortgage and not spending anything...

THE QUESTION

We are looking at a large fish and chip shop, rented out at £750 pcm, with about 10 years left on the lease.  The building also has two large flats above the shop – both currently empty.  Can you recommend a commercial mortgage provider?

THE ANSWER

There is more than one way of approaching this.

Having 10 years left on the lease is good and will give you brownie points with commercial lenders. However, they won’t be happy with the 2 two empty flats. With commercial mortgages, lending is based on a multiple of the rent income - those two empty flats are going to hit what you can borrow.

This means you’ll need to put in a way bigger deposit than you would if they were tenanted and contributing to the rental income. To the point where you may struggle to come up with enough cash to get the deal over line - unless you are flush with cash.

Are these flats in a ready to rent condition? If so, could you line up tenants and get their ASTs...

When you’re building a property portfolio financing your investments is most often done by borrowing a large part of the purchase price, but if you have accumulated a pot of money or are fortunate to have a windfall, the question arises – do you use your cash to buy outright or still borrow to purchase?

Logically, if you can fund a deal with cash, you should; that way you have zero borrowing costs.

Investors are often reluctant to do this on the basis that tying up their cash in one deal takes them out of the game if another juicy deal comes along.  However, as the saying goes ‘there is more than one way to skin a cat’.  If you’re smart you can still grab that juicy deal, without having to refinance your current properties to release cash.

It's a Process

If you use bridging finance intelligently you can make that purchase without any hard cash at all.  There are some key things that you need to know:

•  A bridger will lend 75% on the...

THE QUESTION

I have a portfolio of four houses in London with an approximate value of £550K each. I have used the remortgage strategy to finance all of them.

All the houses are rented with excellent tenants.

Now I want to extend my portfolio to be able to buy, refurbish & resell.  I simply don’t have £500k+ available to invest into this. 

Can you advise me where I could get potential investors from that are willing to take a certain % rate each month as interest.

THE ANSWER

To begin with, please note that with FCA directives such as PS 13/3 and PS20/15, you are not permitted to ask for money speculatively via social media.

What you think solves your need (other people’s money) won’t work, as I explain further down.  You need a complete re-think of how you buy investment property because you have fallen into the trap that awaits every investor: 

You run out of cash before you run out of ambition

It took you four properties to hit...

There are self-build mortgages, but these aren’t available when you’re building a property for sale or rent.  These are considered to be commercial developments and are financed in a specific way.

The major banks pulled out when the credit crunch hit, with disastrous consequences for many of their borrowers.  They've never really got back into this area of lending again. However, the gap has been filled by small, specifically focused lenders who typically offer this type of finance and nothing else, although a few do offer bridging as well.

In order to deter all but the strongest propositions there are some significant hoops to jump through. These are:

•  They require a high cash input from the borrower
•  The borrower needs to have provable, relevant previous experience of a similar type of new build

If you don’t fulfil either or both of these requirements you’ll need to get creative about how you can meet them.

The Money

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