I’ve just been offered an HMO in need of some work. There's about £20k in the deal, and it could be flipped or end up as NMLI (no money left in), but it's a Wimpey no-fines house, i.e. poured concrete construction. I have heard that Birmingham Midshires lend on these, but considering an exit strategy (immediate or in future) is it wise to go down this route?
If a flip, will buyers be put off by the fact there's only one potential lender. If buy to hold, is it possible that the one available lender could re-assess their exposure and pull that product, making it a cash only deal – and wiping the profit out of the deal?
I see this regularly – non-standard construction properties where the reduction in price comparable to similar standard construction properties attracts investors like moths to a flame.
These are mostly properties built for councils, post-WW2, by the prominent builders of the day. Concrete construction was a cheap, easy and quick way of building the housing required in the post war years. Wimpey No-fines is one of these, Laing’s Easiform is another.
Most mortgage lenders decline to lend on them, sometimes due to concerns about the long term stability of the concrete, but mostly because of the perceived reduced marketability of such properties due to both the type of construction and their less desirable locations within a town.
It maybe that you may find a lender who will be happy to lend, you may even have a choice of more than one and, if that is so, you will have a very good yield on it, as they are often easy to let.
At some point in the future and very quickly if you intend to flip it, you will become the seller rather than the buyer and any potential buyer will have exactly the same degree of difficulty getting a mortgage as you have experienced when you bought the property.
If that sale is some point in the future, there is a very real risk that lenders who used to lend could have changed their criteria and lend no longer, so you’re stuck with a property that can only be sold to cash buyers. That is a massively reduced buyer market and when did you ever see cash buyers pay top dollar for an unmortgageable property, regardless of the yield?
You need to be clear on the potential profit based on your intentions for the property – including its value (or lack of) when you come to sell it.