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Commercial loan v. BTL mortgage

q&as Oct 30, 2016

THE QUESTION

What the difference is between a commercial loan and a regular BTL mortgage is and what are the pros and cons?

THE ANSWER

BTL mortgages are usually where you start, commercial mortgages are usually where you end up. If you are just starting BTL lenders are your natural choice. Generically, the differences are as below.

BTL lenders have many tick box criteria, commercial have many less.

BTL lenders ideal borrower is:

  • Employed
  • Earning £25k+ pa
  • Owns only a few properties
  • Is willing and able to put down a 25% deposit which is their own (not anyone else's) cash and happy to leave it in the deal.

Their ideal property is a single let, max 5 bedrooms. They are happy to lend to first time landlords, but almost none lend to first time borrowers.

Commercial lenders are happy to lend to full-time landlords, but not exclusively so.

  • They don’t lend to first time landlords, minimum 12 months letting experience is required.
  • They lend on all the properties BTL lenders...
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New property, good tenants – but no AST

q&as Oct 20, 2016

THE QUESTION

I've purchased a property (exchanged contracts already) that is currently let to a charity.

The charity, as I understand it, then put young adults who have recently come out of care into the property (either on a sublet or license I'm not sure at this stage).  It’s on a corporate tenancy agreement (i.e. just a common law tenancy not an AST).

Are there any lenders that allow this? Most want ASTs and the ones that I can find that allow corporate lets seem only to allow the company to then place one of their own employees in the property.

I did want to purchase this with a mortgage, but looks like I will have to use cash. I can give the charity notice a couple of months after completion so that I can get a buy-to-let mortgage, but it seems a shame to get rid of a tenant that is likely to be there for a long time so I could do with finding a mortgage lender that will allow all of the above.

THE ANSWER

There’s no need to get rid of a good tenant,...

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‘My cash is stuck in two BTL properties’

q&as Oct 10, 2016

THE QUESTION

I own two properties outright – both have tenants and yield 9.5% of their £85K (each) value. I've owned them for four months they have been let for two months. I have no proof of income as I've just started doing this full time. Can I BTL remortgage these at a competitive rate anywhere, or do I need to wait six months and go through TMW?

THE ANSWER

The wider issue here is that you can buy properties for cash, with all the advantages that brings, but you don’t want to then wait six months plus before you can repeat the process. If the mortgage lenders that give you the best rates require that you own the properties for six months before you can apply for a mortgage, you are missing out on potentially lucrative deals because your cash is trapped in these properties.

You have a defined chunk of cash and it is big enough to buy properties outright, as you have bought two worth £85k each (I’m not sure if you paid £85k or if, now you have...

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Can I give a sitting tenant notice?

q&as Sep 29, 2016

I am looking to buy a house to multi-let, but the house I've identified comes with an elderly long-term tenant on a long term contract. Can I serve notice for the tenant to leave or does a long term tenancy come with regulations to stop me doing this?

THE ANSWER

This sounds like a pre-1988 Regulated Tenancy. If it is, that is a lifetime tenancy, with possibly the right to pass the same agreement down to the next of kin.

You have zero chance of serving notice and any court will back the tenant 100% if you do.

Tenants like this, or those around them, have a highly developed awareness of the value of their tenancy. One such tenant in a central London flat was reported to have refused £500,000 in cash to give up the tenancy.

You have zero chance of borrowing any money to purchase it either, as no lender will touch it with a bargepole due to the tenant and their rights of occupancy.

This type of property has long been the preserve of affluent cash buyers. These properties...

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Should I lock my money up or borrow to buy my next property?

q&as Sep 19, 2016

THE QUESTION

I have seen a great property I want to buy but I cannot decide if I should buy it for cash then refinance it once it is refurbed, or borrow to purchase it. I have the cash to buy outright, but I am worried that, by tying up all my cash in a property I will not be able to buy another property during the period I am waiting to remortgage it, if I found a really good one.

THE ANSWER

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 and when other juicy deals come along whilst they are waiting to remortgage to release their cash.

This is impaired thinking. I teach that, whilst you are in that limbo period, you can buy your next deal without any hard cash at all -- by intelligently using bridging finance, like this

  1. A bridger will lend 70% on the next property (let's call it B) you want to buy
  2. They will also lend up to...
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No proof of income - how do I buy more properties?

q&as Sep 09, 2016

THE QUESTION
I own outright two properties, which are rented out; both are worth £85K and both yield 9.5%. I've owned them for four months they have been let for two months. I have no proof of income as I've just started doing this full time. Can I get a BTL mortgage for these properties at a competitive rate anywhere, or do I need to wait six months and go through TMW?

THE ANSWER
The wider issue here is that you can buy properties for cash, with all the advantages that brings, but you don’t want to then wait six months plus before you can repeat the process. If mortgage lenders (the ones that give you the best rates) require you to own the properties for six months before you can apply for a mortgage, you are missing out on potentially lucrative deals because your cash is trapped in these properties.

As you have bought two properties worth £85K each you already know that being a cash buyer allows you to close deals fast, to negotiate harder, to buy unmortgageable...

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How do you unlock funds for new property purchases?

q&as Aug 25, 2016

THE QUESTION

I have a BTL property owned for 3 months which has 2 years ERC on it so I don't want to remortgage, but can I use the property as a security to buy another refurb property.  The property was originally purchased on a 75% LTV BTL mortgage, but has been re valued after refurb works and is now at 57% LTV.

Ideally I want to get on with buying and refurbing another property which would be a buy to sell; I have the finances for the refurb, but not the deposit. The properties I am looking at are low value ballpark PP 65-70k and the deposit I am looking for would keep the security property around 70%-75% LTV.

THE ANSWER

If you want a bridger to lend on a second charge basis they will go to 65%, less costs. So the most you will get is 8% less costs.  Based on your figures, you won’t be able to release enough for the deposit.

However, there is another way to structure this. Use part of the money for the refurb for your deposit instead and then use a bridger...

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BTL Mortgage - and convert to HMO?

q&as Aug 15, 2016

 

THE QUESTION

With regard to mortgages and HMOs if you buy a house using a BTL mortgage, with a no Early Repayment Charge can you then convert the property to an HMO and swap the mortgage over to an HMO mortgage?

THE ANSWER

Great strategy... if you want to get yourself blacklisted by No ERC mortgage lenders!

These lenders get really annoyed at being used as surrogate bridging lenders. They don't offer no ERC mortgages so borrowers can redeem them in 6 months; despite what is taught on property training programs. Looks like I am myth busting again!

If you doubt that, just give them a call and layout your proposal to them and see how keen they are to lend.

If they catch any borrower intentionally using them as a bridging loan, they blacklist them; and usually the broker who submitted the case. The only reason blacklisting is not more prevalent is that these lenders IT systems are not yet sophisticated enough to flag up serial early redeemers.

Every mortgage you...

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Buying at auction - but not completing

q&as Aug 05, 2016

THE QUESTION

What happens if you don't complete on time when buying at auction?

THE ANSWER

When you bid for a property and your bid is accepted you have made a commitment to purchase; to all intents and purposes the property has been sold to you and you will have to pay a 10% deposit at the point of sale.  If you fail to complete by deadline date, the vendors solicitor will give you a Notice to Complete; usually a further 10 days in which to complete the purchase. That is effectively your last warning, your yellow card.

You can be charged a daily rate of interest from the deadline day onwards, so the clock is now ticking and having a direct impact on your bank account!

At the expiry of that notice period the vendor can withdraw from the sale and retain your 10% deposit as you failed to perform. That is your red card.

The vendor retains the right to claim further costs from you, for instance, if they subsequently sell it for a lower price that you contracted to pay.

Most...

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Finance for a new build

q&as Jul 27, 2016

THE QUESTION

I want to get into building a brand new property, what type of finance is needed for this and how does it work?

THE ANSWER

New build projects require development finance and this is structured in a specific way.  Pre-credit crunch this was freely available from the major banks, but they 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. 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.

These lenders find it useful to erect barriers to entry that deter all but the strongest propositions for them to lend on. These barriers are:

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

High cash input

Your money is required up front; the lender will fund...

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