THE QUESTION

If we were purchasing a property for cash would it be possible to purchase using two bridging providers to provide 100% of the purchase price?

The first one would have the first charge and the second would provide bridging on a second charge basis (such as Precise) and both forwarded amounts would be combined to form a 100% cash purchase.

The intension here isn't to deceive either provider and to be up front from the outset with both providers - just interested in other opinions as to whether it's doable.

THE ANSWER

No bridger is going to lend you 100% of the value of a property even if they have a first charge over it.  They will never put themselves in a position where, if they had to sell the property quickly, they would be unable to recoup all of their investment.

If no bridger will lend 100% of value on a first charge, there is zero chance of any bridger being daft enough to top up to 100% of value on a riskier second charge.

However, if the question alters to...

When you’re buying property as an investment you need capital to put down a deposit – and then it’s locked into your property for six months or more, until you can remortgage.

With this approach you’ll be lucky to manage to add two properties a year to your portfolio, unless you have a very big nest egg.  The do you want to lock your capital into a mortgage?  You don’t have to, there are creative financial packages specially developed for property investors.

Do you fit the BTL lender’s typical profile?

Buy-to-let lenders like their clients to have a nice secure full-time job earning a minimum of £25,000 a year and have their own cash for at least a 25% deposit.  If you have too many properties it can make them nervous in case you leave your secure job to become a full-time investor.

They don’t like people who want to remortgage their property after six months when the property has been refurbished and is now worth a lot...

Are you looking out for unmortgageable properties with problems that you can solve? They’re lucrative investments if you know how to leverage them – and with smart financing, using bridging they are great opportunities.

These are all great for intelligent investors, but mortgage lenders won’t touch them.

1. A derelict property
2. Properties where part of the building is in severe disrepair and needs demolishing
3. Properties without a kitchen and bathroom
4. Properties with multiple kitchens
5. Most lenders do not lend on properties valued below £50K, especially buy to let lenders
6. Most lenders will not lend on a leasehold property with a short lease; typically less than 70 years
7. Lenders are very unlikely to lend on a property with sitting tenants/Regulated Tenancies
8. Properties with any kind of structural defects
9. Properties with damp, mould, dry or wet rot, wall tie problems
10. Properties where planning applications have not been applied for correctly i.e. flat conversions...

THE QUESTION

If I buy a property for cash through a Limited Company, does the 6 month rule regarding remortgaging apply?

THE ANSWER

Some lenders choose to apply a 6 month restriction, whilst others don’t.  Actually, it isn’t really a rule, just a restriction, but it has commonly become known as ‘the six month rule’.

For those lenders that apply it, the point to get clarity on is that it is a length of ownership restriction, not a method of purchase restriction.  This means that, if a lender requires you to own the property for 6 months, the restriction will apply regardless of the entity whether you bought it as an individual or a company and regardless of the method you used to buy it, cash, bridging or any other method.

If you want to buy cash and refinance within six months, simply pick a lender that does not invoke the restriction.  Any decent broker will be able to source those lenders for you.

It is also worth highlighting the other issue...

THE QUESTION

Do you have experience with renting Retirement properties?  Is it a good idea to buy a flat at the seaside and rent it as a retirement property?

THE ANSWER

There are two issues here:

1. Renting properties that are part of a retirement complex.
2. Buying a flat and renting it to a retired person – or people.

Number one is a great idea if you have cash to burn! No mortgage lender will touch these with a bargepole.

Retirement properties have covenants that restrict who can buy them, who can live in them and whether they can be rented.

All retirement properties will be restricted to people who are over 55 years old.  Some will only be able to be bought by buyers over that age and many will only be permitted to be occupied by the owner and renting out is prohibited.

If you want to park your cash in a flat that can never be mortgaged, can only ever be sold to someone over 55 and has age restrictions on who can live in it, great.  The reality is there are...

THE QUESTION

Does bridging lend enough to cover the purchase price and the refurb cost?  If not, how can you get the maximum amount of funding?

THE ANSWER

Most bridgers lend 70% of the purchase price, but a handful lend 70% of value. This is great if you are buying below market value (BMV) as you can use the discount towards your deposit, but to buy with no money down (NMD) you would need a discount of 30% plus.

You would still need to pay for the refurb, although some bridgers will lend you money to cover that too, but in staged payments and in arrears.  This means you would still need some cash to get the project started.  It may be possible for you to borrow the reduced amount of cash you need privately and bridge the rest.

For example:  I brokered a deal last year where the asking price was £350k.  A £250k offer was accepted, which meant the bridger lent 95% of purchase price.

The refurb cost was £50k, the borrower spent £25k of...

THE QUESTION

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?

THE ANSWER

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...

THE QUESTION

I’m looking for finance to buy a small B&B, what do you recommend?

THE ANSWER

Small B&Bs tend to be problematic to finance.  This is usually because the owners have a narrow view (encouraged by their accountant) of the property’s value based on keeping the taxable profits of the business down to a minimal level.

Of course they benefit by pocketing almost all of the turnover for a number of years, but it bites them in the bum when they come to sell it!

First thing any lender we/you approach wants to see the latest three year’s accounts and, of course, they are rubbish showing the business hardly makes a profit (on paper).  Thus you either get declined for a mortgage completely or get offered a ridiculously low loan-to-value.  As a result purchasing this type of business tends to require all or mostly all cash because banks won’t lend on them.

It is possible that you have found one of the minority of savvy B&B owners that...

THE QUESTION

I have seen a property that has 60 years remaining on the lease with great potential to develop and sell, but the price is at market value and the length of the lease makes it a risky proposition.  If we could get a lease extension prior to purchase that would work, but agent claims it will cost £107,000.00 on a property valued at 600,000.00.  I need expert advice on the best way to tackle this.

THE ANSWER

First of all, get realistic about the value of the property pre and post lease extension.  Get clarity around the costs of buying, refurbing, extending the lease and selling; factor in the profit you need to make.  This will give you the realistic price you need to buy at or below.

Negotiate the purchase price you pay based on the fact that this is cash buyer only territory.  This means that those who have the ability to buy it will want a healthy discount to reflect the scarcity of people with the ability to complete the purchase.

• Get...

THE QUESTION

Serviced Accommodation (SA) seems to be the new HMO in terms of the property strategy everyone is talking about doing.

I can see the attraction for an investor. Like HMOs, SAs offer a superior monthly cash flow, but do I need any special mortgage for a property I am going to let out by the night or can I use a normal BTL mortgage?

THE ANSWER

You cannot run a Serviced Accommodation business with any normal type of mortgage; not legitimately anyway. If you look at any mortgage lender’s T&Cs, they state the minimum and maximum length of a tenancy agreement they will permit. For pretty much every lender, that will be a minimum of six months and a maximum of 12 months. Clearly letting for a few nights breaches these conditions.

When you commit a breach and the lender becomes aware of it they can call in the loan. Some lenders may not, but others certainly will.

I suspect that plenty of SA businesses are being run without the mortgage lenders knowledge.  This...