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...

THE QUESTION

Can I remortgage a property immediately after cash purchase?

THE ANSWER

With regard to how and when you can remortgage, the method of purchase is irrelevant;  buying with cash doesn't make any difference to the property's mortgageability.  What is relevant is the lender's attitude to remortgaging a property recently bought.

Almost every BTL lender has a six month ownership restriction, preventing you from applying for a remortgage before you've owned the property for that period.

Commercial and specialist lenders don’t operate that restriction, so will accept applications at any time.

If you want to remortgage, irrespective of whether you bought for cash or not, it is quite simple; you use a lender that allows you to.

Another level of complexity enters the equation if your intention is to remortgage at a higher value than the purchase price paid. To do this almost certainly will require you to have improved the condition of the property since...

THE QUESTION

Is it better to buy-to-let or buy, than refurb and sell?

THE ANSWER

Neither is better, they're just different strategies.

Buying-to-sell (BTS) gives you a significant cash lump sum (if you do it right) within months.

Buy-to-Let (BTL) gives you a much smaller monthly profit (if you do it right) for years to come, with the bonus of potential capital growth (depending on where you buy).

• Some people focus on BTS because their current circumstances mean they are not mortgageable. That prevents them using the BTL strategy, up to the point where their profits establish a sufficient credit record and they become mortgageable
• Some people choose to BTS properties that need no work doing to them, but can be sold at a profit on the purchase price paid.
• Some people choose BTL on properties they do up because they can increase the value, get a mortgage against the higher value and have relatively little of their own cash left in the deal.
• Some people choose to use a combination of...

THE QUESTION

I am considering the use of a bridging loan and would like to know:

• What are the typical fees?
• Over what time period can you get a loan?
• How quick is the approval process?
• Who provides the most competitive rates and lowest fees?

THE ANSWER

There are a number of bridging lenders and the criteria vary from lender to lender depending on your particular circumstances and the questions you ask.  It is a bit like asking:

• How much does a car cost?
• What is the size of the engine?
• How fuel efficient is it?
  ... and so on

Of course, the answers will depend on what model of car you buy. So the answer to your bridging finance questions depend on the property you want to buy, what you intend to do with it and your current situation.  There are a few basic facts that will give you a ballpark view:

• Almost every bridger charges a set-up fee, often 2%, but not always.
• Monthly fees vary for a host of different reasons - location, property...

THE QUESTION

Does bridging lend enough to cover the purchase price and the refurb cost? If not then surely you would have to put money in. Or would you have to buy BMV and borrow % of the market value instead of purchase price?

THE ANSWER

Most bridgers lend 70% of the purchase price, but a handful lend 70% of value. This is great if you are buying BMV, as you can use the discount towards your deposit, but to buy NMD you would need a discount of 30% +.

You would still need to pay for the refurb although some bridgers will lend you money to cover that too, but it is in staged payments in arrears, so you would still need some cash. 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 their own cash then...

THE QUESTION

I'm viewing a house which has been split into two flats. I believe that the title has not been split. What are the rules for lending on a property like this? I am guessing I won't be able to use a standard BTL mortgage? Anything else I should be wary of for a property converted into two flats?

THE ANSWER

The first rule on any property divided into flats is to check with the local planners that permission to do this has been applied for and approved. Two reasons for this:

1. It is the first thing any lenders surveyor does.
2. If it has no PP it is unmortgageable with any lender as it is an illegal conversion.

There is an amazing number of these flat conversions that are done without PP, as the owner doesn’t think beyond 'Hey, I can get more rent if I can split it into flats.'

If you can establish it has been used as flats for a number of years you can apply to the council for retrospective PP.  Even more amazingly very few vendors actually do this; they just...

This is a little different to the usual questions I get asked, but quite interesting to consider.  The windfall could come from a number of sources - an inheritance, some good property deals or - as this questioner suggests winning it!

THE QUESTION

If you won £500,000, how would you invest it to maximise your monthly cash flow?

THE ANSWER

The answer you would normally get from mortgage brokers/advisers is to use your cash as 25% deposits, get 75% mortgages e.g. you could buy 5 x £400k properties, put down 5 x £100k deposits; you could of course buy more properties at cheaper prices.

Whilst this would no doubt generate multiple fees for your broker (surely not why they advise it?!) it is also a finite use of your resources. Once you had used up your cash on 5 or 20 properties that's it; granted you should have created a good income for yourself, but your capacity to continue buying is exhausted.

As an alternative you can consider buying one property at a time -...

When we are JVing, what paperwork/agreements do we need to produce/sign? Others have mentioned being a sophisticated investor or an individual of high net worth. How does that translate into any agreement? Do we simply have to state we are one or the other? And what are the definitions of each?  I think I need the new JV PS 13.3.

PS13/3 is the FCA placing restrictions on the marketing of unregulated investments to members of the public.  Basically it's to control people who they consider unable to be able to work out a good deal from a bad deal

This pretty much covers any investment where the investor stands to gain (or lose) money depending how the investment performs, but is not regulated by the FCA or sold through an FCA regulated financial adviser.

It certainly covers any property deal from selling off plan Caribbean hotel rooms (remember them) to a two-up two-down refurb.

Loans on a specified rate of interest, regardless of whether the project makes or loses money,...

With regards to getting a BTL mortgage, I have been told by people that I need to show that I have the deposit in my account for the last 3 months. My in laws are selling their house for £45k and we have agreed to put this money into property investment. So if my father-in-law put that money into my account, do I have to wait 3 months before I can get a BTL mortgage or have I been told wrong?

Understanding the lender's thinking guides you to the answer.

Your solicitor has the responsibility under Anti-Money Laundering laws to provide proof that your deposit is from a legitimate source but...

BTL mortgage lenders in particular want to determine that you have not borrowed the money and it is really your own cash you are using and you are not trying to disguise the fact you are borrowing from someone/where else.

To that end they often want to see an audit trail stretching back 12 months, not 3. If chunks of money have just dropped into your account within that time, they will...