Doing nothing means you’re digging deeper

A contact I met many years ago got in touch with me a few months back, he had landed himself in a hole and wanted help getting out of it. When you are in a hole with a mortgage on your head doing nothing means the hole is getting deeper and deeper.

The property at one point in time was fully paid up and had no debt whatsoever. A manager and his colleague from a well known high street bank came to see him a number of years ago and convinced him of the merits of taking a cross currency mortgage. During this period the base rate reached as high as 5.75% from July to November 2007, much higher than the current 0.5%.


Given this backdrop a product which gave you a lower rate of interest in another country such as Switzerland or Japan looked very attractive, especially in an environment where the interest rates looked as though they could rise even further, and this product started becoming popular. Here you could swap lock into a rate in these respective countries and leave your home environment, which seemed like an attractive proposition – on the surface. What was not emphasised was the massive currency exchange risk associated with such a transition which would become abundantly clear to those who took part in this type of mortgage as time went on.


The rate he was given was 1.99% per annum. As time progressed the amount of money he borrowed actually increased instead of decreasing due to the currency exchange rates going the wrong way.

In time he fell into serious arrears and in order to get some short term respite he took another loan, what’s known as a second charge, which is offered by a separate lender and sits on top of the first loan. This loan was given at a rate of 2.5% per month. It was anticipated this loan would be paid back within a short period of time – which again did not happen. Hence his hole was getter deeper.


The second charge lender needs to take the permission from the first lender to register their charge, this is supposed to be done via their nominated solicitor. In this scenario this did not happen, the lawyer made a mistake and released the funds to the client without get ting the permission from the first lender. Therefore the second charge lender has no claim for the return of their money, in fact they went to court to try and claim but their claim was struck out by a court.


The property itself consists of a rundown freehold house, with a generous amount of land around it. The property is large enough to convert into three flats with enough space around it to build another two flats as new builds. This site has massive development potential with an end value of £5m conservatively; it had been receiving offers of circa £2.8m as recently as a couple of months ago from various agents. The property is in the very posh area of Richmond, where prices like this are common place. Admittedly I have developed a blinkered vision being stuck in the central London vicinity where you sometimes fail to appreciate the beauty and demand which exists in other areas. I was also reminded of this on a visit to Surrey where I had an in depth report on St George’s Hill, and the surrounding area from a property veteran who has been developing in the local areas for over a decade, it was an eye opener for me and something I was blissfully unaware of.

The current owner of this property has managed to keep the bank at bay surviving one attempt of eviction by claiming he had a buyer in the horizon, which failed to perform. But now he has been given notice of eviction a second time, and time is running out fast and the bank as no patience any more. Hence he has approached us, to exchange on the deal without much fanfare. When he first approached me he was calling me several times, even on a Sunday, in his desperation to ensure the deal gets done.

The price we have offered and which has been accepted is £2m well below the offers received for £2.8m.


In my mind there are a few ways to carve this deal up. One is to exchange at £2m which is the price I offered and resell at £2.5m+, which means from £200k you have just made £500k within a couple of months. This is assuming the buyers are out there in this location who can perform fast enough and in cash, if not in cash their lenders will need to be happy to loan money on a   flip, as not all lenders are. Most high street lenders are not, this is the hit and run method.


Another way is to obtain the planning permission for the conversion and the new build and then resell it on to a local developer post planning. The final route is to go through and complete the development, of course the first question you should be asking is not about the development but about yourself: What is your cash flow like? Do you want to get involved in a development which isn’t quite in your locality? It is better, as with most things, to have an inside out approach rather than an outside in one.

You don’t always have to decide right now as to which route you will take, it is sometimes beneficial just to keep all the doors open, but to be prepared for the ‘worst’ case scenario, which is to complete and develop the site.

This is a deal which is currently on the table and should exchange by next week at the latest. If you like the sound of this investment why not give the office a call?

The Real Deal 

Ealing, London, W7
Purchase Price: £370k








  • A large two bedroom mid terrace house
  • Freehold
  • Currently generating £1,300 per month rental income
  • Similar properties are being sold for around £420k
  • Very good property for long term hold

Call us now to secure this deal!


Suresh Vagjiani

A Property Investment Company


!Tips of the Week

Always have an alternative exit strategy when doing property deals, as things may not always go to plan.

While using mortgages for buy and flip deals, the most important fees are the arrangement fees and the exit fees, not necessarily the interest rates.


Suresh Vagjiani
Suresh Vagjiani
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