We’re currently having some difficulty in getting a seemingly straight forward remortgage over the line. At first glance things seem easy, there’s a current valuation at £4.765m and we’re only asking for £2.7m, only 56% of the valuation. It’s a good security with £260k coming in rent, with £180k guaranteed for the next ten years rising with RPI and the rest on short term AST’s.
Hence it seems straight forward, except this is a high street bank doing the remortgage and they have become slow and pedantic, asking the most finicky questions. This has dragged the remortgage past the date we anticipated, forcing us to extend our loan with the current bridging company for another few months; adding unnecessary expense to the project.
There have been some issues with the building; the first is an illegal flat which our investigations show has been in existence for over four years, we are currently gathering evidence on this so we are able to legalise the flat. The other issue is we are insisting on non-recourse borrowing this means no one gives any personal guarantees on the loan. This is the basis we got the bridge on, and this is the basis we will be looking to get the bank loan on.
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Our investors are passive investors and therefore rightly so they should not be putting their other assets on the line for something they have no control over, not every lender understands this and in fact most do not. This causes a big restriction in which lenders we can approach.
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Most borrowers do not actually realise that whenever they sign a mortgage agreement they are giving a personal guarantee on the property. This means if the lender does not recoup the money they have lent to you they will come after your personal assets. There is a myth which we have seen time and time again that some borrowers want only to remortgage their Buy to Let properties and not their main homes, they think this way their main homes are protected. This is an illusion, when you sign any mortgage deed all your assets are at risk, unless it’s one where no personal guarantee is taken, known also as a non recourse loan.
Therefore if you’re going to refinance to raise money it pays to take it from the cheapest source which is normally your personal home rather than your BTL properties.
This deal was done in July of last year for £2.675m and £1.4m was put up in cash for this deal. The uplift has been over £2m in one year, and we haven’t quite finished with the property yet. We still feel there’s another £1m to be gained from planning from this deal. We were only charged £26,750 in stamp duty for this property because our lawyer knew what he was doing. I have come across many lawyers who would have wrongly charged £187,250 which equates to 7% on this transaction and it is very doubtful the HMRC would have come back to refund the excess stamp duty if it was overpaid.
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Coincidentally another bridging company who came to see me for more business just last week said they were hungry for business, so naturally I put this deal on the table and asked them to perform. And in all fairness perform they did, I met them on Thursday and the completion is set for the following week Tuesday, just three working days later. The rate is slightly better and we can stay with them potentially for another 12 months without any penalty or default interest rate should our high street lender come up with any more obstacles and one can never be too careful when dealing with lenders, it’s prudent to always have a couple of exits in place in case one of them falls out of bed.
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The dictionary definition of a bridge is a structure carrying a road, path, railway, etc. across a river, road, or other obstacle. Another definition is something intended to reconcile or connect two seemingly incompatible things.
One means to take you from one place to another across an obstacle, the other means to mediate between to seemingly incompatible situations. Both describe the use of bridging loans very well, the word bridge is well placed to describe what these loans do.
The property when purchased would never have qualified for a conventional loan, it had too many holes in it, both literally and paperwork wise. A bridge gave us valuable time which helped us overcome these issues. A bridging loan is never designed for the borrower to stay on it, it is always a means to an end. The loan company want to see you have a viable exit strategy in place before you take a loan out with them.
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Bridging companies tend to be a lot more flexible with their underwriting criteria, often prepared to look past someone’s credit history and simply focus on the asset itself. This is the way the bridging market has grown by 50% since last year, they are filling up the vacuum created by the credit crunch. Many of the companies also act how banks used to many years ago where personal relationships and history carried some weight. If you have done successful deals with them they are likely to look past any minor issues with the building whereas with a main stream lender it will cause an uncrossable obstacle to the deal.
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On another note, we hope to exchange on a deal in Hampstead today in Platts lane, in a leafy part of Hampstead. This is a one bedroom ground floor flat with a share of freehold. The deal is a good one with some margin in it, but the real value is you have the possibility of extending out into the basement. The only flat which has access is the ground floor flat, this means subject to negotiation with the other two freeholders there is a chance to nearly doubling the value of this flat by turning it into a duplex flat and thereby increasing the square footage. In fact the previous owner was using the basement until the other freeholders objected, she didn’t have the funds to purchase this space and so it remains empty and unused. This project may take time, perhaps even years just to come to an agreement. The owner was asking for circa £700k but has only come down in price because she has found something else to purchase. It has been bought as a permanent hold, and if the extension happens all well and good it will be the cherry on the pie, if it doesn’t the pie isn’t too bad on its own!
The Real Deal
London Street, London, W2
Purchase Price: £2.1m
- Freehold property in this highly sought after location
- Currently arranged as six commercial units
- Planning permission in place to convert it into four residential units and one commercial unit
- Approx 3,250 sq ft area
- End value after conversion expected to be more than £3.25m
- Will benefit from the cross rail regeneration now in full swing
- 30 seconds from Paddington station
Call us now to reserve!
Suresh Vagjiani
Sow & Reap
A Property Investment Company
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!Tips of the Week
While letting out a property you must conform to all areas of the Housing Health and Safety Rating System (HHSRS). If you don’t have sufficient time or don’t want the hassle, you should ask an expert to deal with it.
It is the landlord’s responsibility, not the agent’s, to ensure annual checks are carried out on items such as gas, water, electricity, oil, sanitary, hot water and space-heaters, and that any repairs are completed when necessary. Failure to do this may result in prosecution, fines and/or imprisonment.
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