5th November 2019
Financing is often a very important component of a property purchase. To put it into perspective typically most of the money used to invest in a BTL property often doesn’t come from the investor. It comes from a lending institution. This means the investor is the minority stake holder. There are a fortunate few investors who detest banks and lenders. And never take a loan. They purchase only in cash.
Credit is still abundant, especially in the UK; although not with the same loose criteria as during the pre-credit crunch era.
Currently, we are arranging a mortgage for a Doctor client who took a mortgage with us over a decade ago. He has returned to purchase a property in the wealthy suburbs of North West London, dominated mostly by Gujaratis.
The purchase price is £1.3M and the loan required is 90%. This is an extremely high level of loan especially at a level above £1M. To compound this issue the client is touching 60 years of age. On the plus side, the income is substantial enough to cover the mortgage requirements. Being in the medical industry means he’s in a sector where the demand is not likely to decrease. We have managed to place this case at an extremely competitive rate.
This example demonstrates that there is still plenty of credit available even at such high levels. This is the level where if the property market takes a dip this is the price point which will most likely be effected. The credit is available to those who qualify for it. Pre credit crunch there were two major differences.
One was that credit was available to all, irrespective of income. I remember hearing one broker boasting ‘as long as you have a pulse, I can get you a mortgage’. The danger is after getting the mortgage you may no longer have a pulse.
The other major difference was the loan could be based on the value of the property, not the purchase price. This key point was not utilised to the extent it should have been. At the time, we were writing about case studies as to how this could be done. The take up was limited. There should have been a queue.
This allowed the investor to purchase with no money in his or her pocket. In fact, if the discount was large enough one could end up with money in their pocket after the purchase.
A BTL mortgage only works if the property is in a lettable condition from day one. At times if work is required to be done then this type of product would not be suitable. Other options would need to be looked at, and in some scenarios a bridging loan might be considered more appropriate.
The bridging market in London has mushroomed. A client who has just purchased a probate property in order to turn it into an HMO contacted us to see if we could arrange a competitive rate for a bridge. He already had a quote of 0.6% per month. I actually thought this was extremely cheap and told him as much. However, I said we would take a look to see if we could beat this quote. After some research and negotiation we actually were able to beat his quote, and managed to get him a rate at 0.44% per month. This only comes to 5.28% per annum. Exceptionally competitive. This allows him to close the deal, finish off the project within 6 months, and be in a position to refinance to a conventional BTL mortgage product.