The Valuable Rate

We are about to, hopefully, complete on a financing deal which we have been trying to get over the line for the best part of a year.  The property is a mixed use freehold, currently.  A now extremely low rate of 4.34% fixed for 5 years had been offered on this deal.  This rate now has become like gold dust.

The delay has been caused by a creation of leases on the residential element.  In principle this is not a complex matter.  However, when you have two rounds of lawyers involved and the lender’s own legal counsel, a mountain is created from a molehill.  Lawyers often don’t consider the commercial reality and instead focus on crossing the T’s and dotting the I’s, and working out every eventuality.  It seems to me they are more focused on covering themselves rather than getting the deal over the line.

The same product is now currently at a rate of 6.49%, about 50% over what we have got agreed. Over the 5 year period this would cost an extra £125K.  From my perspective I was anxious to draw the funds down, as time goes on this deal becomes more valuable relative to the current deals in the market.  The lawyers can always find a reason not to lend, especially if instructed so by the lender.  They could sell this money in the market for a lot more than the price it’s being released to our client.

It seems the end is in sight, and we will hopefully get this over this over the line soon.  The other part of this deal is the development, and funding this.  The build cost has increased massively over the last few years, to compound this the lending cost has now increased, and is set to do so even further.  Even if the development is handled, the other issue will be the refinancing cost once the development is done; as currently this is in flux at the moment.

I met a lender who told me he lent on a property in a popular development called The Water Gardens in W2.  A block I know well, having sold my first property there when I was an estate agent.  The property was valued at £1.2M, presumably he had lent 70% on the deal, so about £840K.  The property had been sold very recently for only £600K.  I actually knew this property and had done a viewing.  It was on a high floor, with excellent views around London, though it needed a full refurbishment.  Understandably, the lender was fuming, he was all set to go after the valuer, he even had the right lawyers who specialise in this type of litigation lined up for the attack.

I later remembered the service charge on this block had gone through the roof, some flats were to the tune of £20K and upwards.  No one wants to buy property especially on a BTL basis and have to keep feeding the machine.  I’m unsure what the reason for this was, though I heard the managing agent had been replaced.  The point being, as BTL rates rise, the rental income will not be able to cover the mortgage amounts.  Therefore, loans will decrease in proportion.  This will stagnate the market, especially for the BTL investor.

Perhaps London will again be a favourite for oversees cash buyers, as during high inflationary times, keeping cash is not a good strategy; real goods tend to hold their value.

Time will tell, but this phenomena has occurred previously; where Central London prices started to increase during uncertain times.

Suresh Vagjiani

Suresh Vagjiani
Suresh Vagjiani
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