LEASEHOLD AND FREEHOLD
There is an important legal distinction in the way flats and houses
are owned in the UK. Flats (whether conversions or purpose
built) are invariably leasehold, while houses are freehold. The flat
owner, in effect, buys a lease on the property. In return he or she
pays a ground rent to the landlord who retains the freehold of the
building. The distinction is important because the leaseholder is
bound by the terms and conditions of the lease. Great care needs
to be taken to avoid being unnecessarily restricted by unexpected
conditions. It is your solicitor’s task to examine the lease. In
practice, however, most solicitors are unaware of the particular
requirements of investors (as opposed to residential purchasers)
and can easily miss quite crucial details. Look out in particular
for the following.
Permission to sublet
The lease may require permission from the freeholder before the
property can be let. He can refuse permission. Your solicitor
should request this permission in writing before exchanging
contracts. It is worth noting that when you, in turn, come to sell,
your purchaser will be faced with the same problem.
Unusual letting restrictions
New leases should be checked with great care. A developer may
have some strange ideas about their new block and its future
occupants. He may, for example, try to control the tone of the
67
building by restricting sublets to couples only (thus avoiding the
more volatile sharer market). If you buy a three-bedroom flat with
a lease like that, you are in trouble. Even a one or two-bedroom
flat in these circumstances should be avoided. Breach of the terms
of the lease is a hanging offence. You could lose the property.
LEASE TERM
Typical lease terms are 99 years at the outset. Unless the flat is a
new build, therefore, the term will have shrunk by the time you
come to buy it. Does it matter how many years are left on the
lease at the time of purchase? Yes, for three reasons:
Lenders require that there should be at least 25 years left after
the mortgage has been repaid. In the case of a 25-year
mortgage, therefore, only a 50-year plus term will be
acceptable.
In the marketplace, residential purchasers do not like leases of
less than 80 years and will generally avoid them. If you buy a
flat with a lease of, say, 82 years and plan to sell after five, you
will be faced with this problem. Residential purchasers may be
your primary market at that time.
A lease can be extended with permission of the freeholder who
cannot legally withhold this permission. He will, however,
charge for the privilege and the cost could be significant. The
shorter the remaining term, the higher the cost. Disputes are
common in this area and the matter is frequently resolved by a
tribunal. In essence the freeholder sees lease extensions, along
with any service charges (see Chapter 16), as a useful source of
additional revenue. The question for you is whether you want
to help him get rich at your expense. In the case of the 82-year
68 / H O W T O I N V E S T I N T H E U K P R O P E R T Y M A R K E T
lease above, you will almost certainly need to extend this before
you sell.
COMMONHOLD
Only recently created by the Commonhold and Leasehold Reform
Act 2002 and implemented in 2004, this form of flat ownership
sweeps aside the traditional leasehold system altogether and gives
the owner absolute title to the flat. There is no landlord and no
lease. The owner becomes a ‘unit-holder’ in the block and a
member of the ‘commonhold association’ which manages the
building. It is a vast improvement on the leasehold system and
removes all the disadvantages associated with it. It is, however,
extremely rare and will take many years to become established.
THE FREEHOLDFLAT
Not to be confused with share of freehold (see Chapter 15) or
‘commonhold’ (see above), this is a rare creature in the property
world but it can be encountered from time to time. In this case
there is no lease at all and the flat itself is freehold. While this
might sound ideal it is, in fact, a complete headache for the
purchaser. The problem is that there is no common freeholder for
all the flats in the block and therefore no one responsible for
maintaining the building itself. Unlike the new commonhold
system there is no ‘commonhold association’ and there are no
‘unit-holders’. As a result, lenders will not lend on such
properties.
Selasa, 14 April 2009
Senin, 13 April 2009
Student house rentals fot investment
student house rentals fot investment
HOW TO BUY
First, choose a university town. Next, locate the university on the
map. Now check both prices and rents in the surrounding area,
taking care to calculate the rent on a room-by-room basis. At this
stage a simple search on the sales and rentals section of a website
like www.fish4homes.co.uk will give you all the information you
need. If average prices are not too high and rents (per room,
remember) not too low, then you might decide the potential yield
is sufficient for your purpose. If it doesn’t work, move to another
town.
Next, contact the accommodation department of the university
itself. You will find them very helpful. Tell them you are planning
to buy and ask for advice. You need to know the following:
- Is there currently enough private accommodation for students,
and does the university itself have plans for expanding its own
provision?
- What is the average rent per student, per room?
- What streets or areas do students prefer and what areas should
be avoided?
- What time of the year do students start looking for
accommodation and when are house lists handed out to them?
- Does the accommodation department have its own website for
students?
- What does the university require of landlords before adding
their property to the house lists and websites (e.g. sight of gas
safety certificates, etc.)?
If your research and calculations point to a viable student letting
scenario there are still a few more considerations to make before
looking for a suitable property.
WHEN TO BUY
Most students start looking for property in March for the autumn
term and most will have sorted themselves out by May or June.
There is no point, therefore, in completing your purchase in, say,
July or August. Although you are on time for the September
intake of students, most of these will have their accommodation
arranged already. You will be relying on stragglers to fill your
rooms. Ideally, therefore, complete your purchase by March.
WHAT TOBUY
Buy cheap terraced houses as close as possible to the university.
The important criteria are cost, number of rooms and location.
Always take the university’s advice on location and don’t choose a
house because you would like to live there yourself! If you do, it is
almost certainly the wrong choice.
OVER THE PASSAGE
In some towns and cities cheap terraced houses have a further
advantage. Although nominally, for example, three bedroom, their
layout can convert them to four. These properties are over-thepassage
terraced houses. A passage by the side of the house allows
access to the back of the house without going through the front
door. The front door, in such houses, leads directly to the front
room. This becomes a perfectly usable additional bedroom. A
four-bedroom house for the price of a three!
Sometimes one passage serves four or five houses, allowing access
to all their back doors. While the house you are interested in,
therefore, may not itself have a side passage, it may benefit from a
passage further along the terrace. Such information will not
appear on a typical website or typical agent’s handout. You will
have to ask.
HOW TO BUY
First, choose a university town. Next, locate the university on the
map. Now check both prices and rents in the surrounding area,
taking care to calculate the rent on a room-by-room basis. At this
stage a simple search on the sales and rentals section of a website
like www.fish4homes.co.uk will give you all the information you
need. If average prices are not too high and rents (per room,
remember) not too low, then you might decide the potential yield
is sufficient for your purpose. If it doesn’t work, move to another
town.
Next, contact the accommodation department of the university
itself. You will find them very helpful. Tell them you are planning
to buy and ask for advice. You need to know the following:
- Is there currently enough private accommodation for students,
and does the university itself have plans for expanding its own
provision?
- What is the average rent per student, per room?
- What streets or areas do students prefer and what areas should
be avoided?
- What time of the year do students start looking for
accommodation and when are house lists handed out to them?
- Does the accommodation department have its own website for
students?
- What does the university require of landlords before adding
their property to the house lists and websites (e.g. sight of gas
safety certificates, etc.)?
If your research and calculations point to a viable student letting
scenario there are still a few more considerations to make before
looking for a suitable property.
WHEN TO BUY
Most students start looking for property in March for the autumn
term and most will have sorted themselves out by May or June.
There is no point, therefore, in completing your purchase in, say,
July or August. Although you are on time for the September
intake of students, most of these will have their accommodation
arranged already. You will be relying on stragglers to fill your
rooms. Ideally, therefore, complete your purchase by March.
WHAT TOBUY
Buy cheap terraced houses as close as possible to the university.
The important criteria are cost, number of rooms and location.
Always take the university’s advice on location and don’t choose a
house because you would like to live there yourself! If you do, it is
almost certainly the wrong choice.
OVER THE PASSAGE
In some towns and cities cheap terraced houses have a further
advantage. Although nominally, for example, three bedroom, their
layout can convert them to four. These properties are over-thepassage
terraced houses. A passage by the side of the house allows
access to the back of the house without going through the front
door. The front door, in such houses, leads directly to the front
room. This becomes a perfectly usable additional bedroom. A
four-bedroom house for the price of a three!
Sometimes one passage serves four or five houses, allowing access
to all their back doors. While the house you are interested in,
therefore, may not itself have a side passage, it may benefit from a
passage further along the terrace. Such information will not
appear on a typical website or typical agent’s handout. You will
have to ask.
Proven Capital Growth Using Property Investment
Proven Capital Growth Using Property Investment
So what sort of property to buy and where? At this point you
have to decide what you want to achieve – capital growth, yield
(or both) and over what term.
CAPITAL GROWTH
Straightforward enough. If you buy for £100,000 and sell for
£200,000 you have capital growth of £100,000 and can feel very
pleased with yourself. However, there is no certainty of capital
growth (a sudden downturn in the market can put paid to that)
and, in some cases, you would be wise to expect none at all from
the outset.
This is particularly so for certain types of properties in certain
areas. For example, whole streets of little terraced houses in
rundown parts of the north and the Midlands are frequently
bought for next to nothing by local estate agents or developers
and sold on for a quick profit, with DSS tenants already in place
(social housing tenants only because other tenants don’t want
such properties). The attraction for the purchaser is the high
rental yield (see below), but any claims of future growth should be
treated with derision. Nobody wants these properties. Only
another investor (possibly believing the tall tales of capital
growth) would consider buying them.
Conversely, there are areas where growth, given the right
conditions, could be expected to be greater than average and
achieved sooner than elsewhere. Central London is the obvious
example. It is a truism to say that, when the market moves it
moves first in central London. The downside, of course, is the
pitiful rental yield. There are no free lunches.
Apart from central London (where you just have to sit patiently
and wait for the action), what can you do to improve your chances
of capital growth? The one-word answer is research.
Town hall planning department
First, check the planning department of the local town hall. Has
the mental hospital been sold to a property developer (care in the
community!) and are there plans for a housing development?
Perhaps what used to be a local council department of education
has been sold and is set for redevelopment. Other clear indicators
of future growth are plans for new transport links, by rail or
road, new shopping centres, new supermarkets. Information on
these and any other developments are freely available at the
planning department of the local town hall. This should be your
first port of call.
Land Registry
Information on prices (by region, county, borough and local
authority) is available directly from the Land Registry on
www.landreg.gov.uk.
The web
The Land Registry has spawned a variety of websites offering
information and analysis of all sorts, mostly based on Land
Registry data. Check the following:
www.houseprices.co.uk
www.myhouseprice.com
www.upmystreet.com
www.hometrack.co.uk
www.nationwide.co.uk/hpi
www.housepricecrash.co.uk
www.ourproperty.co.uk
uk.realestate.yahoo.com
The Association of Residential Letting Agents (ARLA)
The ARLA (see ‘Useful addresses’) produces regular reports on
the state of the buy-to-let market throughout the country.
YIELD
This is essentially the rent received as a percentage of the price
paid for the property. If a property, bought for £100,000,
commands a rent of £10,000 p.a., then the yield is 10%. This is,
however, the gross yield. To arrive at the net figure, running costs
(such as interest payments on the mortgage, repairs and agents’
fees) should be deducted from the rent. It is clear that the net
figure is the one that really matters. If, in the case of the £100,000
purchase above, the annual costs are £6,500 then the net yield is
just 3.5%. If the rent, however, were only £5,000 p.a. then the
yield has effectively disappeared. In this case you are not covering
your costs and will have to find the difference from your own
resources. When you consider further that there will be an income
tax liability to deal with, then a potential gross yield of anything
less than 6% should be treated with great caution.
INVESTMENT TERM
Property investment should always be for the long term, with 10
years the recommended minimum. Clearly, the longer the term the
greater the chances of achieving capital growth. It follows that, if
a shorter term is envisaged, great care is needed in the choice of
property. It may be that a much lower yield than usual will be
acceptable in the hope of greater capital growth over the shorter
term. As a general rule there is a straight trade-off between the
two. The higher the yield, the lower the likely growth and vice
versa. Alternatively, a property that could be quickly and cheaply
improved might produce an instant gain in the right market
conditions.
So what sort of property to buy and where? At this point you
have to decide what you want to achieve – capital growth, yield
(or both) and over what term.
CAPITAL GROWTH
Straightforward enough. If you buy for £100,000 and sell for
£200,000 you have capital growth of £100,000 and can feel very
pleased with yourself. However, there is no certainty of capital
growth (a sudden downturn in the market can put paid to that)
and, in some cases, you would be wise to expect none at all from
the outset.
This is particularly so for certain types of properties in certain
areas. For example, whole streets of little terraced houses in
rundown parts of the north and the Midlands are frequently
bought for next to nothing by local estate agents or developers
and sold on for a quick profit, with DSS tenants already in place
(social housing tenants only because other tenants don’t want
such properties). The attraction for the purchaser is the high
rental yield (see below), but any claims of future growth should be
treated with derision. Nobody wants these properties. Only
another investor (possibly believing the tall tales of capital
growth) would consider buying them.
Conversely, there are areas where growth, given the right
conditions, could be expected to be greater than average and
achieved sooner than elsewhere. Central London is the obvious
example. It is a truism to say that, when the market moves it
moves first in central London. The downside, of course, is the
pitiful rental yield. There are no free lunches.
Apart from central London (where you just have to sit patiently
and wait for the action), what can you do to improve your chances
of capital growth? The one-word answer is research.
Town hall planning department
First, check the planning department of the local town hall. Has
the mental hospital been sold to a property developer (care in the
community!) and are there plans for a housing development?
Perhaps what used to be a local council department of education
has been sold and is set for redevelopment. Other clear indicators
of future growth are plans for new transport links, by rail or
road, new shopping centres, new supermarkets. Information on
these and any other developments are freely available at the
planning department of the local town hall. This should be your
first port of call.
Land Registry
Information on prices (by region, county, borough and local
authority) is available directly from the Land Registry on
www.landreg.gov.uk.
The web
The Land Registry has spawned a variety of websites offering
information and analysis of all sorts, mostly based on Land
Registry data. Check the following:
www.houseprices.co.uk
www.myhouseprice.com
www.upmystreet.com
www.hometrack.co.uk
www.nationwide.co.uk/hpi
www.housepricecrash.co.uk
www.ourproperty.co.uk
uk.realestate.yahoo.com
The Association of Residential Letting Agents (ARLA)
The ARLA (see ‘Useful addresses’) produces regular reports on
the state of the buy-to-let market throughout the country.
YIELD
This is essentially the rent received as a percentage of the price
paid for the property. If a property, bought for £100,000,
commands a rent of £10,000 p.a., then the yield is 10%. This is,
however, the gross yield. To arrive at the net figure, running costs
(such as interest payments on the mortgage, repairs and agents’
fees) should be deducted from the rent. It is clear that the net
figure is the one that really matters. If, in the case of the £100,000
purchase above, the annual costs are £6,500 then the net yield is
just 3.5%. If the rent, however, were only £5,000 p.a. then the
yield has effectively disappeared. In this case you are not covering
your costs and will have to find the difference from your own
resources. When you consider further that there will be an income
tax liability to deal with, then a potential gross yield of anything
less than 6% should be treated with great caution.
INVESTMENT TERM
Property investment should always be for the long term, with 10
years the recommended minimum. Clearly, the longer the term the
greater the chances of achieving capital growth. It follows that, if
a shorter term is envisaged, great care is needed in the choice of
property. It may be that a much lower yield than usual will be
acceptable in the hope of greater capital growth over the shorter
term. As a general rule there is a straight trade-off between the
two. The higher the yield, the lower the likely growth and vice
versa. Alternatively, a property that could be quickly and cheaply
improved might produce an instant gain in the right market
conditions.
Minggu, 12 April 2009
Step by step Bridging loan process
THE PROCESS
Since a bridging loan is, in effect, a mortgage, formalities are
inescapable. Because such loans are non-status, however, and
speed is of the essence, paperwork tends to be minimal and the
lender moves swiftly to secure a charge on the property.
Paperwork
The application form should require little more than name,
address, details of current mortgage lender and solicitor, together
with a signed authorisation to conduct credit reference checks. If
anyone else aged 18 or over also lives in the property, the lender
will want him to sign a mortgage consent form, effectively
agreeing to the mortgage and waiving any right to remain in the
property should the lender require possession. Details of current
buildings insurance will be required, and you will need to ask the
insurer to note the new lender’s interest. Failure to get this piece
of paperwork at an early stage can hold up the entire process.
Lenders who ask for more paperwork than the above should be
treated with extreme caution. You may encounter the following:
- A requirement that the borrower write a letter (in his own
handwriting) stating that he does not wish to use his own bank
for a bridging loan.
- A further statement, again in the borrower’s own handwriting,
stating that he can afford the loan repayments from his income.
As the loan is non-status, affordability is not an issue and the loan
will not be repaid from income. As for the reference to banks, you
might well wonder what experience other borrowers have had with
such a lender and whether you should proceed any further.
Valuation
As in the case of a mortgage, a valuation will be required. If the
amount to be borrowed is well below any likely valuation, the
lender may settle for a drive-by valuation which does not require
a visit and costs a good deal less than a normal valuation.
Independent legal advice
A reputable lender will advise in writing, at the outset, that
independent legal advice should be sought before proceeding.
Have nothing to do with a lender who does not follow this
practice.
Mortgage deed
The last stage before completion is the signing of the mortgage
deed. This will usually be witnessed by your solicitor.
Release of funds
Normally through the lender’s solicitor direct to your solicitor’s
bank account.
TIP
Given the cost and the risks involved, every effort should be made to avoid bridging
loans altogether. Try your bank first. It won’t gouge your eyes out! If you have to
use a specialist lender, look out for scams and extortionate fees. Ask if you are
dealing with an agent or principal lender. Ask if the lender has ever subsequently
asked for fees additional to those quoted in the initial offer letter. If you are using
a broker, check that he has used this lender before and ask for details. If he hasn’t
used this lender, find another broker. If he hasn’t arranged a bridging loan before,
find another broker. Watch out for strange requests such as handwritten letters
indemnifying the lender. Go elsewhere. Don’t accept the interest rate and charges
quoted. Negotiate better terms.
Since a bridging loan is, in effect, a mortgage, formalities are
inescapable. Because such loans are non-status, however, and
speed is of the essence, paperwork tends to be minimal and the
lender moves swiftly to secure a charge on the property.
Paperwork
The application form should require little more than name,
address, details of current mortgage lender and solicitor, together
with a signed authorisation to conduct credit reference checks. If
anyone else aged 18 or over also lives in the property, the lender
will want him to sign a mortgage consent form, effectively
agreeing to the mortgage and waiving any right to remain in the
property should the lender require possession. Details of current
buildings insurance will be required, and you will need to ask the
insurer to note the new lender’s interest. Failure to get this piece
of paperwork at an early stage can hold up the entire process.
Lenders who ask for more paperwork than the above should be
treated with extreme caution. You may encounter the following:
- A requirement that the borrower write a letter (in his own
handwriting) stating that he does not wish to use his own bank
for a bridging loan.
- A further statement, again in the borrower’s own handwriting,
stating that he can afford the loan repayments from his income.
As the loan is non-status, affordability is not an issue and the loan
will not be repaid from income. As for the reference to banks, you
might well wonder what experience other borrowers have had with
such a lender and whether you should proceed any further.
Valuation
As in the case of a mortgage, a valuation will be required. If the
amount to be borrowed is well below any likely valuation, the
lender may settle for a drive-by valuation which does not require
a visit and costs a good deal less than a normal valuation.
Independent legal advice
A reputable lender will advise in writing, at the outset, that
independent legal advice should be sought before proceeding.
Have nothing to do with a lender who does not follow this
practice.
Mortgage deed
The last stage before completion is the signing of the mortgage
deed. This will usually be witnessed by your solicitor.
Release of funds
Normally through the lender’s solicitor direct to your solicitor’s
bank account.
TIP
Given the cost and the risks involved, every effort should be made to avoid bridging
loans altogether. Try your bank first. It won’t gouge your eyes out! If you have to
use a specialist lender, look out for scams and extortionate fees. Ask if you are
dealing with an agent or principal lender. Ask if the lender has ever subsequently
asked for fees additional to those quoted in the initial offer letter. If you are using
a broker, check that he has used this lender before and ask for details. If he hasn’t
used this lender, find another broker. If he hasn’t arranged a bridging loan before,
find another broker. Watch out for strange requests such as handwritten letters
indemnifying the lender. Go elsewhere. Don’t accept the interest rate and charges
quoted. Negotiate better terms.
Sabtu, 11 April 2009
Beware Bridging finance applicants SCAMS
Beware Bridging finance applicants SCAMS
Bridging finance applicants are always in a hurry and sometimes
desperate. They can be exploited.
You might imagine that extortionate fees and crippling interest
rates would be reward enough for those in the bridging finance
sector. Think again!
Unrealistic timescale
The most common device to lure the unwary is to promise a
completion date of just a few days. For the reasons we have already
seen this is rarely, if ever, possible. Having embarked on an
application, however, you are not going to start again elsewhere.
Time has already been lost. You will continue with the application.
The last-minute demand
This is perhaps the most brutal and cynical exercise of power over
the weak and vulnerable. But it does happen and you need to
guard against it. It works like this.
Your application proceeds without a problem and you are close to
completion. Suddenly you get a call from someone you had never
heard of. He has been asked to look over your application before
funds are released. He has a problem. He has noticed something
in the valuation report which seems unusual, or his solicitor tells
him there is some question mark over title. He will have to check
with his insurer. If they are not happy they may recommend an
additional fee to reflect the additional risk. Could you ring back in
20 minutes?
In reality there is no problem and no insurer to satisfy. If there
were a real problem of any sort, the application would not be
accepted at all. Simply charging a fee to cover a real risk would
make no commercial sense whatever, and bridging finance
companies take no risks at all with their security.
The reason you are asked to call back later is twofold: you need
time to get used to and accept the idea that you will have to pay
even more for the loan and, secondly, you will show your
desperation by ringing them! You are now ready for the slaughter
and offering your neck to the knife. What choice do you have?
You are certainly not going elsewhere at this stage.
Bridging finance applicants are always in a hurry and sometimes
desperate. They can be exploited.
You might imagine that extortionate fees and crippling interest
rates would be reward enough for those in the bridging finance
sector. Think again!
Unrealistic timescale
The most common device to lure the unwary is to promise a
completion date of just a few days. For the reasons we have already
seen this is rarely, if ever, possible. Having embarked on an
application, however, you are not going to start again elsewhere.
Time has already been lost. You will continue with the application.
The last-minute demand
This is perhaps the most brutal and cynical exercise of power over
the weak and vulnerable. But it does happen and you need to
guard against it. It works like this.
Your application proceeds without a problem and you are close to
completion. Suddenly you get a call from someone you had never
heard of. He has been asked to look over your application before
funds are released. He has a problem. He has noticed something
in the valuation report which seems unusual, or his solicitor tells
him there is some question mark over title. He will have to check
with his insurer. If they are not happy they may recommend an
additional fee to reflect the additional risk. Could you ring back in
20 minutes?
In reality there is no problem and no insurer to satisfy. If there
were a real problem of any sort, the application would not be
accepted at all. Simply charging a fee to cover a real risk would
make no commercial sense whatever, and bridging finance
companies take no risks at all with their security.
The reason you are asked to call back later is twofold: you need
time to get used to and accept the idea that you will have to pay
even more for the loan and, secondly, you will show your
desperation by ringing them! You are now ready for the slaughter
and offering your neck to the knife. What choice do you have?
You are certainly not going elsewhere at this stage.
Jumat, 10 April 2009
WHERE TO FIND A BRIDGING LOAN
WHERE TO FIND A BRIDGING LOAN
There are two sources for such loans – banks and bridging loan
companies.
Banks
As a general rule you should approach your bank in the first
instance and go elsewhere only if you are turned down. The
possible benefits are as follows:
- A lower interest rate. The rate will still be very high but in
most cases lower (though not by much!) than the prevailing
rates elsewhere.
- Lower fees. As a general rule, banks will charge a single
arrangement fee, typically 1%, and are unlikely to hit you with
punitive legal costs.
Unfortunately, that ’s where the good news ends. Banks can pose
problems:
- They can be slow. If speed is of the essence you may fall at the
first hurdle.
- Banks don’t like an open bridge. This is where there is no clear
and definite date for redeeming the loan. In practice this means
your bank may want to see a mortgage offer from another
lender before they will agree to do the bridge. But if you have
a mortgage offer, you are almost there!
Bridging loan companies
Here you have to tread carefully. Bridging loan companies come
in various guises and it is very important to distinguish between
them at the outset.
The most common error is to mistake a broker for a lender. This
is very easy to do as many intermediaries use trade names which
clearly suggest that they are principals rather than agents. You
could be some way down the application process before realising
your mistake. Does this matter? Yes, for two reasons:
- You will incur a broker fee of at least 1%.
- You are not dealing directly with the lender, thus running the
serious risk of delays and misunderstandings.
If you are answering an advertisement ask, at the outset, if you are
talking to a principal lender. If you are looking at a website, don’t
neglect to press the ‘About us’ or the ‘Corporate profile’ button
for this vital information.
If you have no luck with your bank, a simple Google search on
the internet is undoubtedly the quickest way to draw up a short
list of bridging loan companies. Other sources are advertisements
in auction catalogues and the financial pages of national
newspapers.
There are two sources for such loans – banks and bridging loan
companies.
Banks
As a general rule you should approach your bank in the first
instance and go elsewhere only if you are turned down. The
possible benefits are as follows:
- A lower interest rate. The rate will still be very high but in
most cases lower (though not by much!) than the prevailing
rates elsewhere.
- Lower fees. As a general rule, banks will charge a single
arrangement fee, typically 1%, and are unlikely to hit you with
punitive legal costs.
Unfortunately, that ’s where the good news ends. Banks can pose
problems:
- They can be slow. If speed is of the essence you may fall at the
first hurdle.
- Banks don’t like an open bridge. This is where there is no clear
and definite date for redeeming the loan. In practice this means
your bank may want to see a mortgage offer from another
lender before they will agree to do the bridge. But if you have
a mortgage offer, you are almost there!
Bridging loan companies
Here you have to tread carefully. Bridging loan companies come
in various guises and it is very important to distinguish between
them at the outset.
The most common error is to mistake a broker for a lender. This
is very easy to do as many intermediaries use trade names which
clearly suggest that they are principals rather than agents. You
could be some way down the application process before realising
your mistake. Does this matter? Yes, for two reasons:
- You will incur a broker fee of at least 1%.
- You are not dealing directly with the lender, thus running the
serious risk of delays and misunderstandings.
If you are answering an advertisement ask, at the outset, if you are
talking to a principal lender. If you are looking at a website, don’t
neglect to press the ‘About us’ or the ‘Corporate profile’ button
for this vital information.
If you have no luck with your bank, a simple Google search on
the internet is undoubtedly the quickest way to draw up a short
list of bridging loan companies. Other sources are advertisements
in auction catalogues and the financial pages of national
newspapers.
Bridging Finance Cost for the avarage
Bridging Finance Cost for the Avarage
The costs that can be incurred in obtaining bridging finance are
staggering. Consider the following.
Interest rates
Rates are set on a monthly basis and can range from 1.25% to
1.5% per month. These are credit card rates! A typical mortgage
would cost a third of this.
Fees
In addition to the standard valuation fee and your own legal costs
you can expect the following:
- Solicitor’s fees: not your solicitor’s, the lender’s! It is standard
practice to require the borrower to pay all the lender’s
expenses, including their solicitor’s costs. Unfortunately these
costs are not the standard conveyancing costs prevalent in the
mortgage industry. While solicitors charge a flat fee for their
work in relation to a routine mortgage, they base their bridging
finance fees on the value of the property! You can expect to
pay two or three times the normal rate.
- Broker’s fee: if you are using a broker to arrange the bridging
loan, he will be paid by the lender but you will pay the fee to
the lender. This is usually 1% of the loan. It is not possible to
avoid this as no bridging finance provider will pay the broker’s
costs.
- Redemption fee: this is paid when the loan is redeemed and is
typically one or two months’ interest. In other words, you can
expect a redemption fee of between 1.25 and 3% of the loan.
CASE STUDY
Consider the example of a £350,000 bridging loan taken out for just one
month:
One month’s interest at 1.25% 4,375
Lender’s legal fees 1,200
Broker’s fee 3,500
Redemption fee (2 months’ interest) 8,750
Total £17,825
These figures could change dramatically if the interest rate charged is
higher or the loan is out for more than a month. It is quite common for
lenders to insist on a minimum loan period of, say, three months. In the
above example, this would bring the total cost to an eye-watering £26,575!
This could more than wipe out any possible savings made by buying at
auction.
The costs that can be incurred in obtaining bridging finance are
staggering. Consider the following.
Interest rates
Rates are set on a monthly basis and can range from 1.25% to
1.5% per month. These are credit card rates! A typical mortgage
would cost a third of this.
Fees
In addition to the standard valuation fee and your own legal costs
you can expect the following:
- Solicitor’s fees: not your solicitor’s, the lender’s! It is standard
practice to require the borrower to pay all the lender’s
expenses, including their solicitor’s costs. Unfortunately these
costs are not the standard conveyancing costs prevalent in the
mortgage industry. While solicitors charge a flat fee for their
work in relation to a routine mortgage, they base their bridging
finance fees on the value of the property! You can expect to
pay two or three times the normal rate.
- Broker’s fee: if you are using a broker to arrange the bridging
loan, he will be paid by the lender but you will pay the fee to
the lender. This is usually 1% of the loan. It is not possible to
avoid this as no bridging finance provider will pay the broker’s
costs.
- Redemption fee: this is paid when the loan is redeemed and is
typically one or two months’ interest. In other words, you can
expect a redemption fee of between 1.25 and 3% of the loan.
CASE STUDY
Consider the example of a £350,000 bridging loan taken out for just one
month:
One month’s interest at 1.25% 4,375
Lender’s legal fees 1,200
Broker’s fee 3,500
Redemption fee (2 months’ interest) 8,750
Total £17,825
These figures could change dramatically if the interest rate charged is
higher or the loan is out for more than a month. It is quite common for
lenders to insist on a minimum loan period of, say, three months. In the
above example, this would bring the total cost to an eye-watering £26,575!
This could more than wipe out any possible savings made by buying at
auction.
Kamis, 09 April 2009
Bridging Finance for your Property Investment
Bridging Finance for your Property Investment
Bridging finance is a stop-gap measure to solve a problem – how
to complete on the purchase of a property when the sale of your
own has not yet been finalised or when a mortgage on the new
property has yet to materialise. It is a temporary measure (never
open-ended) and has been traditionally provided by the banks.
For the property investor, the need for bridging finance is most
likely to arise following a successful bid at an auction (auction
catalogues routinely carry advertisements for bridging loan
companies). When a property is bought at auction, 10% of the
price is paid immediately in cash and the balance is due 28 days
later. If a mortgage hasn’t already been arranged (and it rarely
can be), it must be put in place before the deadline for
completion. Failure to meet this deadline will result in the loss of
the deposit. It then gets worse. If the property is subsequently sold
for less than your bid, you could be liable for the shortfall!
Most lenders simply don’t work fast enough for this. A valuation
needs to be arranged, the searches made, the offer issued, the legal
work completed and the funds transferred. In the meantime,
anything can go wrong. A poor valuation report can play havoc
with the timetable. The lender may retain some funds until
essential work is carried out. The valuer may call for an
engineer’s report, resulting in further delays and expense. Some
lenders can take five working days just to transfer funds! For this
reason many successful bidders at auction find themselves turning
to the providers of bridging finance.
Bridging finance is a stop-gap measure to solve a problem – how
to complete on the purchase of a property when the sale of your
own has not yet been finalised or when a mortgage on the new
property has yet to materialise. It is a temporary measure (never
open-ended) and has been traditionally provided by the banks.
For the property investor, the need for bridging finance is most
likely to arise following a successful bid at an auction (auction
catalogues routinely carry advertisements for bridging loan
companies). When a property is bought at auction, 10% of the
price is paid immediately in cash and the balance is due 28 days
later. If a mortgage hasn’t already been arranged (and it rarely
can be), it must be put in place before the deadline for
completion. Failure to meet this deadline will result in the loss of
the deposit. It then gets worse. If the property is subsequently sold
for less than your bid, you could be liable for the shortfall!
Most lenders simply don’t work fast enough for this. A valuation
needs to be arranged, the searches made, the offer issued, the legal
work completed and the funds transferred. In the meantime,
anything can go wrong. A poor valuation report can play havoc
with the timetable. The lender may retain some funds until
essential work is carried out. The valuer may call for an
engineer’s report, resulting in further delays and expense. Some
lenders can take five working days just to transfer funds! For this
reason many successful bidders at auction find themselves turning
to the providers of bridging finance.
LENDING CRITERIA all bridging loans
LENDING CRITERIA all bridging loans
As with mortgages there are standard criteria that apply to
virtually all bridging loans.
Maximum loan
Given these indecent profit margins, you might expect lenders to
be generous with their loan-to-value criteria. Not so. The
maximum loan you can expect is 70%. This is belt and braces for
the lender. If you fail to redeem the loan the property will be sold
with the absolute certainty that the lender will recover the debt,
and all related expenses, in full.
The term
A typical term is 12 months, with the loan to be repaid in full at
the end. Normally there will be the right to redeem the loan
earlier, but watch out for the minimum term requirement. Many
bridging loan companies insist that you keep the loan for a certain
period, typically three months (see above). This insures a
guaranteed overall profit on each transaction. You can’t redeem
the loan even if you are able to do so!
Non-status
Unlike mortgages, most bridging loans are not based on your
ability to repay the loan. They are, in the jargon, ‘non-status
loans’. Income, therefore, is not a factor in deciding whether you
should get a bridging loan or not. At the same time, confusingly,
application forms for such loans do ask about employment details
and income. It is important at the outset to establish that your
loan will indeed be non-status unless, of course, you have
sufficient income to service the loan, together with you current
mortgage and all other liabilities!
As with mortgages there are standard criteria that apply to
virtually all bridging loans.
Maximum loan
Given these indecent profit margins, you might expect lenders to
be generous with their loan-to-value criteria. Not so. The
maximum loan you can expect is 70%. This is belt and braces for
the lender. If you fail to redeem the loan the property will be sold
with the absolute certainty that the lender will recover the debt,
and all related expenses, in full.
The term
A typical term is 12 months, with the loan to be repaid in full at
the end. Normally there will be the right to redeem the loan
earlier, but watch out for the minimum term requirement. Many
bridging loan companies insist that you keep the loan for a certain
period, typically three months (see above). This insures a
guaranteed overall profit on each transaction. You can’t redeem
the loan even if you are able to do so!
Non-status
Unlike mortgages, most bridging loans are not based on your
ability to repay the loan. They are, in the jargon, ‘non-status
loans’. Income, therefore, is not a factor in deciding whether you
should get a bridging loan or not. At the same time, confusingly,
application forms for such loans do ask about employment details
and income. It is important at the outset to establish that your
loan will indeed be non-status unless, of course, you have
sufficient income to service the loan, together with you current
mortgage and all other liabilities!
Rabu, 08 April 2009
Truth About Your Property Brokers Fees for your Investment
Truth About Your Property Brokers Fees for your Investment
It is not generally known that mortgage brokers are paid by the
lenders in the form of a marketing allowance (or procuration fee).
This will be anything from 0.25 to 1% of the mortgage amount
and it is paid regardless of whether the broker charges the client a
fee or not. The reason this is not generally known is because
brokers do not generally tell you! And while they are now obliged
to reveal this fact (in the KFI) to residential borrowers and to
disclose the full cash amount received, they will not necessarily do
this for the BTL borrower (see above). The point to remember is
this: if you pay your broker a fee he is paid twice!
In addition to a fee payable on completion, some brokers also
charge an administration fee, payable immediately and usually
non-refundable. This can be anything from £100 to £500. If your
broker feels the need to charge a fee before doing any work for
you, how confident can he be that he will secure a mortgage?
So what should you do? The obvious answer is to find a broker
who does not charge a fee. If you can’t find one ask how much
the broker will receive from the lender and negotiate on any fee
he wishes to charge you. If the broker is reluctant to discuss these
matters look for another broker.
WHERE TO FIND A BROKER
The obvious source is local and national newspaper advertising.
There is, however, an organisation called IFA Promotions that
carries details of independent financial advisers in your area.
Their website is www.unbiased.co.uk. In this case you will know,
before you start, that your broker is independent.
WHAT TO ASK
Wherever you find your mortgage broker, there are some basic
questions you need to ask before you commit yourself, body and
soul, to their financial advice:
- Is the broker authorised by the FSA to conduct mortgage
business?
- Does he have access to the whole market?
- Does he provide advice?
- Does he charge a fee?
- What procuration fee will the broker receive from a lender?
- Does he charge an up-front admin fee?
- Does he use a packager?
If the answer to any of the first three is no and the answer to
either of the last two is yes, you should definitely go elsewhere.
It is not generally known that mortgage brokers are paid by the
lenders in the form of a marketing allowance (or procuration fee).
This will be anything from 0.25 to 1% of the mortgage amount
and it is paid regardless of whether the broker charges the client a
fee or not. The reason this is not generally known is because
brokers do not generally tell you! And while they are now obliged
to reveal this fact (in the KFI) to residential borrowers and to
disclose the full cash amount received, they will not necessarily do
this for the BTL borrower (see above). The point to remember is
this: if you pay your broker a fee he is paid twice!
In addition to a fee payable on completion, some brokers also
charge an administration fee, payable immediately and usually
non-refundable. This can be anything from £100 to £500. If your
broker feels the need to charge a fee before doing any work for
you, how confident can he be that he will secure a mortgage?
So what should you do? The obvious answer is to find a broker
who does not charge a fee. If you can’t find one ask how much
the broker will receive from the lender and negotiate on any fee
he wishes to charge you. If the broker is reluctant to discuss these
matters look for another broker.
WHERE TO FIND A BROKER
The obvious source is local and national newspaper advertising.
There is, however, an organisation called IFA Promotions that
carries details of independent financial advisers in your area.
Their website is www.unbiased.co.uk. In this case you will know,
before you start, that your broker is independent.
WHAT TO ASK
Wherever you find your mortgage broker, there are some basic
questions you need to ask before you commit yourself, body and
soul, to their financial advice:
- Is the broker authorised by the FSA to conduct mortgage
business?
- Does he have access to the whole market?
- Does he provide advice?
- Does he charge a fee?
- What procuration fee will the broker receive from a lender?
- Does he charge an up-front admin fee?
- Does he use a packager?
If the answer to any of the first three is no and the answer to
either of the last two is yes, you should definitely go elsewhere.
Knowing The Mortgage Broker before invesiting the property
Knowing The Mortgage Broker before invesiting the property
Given the complexity of the buy-to-let (BTL) market a good
mortgage broker can be of considerable benefit in sourcing the
right product from the right lender. He will be up to date with the
latest lending criteria, will know the lenders who have a
drawdown facility or who will lend to limited companies and will
know the product range in the market and where to find the
maximum loan possible. The following points, however, should be
noted when dealing with a mortgage broker.
TIED, PANEL ORWHOLE OFMARKET
There are three categories of mortgage broker. The tied broker
can offer products of one lender only. This is the case for most
banks and building societies. Some brokers work from a panel of
lenders and will offer products from that panel only. Finally, there
are whole-of-market brokers who have access to all lenders in the
market. In each case the broker is obliged to declare his status at
the outset.
It goes without saying given the complexities of the BTL market,
that only the last category – the whole-of-market broker – should
be considered by a potential BTL borrower.
REGULATEDBROKERS
Since 1 November 2005 all brokers are directly regulated by the
Financial Services Authority (FSA) and work under a strict set of
rules and regulations.
REGULATED AND NON-REGULATEDMORTGAGES
While the brokers are regulated, however, the mortgages they
arrange can be regulated or non-regulated! Confused?
In their wisdom the FSA decided that not all mortgages should be
regulated and only regulated mortgages should offer the borrower
full protection if things go wrong. The broker and the lender must
decide at the outset whether the loan is regulated or not. Among
the guidelines provided to help them to decide, the following is the
most important:
Will 40% of the property be occupied by the borrower or his
or her immediate family? If the answer is no then the mortgage
is not regulated. It is obvious, therefore, that BTL mortgages
are not regulated.
The significance of this should not be underestimated. Neither the
lender nor the broker is obliged to follow the strict rules of
disclosure regarding such matters as fees, redemption penalties,
advertising content and so forth. Nor will you be asked, for
example, to state why you wish to choose an interest only
mortgage or to confirm that you are aware of the associated risks.
You may not receive the full, detailed key features illustration
(KFI) provided for residential borrowers. You are, in effect,
entering into a commercial transaction and you are deemed to be
capable of looking after yourself!
ADVISED AND NON-ADVISED
Most brokers (tied, panel or whole of market) give advice on the
appropriate product for your needs, based on a full analysis of the
information you provide. You will encounter brokers, however, who
act solely on a non-advised basis. They do not ask you to provide
detailed information about your circumstances and do not offer any
advice. They simply provide the product you ask for. They are
obliged to inform you that you are buying a product on a nonadvised
or execution-only basis. It goes without saying that you have
no protection whatever in these circumstances if things go wrong.
BROKERS ANDPACKAGERS
A further complication when dealing with a broker is the fact that
some brokers use packagers when sourcing a mortgage. A
packager packages mortgages for lenders. In other words they deal
with all the initial admin such as application forms, valuations,
credit checks and so on, and then pass the packaged mortgage to
the lender for an underwriting decision.
While some lenders see this as a useful way of attracting volume
business (and reducing their costs), there are three major problems
with this arrangement, from the point of view of the borrower:
- Interminable delays! Every lender has certain requirements in
terms of paperwork, proof of income, proof of address, etc. In
many cases, however, they will at least consider the case while
waiting for all the paperwork to turn up. If there is a problem
(unrelated to paperwork still to come) you will know about it
straightaway. When a packager is used, you will not. The
reason is simply that nothing is passed to the lender until
absolutely every piece of paperwork is in. Only then will you
know if there is a problem!
- Brokers who use packagers are at a serious disadvantage: they
cannot talk directly to the lender. They must communicate with
the packager alone and hope that they, in turn, will pass on
immediately their queries to the lender. In practice they will
not. The reason is simply that your case is one of hundreds the
packager is dealing with. The packager has a schedule for
communications with your particular lender. That may be
Tuesday afternoon! In that case your broker’s inquiry could
well reach the lender on Tuesday afternoon, whatever the
packager has told him! To describe this as inefficient would be
a serious understatement.
- There is also the obvious handicap of never being able to talk
directly to the underwriter who will make the final decision on
the case. Underwriters can be persuaded to change their minds
and are open to suggestions. In practice it is impossible to
negotiate in this way through a packager.
Given the complexity of the buy-to-let (BTL) market a good
mortgage broker can be of considerable benefit in sourcing the
right product from the right lender. He will be up to date with the
latest lending criteria, will know the lenders who have a
drawdown facility or who will lend to limited companies and will
know the product range in the market and where to find the
maximum loan possible. The following points, however, should be
noted when dealing with a mortgage broker.
TIED, PANEL ORWHOLE OFMARKET
There are three categories of mortgage broker. The tied broker
can offer products of one lender only. This is the case for most
banks and building societies. Some brokers work from a panel of
lenders and will offer products from that panel only. Finally, there
are whole-of-market brokers who have access to all lenders in the
market. In each case the broker is obliged to declare his status at
the outset.
It goes without saying given the complexities of the BTL market,
that only the last category – the whole-of-market broker – should
be considered by a potential BTL borrower.
REGULATEDBROKERS
Since 1 November 2005 all brokers are directly regulated by the
Financial Services Authority (FSA) and work under a strict set of
rules and regulations.
REGULATED AND NON-REGULATEDMORTGAGES
While the brokers are regulated, however, the mortgages they
arrange can be regulated or non-regulated! Confused?
In their wisdom the FSA decided that not all mortgages should be
regulated and only regulated mortgages should offer the borrower
full protection if things go wrong. The broker and the lender must
decide at the outset whether the loan is regulated or not. Among
the guidelines provided to help them to decide, the following is the
most important:
Will 40% of the property be occupied by the borrower or his
or her immediate family? If the answer is no then the mortgage
is not regulated. It is obvious, therefore, that BTL mortgages
are not regulated.
The significance of this should not be underestimated. Neither the
lender nor the broker is obliged to follow the strict rules of
disclosure regarding such matters as fees, redemption penalties,
advertising content and so forth. Nor will you be asked, for
example, to state why you wish to choose an interest only
mortgage or to confirm that you are aware of the associated risks.
You may not receive the full, detailed key features illustration
(KFI) provided for residential borrowers. You are, in effect,
entering into a commercial transaction and you are deemed to be
capable of looking after yourself!
ADVISED AND NON-ADVISED
Most brokers (tied, panel or whole of market) give advice on the
appropriate product for your needs, based on a full analysis of the
information you provide. You will encounter brokers, however, who
act solely on a non-advised basis. They do not ask you to provide
detailed information about your circumstances and do not offer any
advice. They simply provide the product you ask for. They are
obliged to inform you that you are buying a product on a nonadvised
or execution-only basis. It goes without saying that you have
no protection whatever in these circumstances if things go wrong.
BROKERS ANDPACKAGERS
A further complication when dealing with a broker is the fact that
some brokers use packagers when sourcing a mortgage. A
packager packages mortgages for lenders. In other words they deal
with all the initial admin such as application forms, valuations,
credit checks and so on, and then pass the packaged mortgage to
the lender for an underwriting decision.
While some lenders see this as a useful way of attracting volume
business (and reducing their costs), there are three major problems
with this arrangement, from the point of view of the borrower:
- Interminable delays! Every lender has certain requirements in
terms of paperwork, proof of income, proof of address, etc. In
many cases, however, they will at least consider the case while
waiting for all the paperwork to turn up. If there is a problem
(unrelated to paperwork still to come) you will know about it
straightaway. When a packager is used, you will not. The
reason is simply that nothing is passed to the lender until
absolutely every piece of paperwork is in. Only then will you
know if there is a problem!
- Brokers who use packagers are at a serious disadvantage: they
cannot talk directly to the lender. They must communicate with
the packager alone and hope that they, in turn, will pass on
immediately their queries to the lender. In practice they will
not. The reason is simply that your case is one of hundreds the
packager is dealing with. The packager has a schedule for
communications with your particular lender. That may be
Tuesday afternoon! In that case your broker’s inquiry could
well reach the lender on Tuesday afternoon, whatever the
packager has told him! To describe this as inefficient would be
a serious understatement.
- There is also the obvious handicap of never being able to talk
directly to the underwriter who will make the final decision on
the case. Underwriters can be persuaded to change their minds
and are open to suggestions. In practice it is impossible to
negotiate in this way through a packager.
Selasa, 07 April 2009
The common misconceptions about bridging finance
The common misconceptions about bridging finance
Let us first deal with the widespread misconceptions about
bridging finance:
- It is not a mortgage. Wrong. It is a mortgage.
- It is very fast and simple. Wrong. It is a mortgage.
- It is expensive. Wrong. It is a horrendously expensive mortgage.
No lender will happily advance many thousands of pounds without
security. A loan secured on a property is a mortgage. Bridging
finance is a mortgage. Even if the loan will be needed for a very
short time, the lender will still require a charge on a property so that
they can recover their loan if the borrower defaults.
By definition, therefore, it is not a simple process and, while it is
faster than a traditional mortgage, it is not at all as fast as is
commonly believed. All the normal requirements of a mortgage
are there:
- Proof of ID and address.
- Satisfactory valuation.
- Proof of title.
- Buildings insurance.
- Registration of mortgage deeds.
Having said that, specialist bridging finance companies do tend to
work faster than the banks by, for example, insuring the title to
the property instead of conducting searches through the local
authorities. Such searches can add weeks to the mortgage process.
Again, specialist firms will tend to arrange valuations very quickly
and move the whole process along at a brisker pace than the
banks. While a bank can take up to three or four weeks to
arrange the loan, a bridging finance company could achieve the
same result in, perhaps, seven working days if all the requirements
listed above can be met in that time (claims for a shorter
timescale than this should not be believed). They have, after all, a
powerful incentive to move quickly – their fees.
Let us first deal with the widespread misconceptions about
bridging finance:
- It is not a mortgage. Wrong. It is a mortgage.
- It is very fast and simple. Wrong. It is a mortgage.
- It is expensive. Wrong. It is a horrendously expensive mortgage.
No lender will happily advance many thousands of pounds without
security. A loan secured on a property is a mortgage. Bridging
finance is a mortgage. Even if the loan will be needed for a very
short time, the lender will still require a charge on a property so that
they can recover their loan if the borrower defaults.
By definition, therefore, it is not a simple process and, while it is
faster than a traditional mortgage, it is not at all as fast as is
commonly believed. All the normal requirements of a mortgage
are there:
- Proof of ID and address.
- Satisfactory valuation.
- Proof of title.
- Buildings insurance.
- Registration of mortgage deeds.
Having said that, specialist bridging finance companies do tend to
work faster than the banks by, for example, insuring the title to
the property instead of conducting searches through the local
authorities. Such searches can add weeks to the mortgage process.
Again, specialist firms will tend to arrange valuations very quickly
and move the whole process along at a brisker pace than the
banks. While a bank can take up to three or four weeks to
arrange the loan, a bridging finance company could achieve the
same result in, perhaps, seven working days if all the requirements
listed above can be met in that time (claims for a shorter
timescale than this should not be believed). They have, after all, a
powerful incentive to move quickly – their fees.
Choosing a Best Lender
Choosing a Best Lender
With the default rate of buy-to-let (BTL) mortgages lower than
that of residential mortgages and with interest rates higher, the
BTL market has proved a remarkable success story for lenders. As
a result, competition for this business has increased greatly in
recent years with more and more lenders offering a BTL product
range. How do you choose between them?
MAINSTREAMOR SPECIALIST
For most high-street lenders, BTL is an add-on. Their core
business remains residential mortgages for owner occupiers. For
that reason, when it comes to BTL, they tend to be unduly
restrictive in one way or another. For example, a lender may insist
that some element of personal income, in addition to the rent, be
taken into account when calculating the mortgage to be offered.
Others may lend only to 80% or 75%. Some will limit to just a
few the number of BTL properties you may purchase or put a cap
on the total value of your portfolio. Few will help you if you have
had any credit problems in the past. All will be considerably less
generous in their calculation of the maximum mortgage you can
have. For the serious investor the specialist lender remains the best
choice.
FIRST-TIME BUYER
Most lenders will not offer a BTL mortgage to a first-time buyer.
They expect you to have your own residential mortgage already.
Only one or two will consider first-time buyers. It is vital to check
this point with the lender, directly or through a broker, before
embarking on a decision in principle request or
full application. You will not only be wasting your time but you
will also leave too many footprints on your credit file
INTEREST RATES
Surprisingly, the lowest rates are not generally best for the BTL
investor, for they usually come with unacceptable conditions. A
particularly low initial rate, for example, may tie the borrower in
for a number of years after the rate has changed back to the
higher variable rate. Changing to another lender during this
‘extended tie-in’ will incur a hefty penalty. In addition, as we shall
see, choosing the lowest rate available always means sacrificing the
maximum mortgage available. For most investors the priority is to
borrow as much as possible.
CHARGES
These vary widely from lender to lender. All have an arrangement
fee (which can be added to the loan), but this fee can range from
a few hundred pounds to as much as 1.75% of the amount
borrowed! Because it is added to the loan (few choose to pay it up
front), there is a tendency to disregard it. It is, however, a very
costly add-on as interest is also paid on this amount for the
duration of the mortgage.
In addition to the arrangement fee (sometimes called a completion
fee), some lenders charge a ‘mortgage indemnity guarantee’ fee, or
MIG. This is essentially an insurance premium paid by the
borrower, but for the sole benefit of the lender. If the lender
repossesses the property but fails to recover the full mortgage
amount on resale, the insurance company will pay the lender the
difference (the insurance company can then legally pursue the
hapless borrower to recover the sum it has paid out!).
MAXIMUM MORTGAGE
Most lenders agree that the rent should exceed the mortgage
interest (not capital and interest) by a certain amount. But they
differ on two important counts – the definition of ‘interest ’ and
the margin by which it should be exceeded.
For most lenders the ‘interest ’ is not the rate you pay (which may
be quite low initially) but the standard variable rate (much higher)
charged by the lender. A few lenders, however, base the
calculation on the pay rate. Since this will normally be lower than
the variable rate, the mortgage available is correspondingly
higher. In addition, some lenders require the rent to be 130%,
others just 125% of the mortgage interest. A few will come down
to 115% or 110%. Choosing a lender with the right formula is
crucial if you want the maximum mortgage possible.
With the default rate of buy-to-let (BTL) mortgages lower than
that of residential mortgages and with interest rates higher, the
BTL market has proved a remarkable success story for lenders. As
a result, competition for this business has increased greatly in
recent years with more and more lenders offering a BTL product
range. How do you choose between them?
MAINSTREAMOR SPECIALIST
For most high-street lenders, BTL is an add-on. Their core
business remains residential mortgages for owner occupiers. For
that reason, when it comes to BTL, they tend to be unduly
restrictive in one way or another. For example, a lender may insist
that some element of personal income, in addition to the rent, be
taken into account when calculating the mortgage to be offered.
Others may lend only to 80% or 75%. Some will limit to just a
few the number of BTL properties you may purchase or put a cap
on the total value of your portfolio. Few will help you if you have
had any credit problems in the past. All will be considerably less
generous in their calculation of the maximum mortgage you can
have. For the serious investor the specialist lender remains the best
choice.
FIRST-TIME BUYER
Most lenders will not offer a BTL mortgage to a first-time buyer.
They expect you to have your own residential mortgage already.
Only one or two will consider first-time buyers. It is vital to check
this point with the lender, directly or through a broker, before
embarking on a decision in principle request or
full application. You will not only be wasting your time but you
will also leave too many footprints on your credit file
INTEREST RATES
Surprisingly, the lowest rates are not generally best for the BTL
investor, for they usually come with unacceptable conditions. A
particularly low initial rate, for example, may tie the borrower in
for a number of years after the rate has changed back to the
higher variable rate. Changing to another lender during this
‘extended tie-in’ will incur a hefty penalty. In addition, as we shall
see, choosing the lowest rate available always means sacrificing the
maximum mortgage available. For most investors the priority is to
borrow as much as possible.
CHARGES
These vary widely from lender to lender. All have an arrangement
fee (which can be added to the loan), but this fee can range from
a few hundred pounds to as much as 1.75% of the amount
borrowed! Because it is added to the loan (few choose to pay it up
front), there is a tendency to disregard it. It is, however, a very
costly add-on as interest is also paid on this amount for the
duration of the mortgage.
In addition to the arrangement fee (sometimes called a completion
fee), some lenders charge a ‘mortgage indemnity guarantee’ fee, or
MIG. This is essentially an insurance premium paid by the
borrower, but for the sole benefit of the lender. If the lender
repossesses the property but fails to recover the full mortgage
amount on resale, the insurance company will pay the lender the
difference (the insurance company can then legally pursue the
hapless borrower to recover the sum it has paid out!).
MAXIMUM MORTGAGE
Most lenders agree that the rent should exceed the mortgage
interest (not capital and interest) by a certain amount. But they
differ on two important counts – the definition of ‘interest ’ and
the margin by which it should be exceeded.
For most lenders the ‘interest ’ is not the rate you pay (which may
be quite low initially) but the standard variable rate (much higher)
charged by the lender. A few lenders, however, base the
calculation on the pay rate. Since this will normally be lower than
the variable rate, the mortgage available is correspondingly
higher. In addition, some lenders require the rent to be 130%,
others just 125% of the mortgage interest. A few will come down
to 115% or 110%. Choosing a lender with the right formula is
crucial if you want the maximum mortgage possible.
The principal products on offer in the buy to let BTL Market
The principal products on offer in the buy-to-let (BTL) market
are the following:
-discounted
-fixed
-base-rate tracker
-variable.
A discounted rate (i.e. a discount on the current variable rate)
will normally be offered for a period of two or three years, after
which the rate reverts to the variable. During the discount period
the pay rate can move up or down in line with the lender’s
variable rate. It is not fixed. There will be a penalty for redeeming
all or part of this mortgage during the discount period.
A fixed rate is just that – fixed, immovable. Fixed-rate terms are
generally from one to five years, with the longer fixed rates the
most expensive. There is a penalty for redeeming all or part of the
loan during the fixed period. There may also be a non-refundable
fee for booking the fixed rate at the outset.
Base-rate trackers (BRTs) are linked to the Bank of England base
rate (usually 0.5–1% above) and will follow that rate up and
down. They can apply for the full term of the mortgage or for a
limited period. A BRT will generally be cheaper than the variable
rate. Many BRTs have no redemption penalty at all. Those with a
limited BRT term will usually charge a fee for redemption.
The lender’s variable rate is the standard rate available on all its
products. It can be varied at any time and will be more expensive
than the other products offered. There are no redemption
penalties.
The choice of product will depend on your circumstances but the
following points are worth noting:
- If it is important to be able to redeem the mortgage in the
early years, then the variable rate or a BRT (without a
redemption penalty) are the only suitable products. The others
will tie you in for a number of years with severe penalties (as
high as 5%) for early redemption. This is particularly
important if you think it likely that you will remortgage with
another lender during the period to which the redemption
penalty applies.
-You may be quite happy to stay with a lender for the duration
of any special deal on offer. It is unlikely, however, that you
will want to be tied to the same lender for a number of years
after your deal has come to an end (and you are back on the
lender’s more expensive variable rate). That is an extended tiein.
It is surprising how often this detail is missed when a
tantalisingly cheap interest rate is on offer. Extended tie-ins
should be avoided at all costs. There are no free lunches!
are the following:
-discounted
-fixed
-base-rate tracker
-variable.
A discounted rate (i.e. a discount on the current variable rate)
will normally be offered for a period of two or three years, after
which the rate reverts to the variable. During the discount period
the pay rate can move up or down in line with the lender’s
variable rate. It is not fixed. There will be a penalty for redeeming
all or part of this mortgage during the discount period.
A fixed rate is just that – fixed, immovable. Fixed-rate terms are
generally from one to five years, with the longer fixed rates the
most expensive. There is a penalty for redeeming all or part of the
loan during the fixed period. There may also be a non-refundable
fee for booking the fixed rate at the outset.
Base-rate trackers (BRTs) are linked to the Bank of England base
rate (usually 0.5–1% above) and will follow that rate up and
down. They can apply for the full term of the mortgage or for a
limited period. A BRT will generally be cheaper than the variable
rate. Many BRTs have no redemption penalty at all. Those with a
limited BRT term will usually charge a fee for redemption.
The lender’s variable rate is the standard rate available on all its
products. It can be varied at any time and will be more expensive
than the other products offered. There are no redemption
penalties.
The choice of product will depend on your circumstances but the
following points are worth noting:
- If it is important to be able to redeem the mortgage in the
early years, then the variable rate or a BRT (without a
redemption penalty) are the only suitable products. The others
will tie you in for a number of years with severe penalties (as
high as 5%) for early redemption. This is particularly
important if you think it likely that you will remortgage with
another lender during the period to which the redemption
penalty applies.
-You may be quite happy to stay with a lender for the duration
of any special deal on offer. It is unlikely, however, that you
will want to be tied to the same lender for a number of years
after your deal has come to an end (and you are back on the
lender’s more expensive variable rate). That is an extended tiein.
It is surprising how often this detail is missed when a
tantalisingly cheap interest rate is on offer. Extended tie-ins
should be avoided at all costs. There are no free lunches!
Senin, 06 April 2009
Get your 100% BTL mortgages
Get your 100% BTL mortgages
Buy-to-let (BTL) lenders will always require a deposit. This is
usually 15%, with a few lenders accepting 10%. There are no
100% BTL mortgages. If you have no ready funds available,
therefore, you will have to borrow the deposit. But how do you do
this?
If you already have a residential mortgage on your own property
and there is sufficient equity in the property (the difference
between its value and the outstanding mortgage), you may be able
to borrow additional funds from your existing lender. This is
undoubtedly the quickest and the cheapest way to raise the cash
you need. However, there are several hurdles to leap:
- First, your earned income must be sufficient to satisfy the
lender that you can service the extra amount.
- Secondly, your lender will want to know what you want the
extra cash for. Some residential lenders will not countenance
borrowing for the purpose of raising the deposit for another
purchase. They fear you may be getting in over your head.
-Thirdly, your lender will carry out a new credit check to make
sure nothing has changed since your original mortgage was
arranged. If your credit rating has changed for the worse (e.g.
defaults on credit card payments or county court judgments),
this could pose problems, not only making the extra borrowing
impossible but also alerting your lender to your current
financial problems.
If you don’t already have a mortgaged property (i.e. you are a
first-time buyer) and you have no cash available for a deposit, the
problems you face are considerably greater. First, leaving aside the
missing deposit, the vast majority of BTL lenders require you to
have an existing residential mortgage before they will consider you
for a BTL loan (see below). Secondly, the possible route to the
elusive deposit in this case is slow and uncertain. This is what you
need to do:
-First, buy a property for your own use on a 100% residential
mortgage (100% mortgages, though rare, do exist for
residential purchases).
- Secondly, the property you buy should be one that can be
improved, thus increasing in value (typically requiring some or
all of the following: new bathroom, kitchen, central heating,
double glazing).
- Finally, remortgage with another lender to raise the cash on
the new increased value of the property you have bought and
improved.
Simple? Not as simple as it looks. Lenders will advance 100% (or
even more) but on very stringent criteria. The borrower:
-must have an impeccable credit rating
- should be employed rather than self-employed
- should be well out of any probationary period
- should have good prospects of advancement
- should have a sufficiently high income to satisfy the lender’s
income requirements for a 100% mortgage.
As you can see, such loans are not available for everyone.
If the property you buy obviously needs improvement, it may well
be possible to increase its value by carrying out the improvements.
But how will you pay for this if you have no available cash?
Moreover, the sort of improvements that can have a significant
impact on the value are, by definition, expensive – new kitchen,
new bathroom, central heating and double glazing.
Finally, if all these obstacles are overcome, a new mortgage needs
to be raised on the property you have improved. Here you will
encounter an unexpected problem – the loan-to-value ratio (LTV)
applicable to remortgages. You may have had a 100% mortgage
for the original purchase but few lenders will advance more than
90% on a remortgage and none will do 100%. Care needs to be
taken that the projected ‘new value’ of the property will be
sufficient to take this into account. Also, bear in mind that the
new mortgage has built-in costs – valuation fees, legal costs,
mortgage arrangement fees and possibly broker fees. These must
also be budgeted for.
In practical terms, 100% finance for a BTL mortgage is possible
only for the investor who has an existing residential mortgage.
For the first-time buyer it is a pure myth.
Buy-to-let (BTL) lenders will always require a deposit. This is
usually 15%, with a few lenders accepting 10%. There are no
100% BTL mortgages. If you have no ready funds available,
therefore, you will have to borrow the deposit. But how do you do
this?
If you already have a residential mortgage on your own property
and there is sufficient equity in the property (the difference
between its value and the outstanding mortgage), you may be able
to borrow additional funds from your existing lender. This is
undoubtedly the quickest and the cheapest way to raise the cash
you need. However, there are several hurdles to leap:
- First, your earned income must be sufficient to satisfy the
lender that you can service the extra amount.
- Secondly, your lender will want to know what you want the
extra cash for. Some residential lenders will not countenance
borrowing for the purpose of raising the deposit for another
purchase. They fear you may be getting in over your head.
-Thirdly, your lender will carry out a new credit check to make
sure nothing has changed since your original mortgage was
arranged. If your credit rating has changed for the worse (e.g.
defaults on credit card payments or county court judgments),
this could pose problems, not only making the extra borrowing
impossible but also alerting your lender to your current
financial problems.
If you don’t already have a mortgaged property (i.e. you are a
first-time buyer) and you have no cash available for a deposit, the
problems you face are considerably greater. First, leaving aside the
missing deposit, the vast majority of BTL lenders require you to
have an existing residential mortgage before they will consider you
for a BTL loan (see below). Secondly, the possible route to the
elusive deposit in this case is slow and uncertain. This is what you
need to do:
-First, buy a property for your own use on a 100% residential
mortgage (100% mortgages, though rare, do exist for
residential purchases).
- Secondly, the property you buy should be one that can be
improved, thus increasing in value (typically requiring some or
all of the following: new bathroom, kitchen, central heating,
double glazing).
- Finally, remortgage with another lender to raise the cash on
the new increased value of the property you have bought and
improved.
Simple? Not as simple as it looks. Lenders will advance 100% (or
even more) but on very stringent criteria. The borrower:
-must have an impeccable credit rating
- should be employed rather than self-employed
- should be well out of any probationary period
- should have good prospects of advancement
- should have a sufficiently high income to satisfy the lender’s
income requirements for a 100% mortgage.
As you can see, such loans are not available for everyone.
If the property you buy obviously needs improvement, it may well
be possible to increase its value by carrying out the improvements.
But how will you pay for this if you have no available cash?
Moreover, the sort of improvements that can have a significant
impact on the value are, by definition, expensive – new kitchen,
new bathroom, central heating and double glazing.
Finally, if all these obstacles are overcome, a new mortgage needs
to be raised on the property you have improved. Here you will
encounter an unexpected problem – the loan-to-value ratio (LTV)
applicable to remortgages. You may have had a 100% mortgage
for the original purchase but few lenders will advance more than
90% on a remortgage and none will do 100%. Care needs to be
taken that the projected ‘new value’ of the property will be
sufficient to take this into account. Also, bear in mind that the
new mortgage has built-in costs – valuation fees, legal costs,
mortgage arrangement fees and possibly broker fees. These must
also be budgeted for.
In practical terms, 100% finance for a BTL mortgage is possible
only for the investor who has an existing residential mortgage.
For the first-time buyer it is a pure myth.
What is The Buy-to-LetMortgage
What is The Buy-to-LetMortgage
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
There was a time when a mortgage to buy an investment
residential property was virtually impossible. The problem was
simply that lenders applied the same lending criteria to such
transactions as they did to a normal residential mortgage. In
other words, the commercial aspect of the venture (the rent) was
ignored and the borrower was expected to fund the mortgage
entirely from his earned income. If there was a mortgage already
in place on another property, the earned income would have to be
sufficient to cover both mortgages! Not surprisingly, there wasn’t a
great deal of scope for investing in the residential sector.
In the late 1990s, the buy-to-let (BTL) mortgage changed all that.
Lenders decided, in effect, to ignore any existing mortgage and to
concentrate instead on the new BTL purchase. What mattered was
not the borrower’s personal earned income but the potential
rental income from the new investment.
To protect themselves (and the borrower) they set strict limits on
the amount that could be borrowed and also required that the rent
should comfortably exceed the interest paid on the mortgage. In
the early days the maximum mortgage available was 75% of the
purchase price. This gradually moved to 85% which is now the
norm (although some lenders will offer 90%). The rent must be
125% or 130% (depending on the lender) of the mortgage interest
payment. A few lenders, however, will take a more relaxed view
and accept 110% or 115%. A few will even consider 100% if the
borrowing level is very low.
An additional incentive for lenders was the new assured shorthold
tenancy (AST) introduced by the Housing Act 1988. This assured
the tenant the right to the property for the term of the tenancy
(six or 12 months) but also, crucially, assured the landlord the
right to recover possession easily and quickly at the end of the
tenancy. The risk of being saddled with a tenant for life had
disappeared
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
There was a time when a mortgage to buy an investment
residential property was virtually impossible. The problem was
simply that lenders applied the same lending criteria to such
transactions as they did to a normal residential mortgage. In
other words, the commercial aspect of the venture (the rent) was
ignored and the borrower was expected to fund the mortgage
entirely from his earned income. If there was a mortgage already
in place on another property, the earned income would have to be
sufficient to cover both mortgages! Not surprisingly, there wasn’t a
great deal of scope for investing in the residential sector.
In the late 1990s, the buy-to-let (BTL) mortgage changed all that.
Lenders decided, in effect, to ignore any existing mortgage and to
concentrate instead on the new BTL purchase. What mattered was
not the borrower’s personal earned income but the potential
rental income from the new investment.
To protect themselves (and the borrower) they set strict limits on
the amount that could be borrowed and also required that the rent
should comfortably exceed the interest paid on the mortgage. In
the early days the maximum mortgage available was 75% of the
purchase price. This gradually moved to 85% which is now the
norm (although some lenders will offer 90%). The rent must be
125% or 130% (depending on the lender) of the mortgage interest
payment. A few lenders, however, will take a more relaxed view
and accept 110% or 115%. A few will even consider 100% if the
borrowing level is very low.
An additional incentive for lenders was the new assured shorthold
tenancy (AST) introduced by the Housing Act 1988. This assured
the tenant the right to the property for the term of the tenancy
(six or 12 months) but also, crucially, assured the landlord the
right to recover possession easily and quickly at the end of the
tenancy. The risk of being saddled with a tenant for life had
disappeared
The Risks in Property Investment
Yes, there are risks!
Despite the highly promising scenario outlined in the previous
chapters, things can go wrong and undoubtedly will in the course
of your investment. Here are some of the most likely.
PRICE FALLS
Nobody likes to think of house prices falling, particularly if there
has been a sustained period of above-average rises and we have
been lulled into believing it will always be like this. Unfortunately,
however, prices do fall (and are more likely to do so after a
sustained period of above-average rises). How does this affect the
market?
With regards to the reduced value of a property portfolio, this
should not worry the investor seriously. Property investment is for
the long term. Prices can be expected to fluctuate. It is the longterm
gain that matters. In addition, it is normally not possible to
borrow more than 85% of the property’s value, so the risk of
negative equity (where you owe more than the property is worth)
is slight. But what about the rental market?
When prices start to fall it might be expected that more people
will decide to buy. This is not so. They decide to wait! Nobody,
after all, wants to buy now when prices may have much further to
6
fall. As a result, the decision to buy is put off. In the meantime,
would-be purchasers rent.
While first-time buyers delay their purchase, so do many investors,
and for the same reason. This, too, affects the rental market
because fewer properties become available to let. There is,
therefore, both a reduced supply of and an increased demand for
rental accommodation. The net effect is to improve considerably the
lot of the landlord. It is easier to find tenants and easier to review
rents upwards when tenancy agreements are due for renewal.
PRICE RISES
Price rises are more serious problem for the rental market. The
perception of ever increasing price rises attracts the wrong sort of
investor – the short-term, capital gain speculator. The difficulty
here is that, while the speculator is waiting for his capital gain, he
lets his property. This has the effect of increasing the supply of
rented accommodation and temporarily depressing rents.
The investor who has bought the right sort of property in the
right area and with a view to the long term will not be greatly
affected by this. Such an investor can wait for the market to turn.
When prices reach their peak, the speculators will go and sanity
will return. Unfortunately, as we shall see, the less careful investor
could well suffer in the meantime.
INTEREST RATE RISES
We are all at the mercy of mortgage rate fluctuations. While the
occasional quarter point rise will make little difference, a
succession of such increases will hurt. But will they cause serious
damage?
T H E R I S K S
Buy-to-let lenders are a canny lot and have already thought of
this. As we shall see, such mortgages are based on an independent
estimate of the rental income. In addition, most prudent lenders
insist that the rent should be 125% or 130% of the monthly
mortgage cost. By protecting themselves in this way, mortgage
lenders are also protecting their customers.
VOIDS
An ugly term to describe periods when a property is without
tenants.
It is sensible to expect some periods during which a property will
not be let. One month in 12 is a good rule of thumb. The simple
way to deal with voids is to plan ahead and anticipate a rental
income for no more than 11 months a year.
As for the property itself, there is the risk that if it is empty for a
prolonged period of time it may attract squatters. It will need to
be watched carefully. There is also the matter of building
insurance. If the property is empty for more than a specified time
(anywhere between one month and three), the insurer may not pay
out in the event of a claim. Check the policy schedule and advise
the insurer of any change of circumstances that might affect a
claim.
Despite the highly promising scenario outlined in the previous
chapters, things can go wrong and undoubtedly will in the course
of your investment. Here are some of the most likely.
PRICE FALLS
Nobody likes to think of house prices falling, particularly if there
has been a sustained period of above-average rises and we have
been lulled into believing it will always be like this. Unfortunately,
however, prices do fall (and are more likely to do so after a
sustained period of above-average rises). How does this affect the
market?
With regards to the reduced value of a property portfolio, this
should not worry the investor seriously. Property investment is for
the long term. Prices can be expected to fluctuate. It is the longterm
gain that matters. In addition, it is normally not possible to
borrow more than 85% of the property’s value, so the risk of
negative equity (where you owe more than the property is worth)
is slight. But what about the rental market?
When prices start to fall it might be expected that more people
will decide to buy. This is not so. They decide to wait! Nobody,
after all, wants to buy now when prices may have much further to
6
fall. As a result, the decision to buy is put off. In the meantime,
would-be purchasers rent.
While first-time buyers delay their purchase, so do many investors,
and for the same reason. This, too, affects the rental market
because fewer properties become available to let. There is,
therefore, both a reduced supply of and an increased demand for
rental accommodation. The net effect is to improve considerably the
lot of the landlord. It is easier to find tenants and easier to review
rents upwards when tenancy agreements are due for renewal.
PRICE RISES
Price rises are more serious problem for the rental market. The
perception of ever increasing price rises attracts the wrong sort of
investor – the short-term, capital gain speculator. The difficulty
here is that, while the speculator is waiting for his capital gain, he
lets his property. This has the effect of increasing the supply of
rented accommodation and temporarily depressing rents.
The investor who has bought the right sort of property in the
right area and with a view to the long term will not be greatly
affected by this. Such an investor can wait for the market to turn.
When prices reach their peak, the speculators will go and sanity
will return. Unfortunately, as we shall see, the less careful investor
could well suffer in the meantime.
INTEREST RATE RISES
We are all at the mercy of mortgage rate fluctuations. While the
occasional quarter point rise will make little difference, a
succession of such increases will hurt. But will they cause serious
damage?
T H E R I S K S
Buy-to-let lenders are a canny lot and have already thought of
this. As we shall see, such mortgages are based on an independent
estimate of the rental income. In addition, most prudent lenders
insist that the rent should be 125% or 130% of the monthly
mortgage cost. By protecting themselves in this way, mortgage
lenders are also protecting their customers.
VOIDS
An ugly term to describe periods when a property is without
tenants.
It is sensible to expect some periods during which a property will
not be let. One month in 12 is a good rule of thumb. The simple
way to deal with voids is to plan ahead and anticipate a rental
income for no more than 11 months a year.
As for the property itself, there is the risk that if it is empty for a
prolonged period of time it may attract squatters. It will need to
be watched carefully. There is also the matter of building
insurance. If the property is empty for more than a specified time
(anywhere between one month and three), the insurer may not pay
out in the event of a claim. Check the policy schedule and advise
the insurer of any change of circumstances that might affect a
claim.
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