Commercial HMO property mortgages and remortgages

Commercial Mortgages

We were recently asked to arrange a mortgage on a 28-room HMO in London valued at £1.75m.

The applicant wanted to purchase the property and he had already tried the high street banks, who all said that they “had no appetite” for lending in that market. Our client was an experienced landlord with many other properties under rental, although this was to be his first HMO.

He originally wanted to borrow £1,312,500 which is 75% of the purchase price, but this was outside lending criteria and he didn’t have further capital to increase his deposit. We looked at his existing portfolio and found that he had several properties generating good rents, but with low value mortgages. He agreed that we could use these properties if need be.

We presented our lender with an application for funds to purchase the HMO and asked them to take two of the existing BTL properties into account using the aggregate equity in a combined purchase and remortgage package.

At the time, the lender had a maximum mortgage limit of £1m, but they agreed to lend the required £1,312,500 at a credit committee meeting after the underwriters had demonstrated that the HMO was in a prime location and the applicant had the necessary experience.

We therefore arranged just one mortgage, which meant only one set of arrangement fees, and only one solicitor’s fee, which was discounted, as all three properties were treated as a package.

This demonstrates that location can play a big part in lenders’ decision making, and in the right circumstances, lenders are willing to be flexible and lend beyond published criteria.

development funding finance mortgages explained

Development Funding Development Finance mortgages explained.

Development Finance for land, building plots and new build or property conversions. Property Development Finance is available now. Fast flexible funding arrangements can be approved for residential and commercial property development with up to 100% funding for developments in the UK. Loan amounts are available up to £10,000,000.  Are you looking for a flexible financing package for developing an existing property or building new homes?

Property development finance is a form of secured short term funding, specifically for builders and developers who need to finance site purchase and cost of development/construction.

Typically the development financer would offer 50% of site purchase costs, followed by up to 100% of the total development costs. Although it is possible with some lenders to borrow 60% of the purchase costs and 60% of the development costs.

How long can the facility be open for? Development lenders will have guideline time scales for projects, for example a single house construction to completion may take 6 to 9 months, but a conversion of an existing building into apartments may take longer depending on the complexity of the build or refurbishment.

Once the construction works have completed, the developer may keep the property on the development finance arrangement until the property has sold. In some cases a refinance of the property onto a long term mortgage can be arranged to repay the development loan, as well as borrow additional funds against the GDV (gross developed value).

Development funding is secured by way of a first legal charge on the site or property to be developed. The property, or plot of land, would need to be freehold or long leasehold. Funding can be provided to private individuals, partnerships and any UK registered limited company.

Residential development loans for the small to medium developer are available to fund both the site purchase costs and up to 100% of the project development costs.

Where a property is being bought at auction, a 10% deposit is required on the day with the remaining 90% of the funds being required within 28 days.  Fast bridging finance can be arranged even if the property is a distressed sale and un-mortgagable. With a bridging loan secured against the property,   planning applications and development proposals may be submitted. With successful planning there may well be an uplift in the property value, which would provide additional equity and assist the LTV (loan-to-value) on development funding.

National Loan Guarantee Scheme

National Loan Guarantee Scheme (NLGS)

The government has introduced an incentive for commercial mortgages and remortgages which will substantially reduce the cost of borrowing for borrowers and stimulate growth and employment. The scheme effectively provides a discount, or reduction, of 1% off the lenders’ interest rates for the first 5 years of the mortgage.

Click on this link for full details http://www.hm-treasury.gov.uk/nlgs

Lenders can apply this incentive in any way they choose, but the borrower will benefit, as shown by looking at the individual lender’s website within the above HM Treasury website. Some of the benefits are shown below:

• A repayment mortgage of £650,000 over 20 years at the lender’s normal interest rate of 3.69% above bank base rate (BBR) would usually cost £3,990.78 per month. With NLGS the monthly repayments will fall to £3,657.62 per month – a saving of nearly £4,000 per year. • Instead of providing a discount over the first 5 years, the lender can give a one-off ‘cashback’ to the borrower upon completion of the mortgage. This could be a very welcome bonus and help to pay legal fees, Stamp Duty, property improvements, or working capital. Look at these  examples: a) £350,000 mortgage over 20 years with an interest rate of 3.75% above BBR would attract a cashback of £15,000. b) £150,000 mortgage over 15 years with an interest rate of 4.89% above BBR would attract a cashback of £6,204. c) £750,000 mortgage over 15 years with an interest rate of 3.49% above BBR would attract a cashback of £29,403.

Now has never been a better time to invest in a new property purchase, or remortgage and raise capital to invest in your business. However, this Government incentive is for an unspecified limited period only and lenders may also impose their own limits on the amount of funds to be allocated to the scheme.

Our advice: buy now while stocks last!

National Loan Guarantee Scheme Update:

As from 1st September 2012 the Scheme has been replaced by the Governments new incentive called 'Funding For Lending Scheme'

This Funding For Lending Scheme is for commercial mortgage lending available through participating lenders.  This new scheme for participating banks guarantees access to discounted funds for lending to commercial borrowers.  One of our lenders has used this scheme to pass on a 1% interest rate saving to the commercial borrower for the life of the mortgage, and not just for the first 5 years.  Participating 'Funding For Lendind Scheme' lenders may pass on the savings they get to the customer however they wish to package it.  So Commercial borrowers may benefit from reductions in loan set up fees, mortgage interest rates, valuation fees, redemption fees, or combinations of these depending on how the banks choose to pass on the savings to the customer.  The Government incentivise the lenders to lend more money by giving the lenders cheaper rates on the 'wholesale' funds in accordance with the total amount of funds lent out to its commercial mortgage borrowers. This government iniciative is designed to get the money out to the market for borrowers and to pass on financial savings to the business owner.  This should help business owners refinance to lower rates, or to be able to afford mortaging larger premisis for expanding businesses.  For more information about this scheme and how you might be able to benefit from it please call us on 0117 2232050.

UK Home equity release plans and retirement mortgage options

Equity Release Home Equity Release Retirement Mortgages

This is a special type of financial arrangement, or mortgage, designed for homeowners in retirement, or nearing retirement (from age 55 onwards) and they provide applicants with either a tax-free cash lump sum, or an income, from the value of their home. The money can be used for any purpose and here are some of the more popular reasons:

• Home improvements (conservatory, double glazing, central heating, repairs, landscaping)
• Clearing debts (loans, credit cards, mortgages)
• Holidays
• New cars, caravans, holiday homes)
• Private medical treatment, mobility scooters, stair lifts
• Assist children with deposit for 1^st home
• Reduce inheritance tax liability

So what is Equity?

The equity in your home is the difference between the value of your property and any outstanding loan, or mortgage, secured on it. So if your property is worth £250,000 and there is a mortgage of £15,000 outstanding, then the equity in your property is £250,000 less £15,000 = £235,000. It is part of this equity that can be released to you, either as a tax-free cash lump sum, or as an income.

There are two main types of Equity Release plans;

• Lifetime Mortgage Plans
•  Home Reversion Plans

There are many different lenders competing to provide these plans. Each lender will have various terms to offer you and therefore, you should always seek professional advice from an Independent Equity Release specialist to help determine the best option for you.

Am I eligible for Equity Release?

• The youngest applicant must be over the age of 55, but for some plans this is 60, or even 65
• Your property must be in mainland England, Scotland, Wales or Northern Ireland
• Your property must be worth at least £70,000 (more with some providers)
• For leasehold properties, the unexpired term of the lease must be at least 75 years
• If you have a mortgage, or secured loan you must be able to raise enough to repay it
• If your property is ex-local authority it must be outside of the initial discount period
• Some properties are not acceptable, such as mobile homes, park homes, houseboats, properties with agricultural ties
• It is more difficult if your property is a freehold flat (except in Scotland) or if it is above, or next to, a commercial property

We’ve teamed up with ERIC – the Equity Release Information Centre

We needed to know that if you decide to ask for advice, or if you want full, frank and unbiased information about Equity Release, then our partner should be the best in the market. We want people to thank us for our part in what could be the biggest decision of your life, so we did our research and chose ERIC. Just look what they offer you:

• The UK’s longest established Equity Release specialist, ERIC has  helped thousands of retired homeowners raise much needed cash lump sums and boosted monthly incomes since 1985
• ERIC’s advisers are fully trained professionals and will help you decide whether Equity Release is right for you
• Able to give independent financial advice on Equity Release providers representing  the whole market
• Recommend only SHIP (Safe Home Income Plans) products or similar safeguarded products to ensure that you have a legally guaranteed right of occupancy in your home for the rest of your life
• Access to exclusive deals which are not available to other companies and extra benefits too!

Types of Lifetime Mortgage Plans

There are three main types of Lifetime Mortgage Plans and each one is designed to suit different customer needs. However, they all have one thing in common; you retain full ownership of your home and just borrow a set amount against the property value. The three types are as follows:

• Cash Lump Sum with Interest Roll-Up – With this option you take a percentage of the property value in cash at the outset. There are no monthly payments to make as the provider will add the interest to the loan.
• Cash Drawdown with Interest Roll-Up – With this option you are provided with an overall borrowing limit, which is an agreed percentage of the property value. This allows you to decide when and how much to borrow, instead of taking the maximum amount at the start. Interest with this version is less in the early years, as the size of the loan is smaller. There are still no monthly payments to make, as interest is added to the loan.
• Interest-Only Lifetime Mortgage Plan – This option is available if you have a regular source of income such as a salary or a pension. Unlike the other two options above, no interest is added to the loan, so the size of the loan remains the same throughout.

Enhanced Lifetime Mortgage Plan

If you can give a few satisfactory answers to some questions on health and lifestyle, some providers will allow you to take an increased cash lump sum, or an increased cash drawdown facility.

We recommend that you speak to one of ERIC’s professional advisers for help and assistance in determining the most appropriate Lifetime Mortgage Plan for you.

The next section looks at Home Reversion Plans

Home Reversion Plans

This is the final type of Equity Release available. These plans let you to sell all, or part of the equity in your property now for a tax-free cash lump sum, whilst allowing you to remain living in your property rent-free (or for a nominal rent such as £12 a year) under a legally binding agreement until you want to move house, or until you die.

The advantages of a Home Reversion Plan over a Lifetime Mortgage Plan are:

• You can raise a higher tax-free cash lump sum compared to Lifetime Mortgage Plan
• There is no interest charged on the tax-free cash lump sum

Some of the disadvantages of a Home reversion Plan over a Lifetime Mortgage Plan are:

• If you sell all of your equity at the outset, then there will be no benefit from any increase in the future value of your property
• If you sell all of your equity at the outset, you will receive less than you would if you had sold the property on the open market.
• If you sell all of your equity at the outset, you cannot leave the house or any value of it to your beneficiaries when you die
• You will not be able to offer your house as security for any other borrowing in the future

Things to think about

Equity Release will not be right for everyone. It’s very important to get good advice before making any plans to proceed. ERIC will advise you whether Equity Release is right for you, or not ,and if it is, they will recommend the best option for your needs and circumstances. ERIC works for you, not the lender, so they act in your best interests.

Lifetime Mortgage Plans can be changed in future years if new, or more attractive terms become available via another provider. You may, or may not want to borrow any more money, but a lower interest rate will mean more of your valuable equity can be saved.

You will be offered a free review of your finances and your Equity Release plan, approximately after the first 5 years. This will ensure that everything is on-track and give you peace of mind. If your circumstances have changed you can be advised accordingly.

ERIC is regulated by the Financial Services Authority, as are all the providers and products which ERIC recommends. All of the products recommended by ERIC are covered by the Safe Home Income Plans (SHIP) guarantees:

• You cannot lose your home no matter what happens to house prices, the stock market or interest rates.
• Your home will never fall into negative equity at any time
• You (and your partner) will have a legal right to remain in your home for the rest of your life
• You will have the right to move home without penalty (subject to any plan conditions)

Specialist Advisers For Equity Release (SAFER)

ERIC is a member of SAFER who have an additional code of practice as further reassurance to anyone who is thinking of Equity Release.

Contact us today to discuss your circumstances and requirements. One of our specialists from ERIC will be pleased to call you back and spend time to discuss your options and recommend the most appropriate course of action.

Call now on 0117 223 2050.

Income replacement for accident sickness and redundancy

Income replacement for accident sickness and redundancy

What is Income Replacement?  There are many misunderstood facts and myths relating to Income Replacement Plans, so we like to keep it simple.

Effectively, it provides you with an income in the event of you not being able to work.  Just ask yourself these questions:

• If I had an accident, or suffered an illness that prevented me from working, how would I be able to cope financially?

• Or if my employer had to make redundancies and I found myself temporarily out of work, even for a just a few months, how would the mortgage and bills get paid?

• If my business, or my employer’s business, suddenly had to close, how would I cope?

• Would I want to replace my income until I could get back to work?

• If I suddenly became Unemployed: How would I go about finding another job, I haven’t had an interview for years? What is a CV?  Is my CV up to date, and how good is it? How good are my interview skills? Where can I get help with this – without it costing me a fortune?

The acknowledged advice is that everyone should ideally have sufficient savings to cover 3 month’s bills and mortgage payments, or rent, but even if you did, would you want to spend it all on your bills and mortgage etc., and how long would it last? Well, it would really depend on how long you were off work – and you wouldn’t know until it happened.

This is where an Income Replacement Plan proves invaluable. Just look at what it can provide:

• You can secure a tax free income for yourself and your family for up to 12 months

• You decide how much you need – up to £2500 per month or 50% of your income

• You decide when you need it – after 30 days, 60 days or 90 days from being off work

• Back to day-1 cover – monthly payments backdated to the start of being off work

• You can receive a cash lump sum of £1000 if hospitalised

• You can get the first month’s cover FREE

• You can get covered within an hour.

• If you need to make a claim, you can talk directly with an Underwriter, not a Call Centre, and they are available from 9.00 am to 9.00 pm EVERY DAY.

Who is eligible for this invaluable cover?

• Employees and some contract workers

• Self-Employed including new business start-ups

• Company Directors

• Homeowners

• Tenants, including Property Sharers (HMOs)

• Even if you’re living with family or friends

What cover is available?

Loss of income due to:

• Not being able to work as a result of an accident or illness, or disability

• Redundancy and Business Cessation

• Giving up work to become a carer for a relative

• Legal disputes – up to £50,000 cover available

For full details and to obtain a quote, or make an application, go to our dedicated Income Replacement website at (website link)

Tips for Bidding at Property Auctions

This couple badly want to win the auction for this house and have come to the auction hoping to get a bargain.  What they don’t realise the auctioneer is making up false bids to push the price up as it is struggling to meet the reserve price. This is legal practice for auctioneers , as long as the auctioneer does not push price up past the reserve price. This is known as “taking bids off the wall”   here the two women bidding don’t know this is happening and there are no other interested persons in the room, the auctioneer is simply taking bids off the wall to bid against these women as he can see they are really keen on this property and look like they don’t have a clue what they are doing.  What they should of done is to of figured out that this lot is struggling and with no interest in the room realise it’s not going to sell and the lot avail itself for negotiations with the seller after auction. They should let the lot get withdrawn from the auction and then go talk to the auctioneer after to make an offer of the reserve price, or possibly under the reserve in negotiations with the seller. Not bid themselves up or enter bidding rally with auctioneers spoof bids, and certainly not bidding against themselves with the womans friend entering the rally.

12 tips for successful property auction bidding

1.Have finance arranged prior to going to the auction. You will need 10% of the purchase price in cash to pay on the day of auction for winning bids. If you will need mortgage finance to fund the rest of the purchase you should have this arranged already as you will only have 28 days to complete on the property.

2. Visit the property with the valuer so you know the property you are potentially buying and getting into as well as survey the local area for potential nasty’s you are not aware of but that would damage resale ability.

3. Have the legal pack checked by your solicitor. The seller may have nasty surprises for you hidden in the property that you may not be able to resell or mortgage

4. Visit the local letting agents to find out the rental value of the property

5. Choose the auctions wisely

7 Never bid first, even if nobody bids don’t bid. You can speak to the auctioneer afterwards and make an offer

8. Auctioneer can spoof bids, taking bids off the wall up to the reserve price of the property.

9. Enter your bid in as late as possible on "going once.. going twice.." then bid.

10. Know auctioneer terminology. For example when he says "its in the room" it means it has met the reserve price.

11. Be disciplined and stick to your ceiling price, that way you wont get carried away and end up loosing money

12. Position yourself in the room so that you can see all others who may be bidding. that way you can be discrete and have the advantage of seeing who you are bidding against.

Things to avoid when buying from auction

1. Going to auction without having your financed in order and possible mortgages agreed for the property.  Once the gavel drops you are legally liable to purchase the property and a 10% deposit  will be required on the day. You effectively exchange contracts on the drop of the hammer.  Most auction houses operate on a 28 day completion.  Within which you are required to complete on  the purchase with the remainder of the purchase price.

2. If you are seriously intent on buying a property you should have carried out your own  due diligence on the property, carrying out structural inspection and valuation of the property.  Such professional inspections may uncover hidden nasties that would make the property unmortgagable.

3.  Bidding to early in the auction. Bidding too early will only push the price up quicker as well as give information to other rival bidders of your position that will be in their favour

4. Not knowing the auction procedures , practices and auctioneer termnilogy

5. Sitting at the front of the auction. Sitting at the front gives you a disadvantaged position you cannot see others bidding in the room and how many different bidders you may be up against.

Essential guide to self build finance

The first hurdle to overcome on a homebuilding project is funding, and thanks to the current restrictions on mortgage lending, finance has never been tougher to arrange. The self-build finance experts at BuildStore have been lending to the UK market for over 10 years and have seen a lot of changes since the start of the credit crunch

The advance stage payment mortgage remains a stalwart of self build finance as it offers positive cashflow up front. It is only available via BuildStore, which has forged strong links with a number of regional building societies that are lending to self builders exclusively through the finance specialist.

The beauty of advance-stage-payment mortgages is that rather than waiting until each stage of a project has been completed and valued before releasing funds, the borrower agrees up front how much each stage will cost and then the money for that stage is released to the borrower prior to work starting on the next stage.

very worthwhile purchase if you don't have significant amounts of cash available at the start of your project.

The positive cash position in which this mortgage puts the self builder means that money is available to pay bills when they are due – keeping workmen on site – and turns them into a cash-buyer of building materials, with no need for credit accounts, so the project is more likely to run smoothly. The price of this additional cashflow is around £750, but the saving in hassle and time makes this a very worthwhile purchase if you don't have significant amounts of cash available at the start of your project.

The first hurdle to overcome on a homebuilding project is funding, and thanks to the current restrictions on mortgage lending, finance has never been tougher to arrange. The self-build finance experts at BuildStore have been lending to the UK market for over 10 years and have seen a lot of changes since the start of the credit crunch

While there are still lenders out there who will fincance self builders and renovators, the amount they are prepared to lend – expressed as a percentage of the cost of a project – has reduced over the last year. Pre-credit crunch it was fairly easy to secure 95 per cent borrowing on land and 95 per cent on the build, but now lenders are looking for higher deposits, so 75-85 per cent on each is more common.

The advance stage payment mortgage remains a stalwart of self build finance as it offers positive cashflow up front. It is only available via BuildStore, which has forged strong links with a number of regional building societies that are lending to self builders exclusively through the finance specialist.

The beauty of advance-stage-payment mortgages is that rather than waiting until each stage of a project has been completed and valued before releasing funds, the borrower agrees up front how much each stage will cost and then the money for that stage is released to the borrower prior to work starting on the next stage

The positive cash position in which this mortgage puts the self builder means that money is available to pay bills when they are due – keeping workmen on site – and turns them into a cash-buyer of building materials, with no need for credit accounts, so the project is more likely to run smoothly. The price of this additional cashflow is around £750, but the saving in hassle and time makes this a very worthwhile purchase if you don't have significant amounts of cash available at the start of your project.

The positive cash position in which this mortgage puts the self builder means that money is available to pay bills when they are due – keeping workmen on site – and turns them into a cash-buyer of building materials, with no need for credit accounts, so the project is more likely to run smoothly. The price of this additional cashflow is around £750, but the saving in hassle and time makes this a very worthwhile purchase if you don't have significant amounts of cash available at the start of your project.

When it comes to planning your budget and arranging your finances, don't forget to take other financial commitments into account, such as an existing mortgage or temporary accommodation.

"Lenders understand that you have to live somewhere during your project and, quite understandably, not everyone wants to live in a caravan on site or with relatives," says David. "They also appreciate that if you sell your current home and move into rented accommodation during the build you will still have housing costs, paying rent rather than a mortgage. Consequently, they allow you to run a self-build mortgage alongside the mortgage on your current house although like the rest of the market, the rules are tighter now than pre-credit crunch.

Buying from Auction. The mortgage pitfalls to watch out for