Friday, June 06, 2008
DID MORTGAGE EXPRESS AND BRADFORD & BINGLEY CATCH A COLD WITH BACK TO BACK RE-MORTGAGING asks LAWRENSON OF LETTINGFOCUS.COM
For a long time the only lender that did re-mortgage loans back to back against bridging finance was the B&B buy to let lender, the Mortgage Express. I wonder if this could explain some part of their current travails.
As I said in an earlier blog, at a recent property trade show where I was speaking I heard a few scare stories about buying Below Market Value (BMV) with No Money Down (NMD).
It seems some of the novice investors have got themselves in a bit of a mess with below market value purchases from distressed sellers - and here is how they did it.
I’ll just explain for those who don’t know that buying BMV can sometimes involve buying from indebted (and hence motivated) sellers who are about to be repossessed by the mortgage company.
Some BMV buyers will seek out and then buy from these kinds of “motivated distressed sellers” at a discount sometimes using bridging loans to buy with “No money down” which they then sometimes rent back the property to the seller who becomes their tenant.
So far so good!
But one of the big dangers is that the kind of property seller who is prepared to do this type of deal - and sell their home at below its true price- will by definition have what we could call “a bad credit history” In other words, they have defaulted on their mortgage already, so the chances are arguably higher that they will default on their new tenancy too than a normal tenant would.
Most BMV investors would say that if they do, well it is bad for them but by doing so, it will allow the investor to evict if the arrears are bad enough.
And that is true, though some will have ethical issues with all this – but let’s leave that aside for now
The only trouble with eviction because of arrears is that it typically takes about 5 months to go through if you have to ultimately enforce the eviction notice with a bailiff.
First, you need there to be 2 months of no rent before you can even start a possession action and it takes another 3 months for the court processes to slowly grind through.
Oh and don’t expect an evicted tenant to leave the property spotless – chances are very high that they wont. And we won’t even mention the stress that comes with having to evict someone.
Whilst most investors are careful to give themselves a financial cushion in the event that things go wrong, I have heard reports of cases of some property investors who are in difficulties with their mortgages because they are struggling with many of these types of properties where they are receiving nil rent.
There a a tiny minority of the less reputable operators in the property market who say you can “become a property millionaire overnight” with “nil (of your own money) down” using bridging loans and other smart financial techniques.
By definition many of the investors who do this will have a very high mortgage loan to value and for those with nothing in reserve, the affect of tenant default can be crippling.
And that’s why we hear stories of some less experienced investors being repossessed themselves - leaving their tenants homeless.
And with the Bradford and Bingley buy to let arm, the Mortgage Express being the last player left in this market, until they too pulled out back in March, one wonders how much bad debt they took on by being an active player in this rather curious re-mortgage market where many investors were novices?
Could this explain some of their current problems?
Who knows - but one thing is for sure and that is that for now the Mortgage Express’s problems will considerably reduce the finance options available for landlords.
The fact is that getting rich in property is very doable, but if you try it with no money down and no spare cash in reserve, you are taking big risks.
Many who bought off plan new build flats through property syndicates like "You Know Who" -you know the ones who have now collapsed and like taking legal action against their critics - have already learnt that you cannot get rich quick in property unless you have learnt what you are doing first.
And please, whatever you do, always have some spare cash put buy, just in case your first deal turns out to be a bad one.
ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
I’m David Lawrenson a landlord experts lettingfocus.com.
I’m the author of “Successful Property Letting - How to Make Money in Buy to Let” which for the last 2 years has been the UK’s top selling property title: buy the UK's top selling property investment book
It is fully up to date with all the recent changes to tenancy deposit schemes, HMOs, licensing, capital gains taxes and it has new sections on buying property below market value.
I’m an expert property speaker and a well known property blogger and I contribute to newspapers and a host of property websites, write a number of columns in the press and I can provide help for landlords
I also work as a consultant helping banks, building societies, housing associations and web portals with their buy to let and property products and services and am a regular speaker at property shows.
You can read more of my blog & find details of my networking, advice, property investors networking programme at my website.What’s unique about lettingfocus.com is that we offer property investment mentoring because unlike most people in the buy to let and property “advice” business we are not linked to a property company, a developer, an agent or bridging loan financier and do not receive commissions from any of these sources.If a property investment is lousy – We’ll tell you straight and we will tell you all about buy to let and property investment - the good and the bad and we won’t make silly promises that you’ll become a millionaire overnight.
Copyright: David Lawrenson 2008. This blog is updated once a week. Permission must be sought before using the material in the blog.
As I said in an earlier blog, at a recent property trade show where I was speaking I heard a few scare stories about buying Below Market Value (BMV) with No Money Down (NMD).
It seems some of the novice investors have got themselves in a bit of a mess with below market value purchases from distressed sellers - and here is how they did it.
I’ll just explain for those who don’t know that buying BMV can sometimes involve buying from indebted (and hence motivated) sellers who are about to be repossessed by the mortgage company.
Some BMV buyers will seek out and then buy from these kinds of “motivated distressed sellers” at a discount sometimes using bridging loans to buy with “No money down” which they then sometimes rent back the property to the seller who becomes their tenant.
So far so good!
But one of the big dangers is that the kind of property seller who is prepared to do this type of deal - and sell their home at below its true price- will by definition have what we could call “a bad credit history” In other words, they have defaulted on their mortgage already, so the chances are arguably higher that they will default on their new tenancy too than a normal tenant would.
Most BMV investors would say that if they do, well it is bad for them but by doing so, it will allow the investor to evict if the arrears are bad enough.
And that is true, though some will have ethical issues with all this – but let’s leave that aside for now
The only trouble with eviction because of arrears is that it typically takes about 5 months to go through if you have to ultimately enforce the eviction notice with a bailiff.
First, you need there to be 2 months of no rent before you can even start a possession action and it takes another 3 months for the court processes to slowly grind through.
Oh and don’t expect an evicted tenant to leave the property spotless – chances are very high that they wont. And we won’t even mention the stress that comes with having to evict someone.
Whilst most investors are careful to give themselves a financial cushion in the event that things go wrong, I have heard reports of cases of some property investors who are in difficulties with their mortgages because they are struggling with many of these types of properties where they are receiving nil rent.
There a a tiny minority of the less reputable operators in the property market who say you can “become a property millionaire overnight” with “nil (of your own money) down” using bridging loans and other smart financial techniques.
By definition many of the investors who do this will have a very high mortgage loan to value and for those with nothing in reserve, the affect of tenant default can be crippling.
And that’s why we hear stories of some less experienced investors being repossessed themselves - leaving their tenants homeless.
And with the Bradford and Bingley buy to let arm, the Mortgage Express being the last player left in this market, until they too pulled out back in March, one wonders how much bad debt they took on by being an active player in this rather curious re-mortgage market where many investors were novices?
Could this explain some of their current problems?
Who knows - but one thing is for sure and that is that for now the Mortgage Express’s problems will considerably reduce the finance options available for landlords.
The fact is that getting rich in property is very doable, but if you try it with no money down and no spare cash in reserve, you are taking big risks.
Many who bought off plan new build flats through property syndicates like "You Know Who" -you know the ones who have now collapsed and like taking legal action against their critics - have already learnt that you cannot get rich quick in property unless you have learnt what you are doing first.
And please, whatever you do, always have some spare cash put buy, just in case your first deal turns out to be a bad one.
ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
I’m David Lawrenson a landlord experts lettingfocus.com.
I’m the author of “Successful Property Letting - How to Make Money in Buy to Let” which for the last 2 years has been the UK’s top selling property title: buy the UK's top selling property investment book
It is fully up to date with all the recent changes to tenancy deposit schemes, HMOs, licensing, capital gains taxes and it has new sections on buying property below market value.
I’m an expert property speaker and a well known property blogger and I contribute to newspapers and a host of property websites, write a number of columns in the press and I can provide help for landlords
I also work as a consultant helping banks, building societies, housing associations and web portals with their buy to let and property products and services and am a regular speaker at property shows.
You can read more of my blog & find details of my networking, advice, property investors networking programme at my website.What’s unique about lettingfocus.com is that we offer property investment mentoring because unlike most people in the buy to let and property “advice” business we are not linked to a property company, a developer, an agent or bridging loan financier and do not receive commissions from any of these sources.If a property investment is lousy – We’ll tell you straight and we will tell you all about buy to let and property investment - the good and the bad and we won’t make silly promises that you’ll become a millionaire overnight.
Copyright: David Lawrenson 2008. This blog is updated once a week. Permission must be sought before using the material in the blog.
Labels: Below Market Value, NMD, No Money Down
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