Buy to Let Mortgages « LettingFocus

Posts Tagged ‘Buy to Let Mortgages’

Government Policy on the Private Rented Sector is Not Joined Up

Tuesday, March 1st, 2011

Sometimes government policy doesn’t seem to join up too well – with different policies apparently conflicting with each other.

Two good examples are (1) the lending activities of state owned banks which appear to hamper what local councils are trying to do with their private rented sector access schemes, especially lease schemes and (2) policies on HMOs which appear to be working against the recent change to the rate of LHA for single people under 35.

Let’s look at the first example first.

State Owned Banks Not Exactly Helping Those in Housing Need

Someone working in temporary housing in Exeter emailed me to complain that a state owned bank, Northern Rock, would not allow her private landlord client (whose buy to let mortgage is with Northern Rock) to let his property under a 3 year lease scheme to the council. And could I help?

First, for non-housing people reading this blog, we will briefly explain what a private lease scheme is.

Under long lease schemes a private landlord can get a guaranteed rent (albeit a little below market rents) from letting to the council or housing association. The council in turn lets the property to people in housing need. The landlord gets no voids for 3 years and the property back at the end or however long the lease term is and everyone should be happy.

But this mortgage lender apparently insists that lettings are only on a standard assured shorthold tenancy or lease of less than a year. Never mind that landlords who have entered into long leases are getting a guaranteed rent (courtesy of the taxpayer ultimately), suffering no voids and won’t have to pay letting fees and are therefore presumably less likely to default on their buy to let mortgages as a result.

As Northern Rock mortgages are now owned by the state, readers of this blog might like to consider the irony that a state owned bank won’t consider these schemes which, of course, are meant to house those in housing need.

According to James Ball at www.LannerCapital.co.uk other part state owned banks who also “Like to say No” to lease schemes of this type and length are Lloyds Banking Group (BM Solutions and HBOS) and Nat West (part of RBS.)

BM Solutions and Northern Rock go further and are among the state owned banks who will also not lend to landlords who wish to let to people on Local Housing Allowance.

Not Joined Up

At the same time, local councils that we advise and many others across the land are very busy trying to attract landlords to their private rented sector schemes (including lease schemes) as a home in the private rented sector is often the only housing option they can offer.

Much money and effort is spent on local councils’ endeavours on this kind of work only to be thwarted by state owned banks that won’t let their landlord customers let to these same people that the councils are trying to help.

Perhaps someone senior in Housing at the government or in local authorities ought to have a word with whomever controls lending at these state owned banks.

HMO Article 4 Directions Seem at Odds with Policy on Local Housing Allowance

Now let’s look at HMOs.

For the uninitiated an HMO is a House in Multiple Occupation – basically a house shared by people who form more than two “households.”

First some background. (Journalists with short attention spans should skip the next two paragraphs.)

The Coalition Government allowed the creation of HMOs without the need for planning permission. But at the same time, they made it easier for local authorities to use planning laws to restrict HMOs locally – through a mechanism called an “Article 4 Direction.”

These Article 4 Directions, where implemented, remove “permitted development rights” in a specific geographical area and require planning permission for the creation of all new HMOs. The Directions are commonly likely only to be applied for and implemented in towns and cities that have a high proportion of shared housing, such as university towns or areas with a large number of low income households.

For those with short attention spans it simply boils down to local councils being able to apply to restrict HMOs in their area.

NLA Objections

Landlords’ groups like the National Landlords Association (the NLA) have expressed concern that the Article 4 Directions are likely to displace students from the streets around universities and push them to other areas where HMOs are currently occupied by tenants dependent on Local Housing Allowance (LHA) to pay their rent and other low income households.

The result, they say could be fewer properties available for those on low incomes – potentially increasing housing waiting lists and costing local authorities significant amounts of money for temporary B&B accommodation.

We think this is possible too.

Worse Still

But at LettingFocus, we think the situation could be made worse still from April 2012 when the shared room rate (room in a shared house) is extended from age 25 up to age 35 – meaning that single people under 35 who are on Local Housing Allowance will be paid a shared room rate rather than a rate for a flat.

This move can only further increase the demand for just this type of HMO at the same time as local Article 4 Directions reduces its supply. Again, this does not seem like joined up policy to us.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector Information and expertise and I’m David Lawrenson, a landlord and property investor myself for over 25 years and best known as the author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years. 26,000 copies sold (to Feb 2011).

Services to Businesses and the Public Sector

Primarily we are consultants to a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors and insurers. We help them develop and improve their landlord facing or buy to let product strategies, marketing and services.

We also write for property websites and we are regularly quoted by the media.

Services for Private Landlords

We also find a limited amount of time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor. We pride ourselves on giving independent unbiased Buy to Let Advice on a one to one basis.

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Tags: Article 4 Directions, Buy to Let Mortgages, HMO, HMOs, houses in multiple occupation, Housing Benefit, LHA, Local Housing Allowance, Local Letting Agency Model, Local Letting Agency Models, mortgage lenders, multi let houses, National Landlords Association, Private Rented Sector Access Schemes, Private Rented Sector Management, PRS Access Schemes, Social Letting Agencies
Posted in Article 4 Directions, Buy to Let Mortgage Strategy, Buy to Let Mortgage Terms and Conditions, Buy to Let Mortgages, Government Private Rented Policy Not Joined Up, HMO, House In Multiple Occupation, Housing Benefit, Local Housing Allowance, Private Rented Sector Access Schemes, Private Rented Sector Management, Private Renting Schemes, Private Sector Leasing Schemes, Social Letting Agency, Uncategorized | Comments Off

How Not to Market to Private Landlords and the Private Rented Sector

Tuesday, February 15th, 2011

Landlord readers of this column will know that LettingFocus’s stance these days is now very much built around consulting with organisations who sell products and services to the private rented sector. Basically we tell them how to do it better!

Our two biggest client groups are banks / financial institutions who sell mortgage loans to landlords (commonly known as “buy to let mortgages”) and local authorities / housing associations who face a huge task trying to get private landlords to make their properties available to people on low incomes who turn up at councils offices in droves needing a roof over their heads. (The local authorities often cannot help them so the private rented sector is now the default option.)

As well as doing consulting work for organisations, I still do some one to one consulting work with private landlords and keep “in the mix” with mortgage brokers too. I really like to do this because it is by talking to landlords and brokers that I get to see first hand why the products and services that the banks, local authorities and other clients groups are trying to sell to landlords miss the target so often.

As an example, on Friday, I had lunch up in the city with a mortgage broker called James Ball. A good guy, he tears his hair out at the banks’ complete lack of understanding about what private landlords need. “In their mortgage criteria they even still talk about DSS Tenants”, he laments. (DSS Tenants is a term that has long since been replaced in landlords’ vocabulary with Housing Benefit or Local Housing Allowance.)

Fast Forward

Fast forward to later on Friday and I’m perusing a local authority website in the Midlands area that is supposed to attract private landlords to get them to let their properties to people on DSS, sorry, Local Housing Allowance.

This site has been lauded a bit and spoken of in glowing terms in some quarters.

As I’m also working in this area, but for a different group of local authorities to set up something better, I call up the number on the site posing as a tenant. After a 60 second wait to be answered (well it’s better than most utilities cos, I guess) and being handed off to other people three times (including one who couldn’t understand how I got through to him at all), it turns out there are actually no properties on their site at all.

“Oh, I was hoping you were a landlord with some properties to put on our site,” says the man at the other end of the line with more than a hint of disappointment in his voice.

Competition and Solutions

Mmm, I am not surprised. Competing in this on line space against the likes of the free spending big portals like Rightmove and the internet savvy landlord facing sites like Upad, Gumtree and Discount Letting, and hoping somehow to be found by landlord punters was never going to work in the first place.

There are solutions and ways that would allow this local authority to attract landlords, but doing it this way isn’t one of them. The right strategy has to be designed by someone close enough to the private rented sector to understand how it really works for the end customer, the landlord. Often this expertise won’t be found internally within the local authority.

Thinking about my mortgage broker friend again, we talked about how my properties in Kent were probably going to be clobbered, both price and rent wise, by the closure of the only big employer in the area, Pfizer. Donny Rumsfeldt would call the closure an “unknown unknown” – one I could not have predicted 6 years ago when I bought there, but heh, that’s life!

We chatted some more, James and I.

Then I said, “If I was a smart lender, I would anticipate the negative impact on house prices and rents, so I would cut the loan to value ratio for new applications for mortgage loans in areas where such a thing had happened. And I would raise the loan to value where positive regeneration was happening.”

We thought for a few seconds then laughed. But that would require a clever underwriting approach, which would be unlikely from the kind of bank that still calls Housing Benefit, “the DSS.”

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector Information and expertise and I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years. 25,000 copies sold (to Jan 2011).

Services to Businesses and the Public Sector

We also write for property websites and we are regularly quoted by the media.

Services for Private Landlords

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

If you want to reply:

If you are on the URL for this specific post, at the bottom of the post, you should see a space to “Leave a Reply.” If you are on the Blog Home Page, go to the very end of this specific post and the biog (i.e. after the tags) and click on “No Comments” or “Comments” which should open a Reply Box. (Spammers please note: We delete all spam.)

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Tags: Buy to Let Mortgages, Housing Benefit, LHA, Local Housing Allowance, Local Letting Agency Model, Local Letting Agency Models, Marketing to the Private Rented Sector, Private Rented Sector Access Schemes, PRS Access Schemes, Social Letting Agencies
Posted in Accommodation in private rented sector, Buy to Let Mortgage Strategy, Buy to Let Mortgages, Housing Associations, Housing Benefit, Local Housing Allowance, Marketing to the Private Rented Sector, Private Rented Sector Access Schemes, Private Rented Sector Management, Private Sector Leasing Schemes, Social Letting Agency | Comments Off

Mortgage Fraud Buy to Let Lending and Property Clubs

Monday, February 7th, 2011

My blog post last week (about what mortgage companies could do to support landlords more), generated 27 emails from managers at buy to let mortgage lenders and ten from landlords.

One aspect that I referred to, in passing, was how the mortgage lenders had been “behind the play” in terms of understanding how bad buy to let mortgage lending and mortgage fraud was being carried out in respect of below market value (BMV) deals financed by techniques such as Bridging Loans and Next Day Remortgages.

I have written at length about this in other blog posts, so do not propose to go into it again here. All I will say here is that the mortgage companies could still do a lot more and do it a whole lot better.

To assist my understanding of what mortgage lending banks do today and how they assess risk, I now subscribe to “Mortgage Finance Gazette” – a publication widely read by those concerned with the business of making mortgage loans with a readership including mortgage companies, mortgage brokers, valuers and conveyancing solicitors.

A lot of the talk in this magazine these days is about mortgage fraud and bad lending – who was responsible for it happening in the past, who is going to pay for the past mistakes and how to avoid making mistakes in the future.

Of course, this is all rather late in the day, but “better late than never” I guess. But there seems to me to still be a long way for the mortgage lenders to travel.

The Latest Wheeze

I’m not a fraud expert but I have said many times that if the mortgage companies want to see how they might be taken to the cleaners in the future, they really ought to tear themselves out of their offices and get down to see the latest wheeze the “Get Rich Quick in Property” advisors are coming up with at the various “free events” that they put on to attract the more “hands off” (some would say, lazy) investor.

Of course property advice from property clubs is not regulated and at these events there seems a never ending stream of “investors” ready to hand over large amounts of cash to advisors who claim they can source “Below Market Value” properties for them. At least four of these firms have now gone bust taking a lot of the “investors” cash with them. (If you are an “investor” and you wish to buy property this way, please check out the trading position of the “advisor” at Companies House first and never hand over large amounts of money to an advisor to source a portfolio of properties for you. If you really are tempted, at least do it on a “one property at a time basis” only.)

Strange Financing Techniques

Why should the mortgage lenders attend these types of events?

Because a lot of the time the deals the “advisers” propose using strange financing techniques which they sometimes try to run in parallel with a straight mortgage application.

Not all the property advisors are bad. Far from it. But if I was a lender I would like to know about such techniques and yet, mortgage lenders are conspicuous by their absence at the events.

In the last edition of Mortgage Finance Gazette, one expert was still talking about Next Day Remortgages and Back to Back Bridging Loans, but the game has already moved on – to Lease Options and other techniques.

And yet, how many lenders and their advisors are even aware of these new techniques?

My local building society had to be bailed out and is now in the process of changing its name – and it had to do it primarily because of bad lending on buy to let (which also included some fraud.)

All mortgage lenders need to sharpen up their game to avoid the same fate in the future.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector expertise and Landlord Information and I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years. 25,000 copies sold (to Jan 2011).

Services to Businesses and the Public Sector

Primarily we are consultants to a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors and insurers. We help them with their landlord facing or buy to let product strategies, marketing and services.

This work includes helping banks improve their buy to let mortgage lending practices and helping housing associations / local authorities procure supply of properties from private landlords (private rented access schemes, local letting agency models etc.)

We also write for property websites and we are regularly quoted by the media.

Services for Private Landlords

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

If you want to reply:

If you are on the URL for this specific post, at the bottom of the post, you should see a space to “Leave a Reply.” If you are on the Blog Home Page, go to the very end of this specific post and biog (i.e. after the tags) and click on “No Comments” or “Comments” which should open a Reply Box. (Spammers please note: We delete all spam.)

THE HOME PAGE OF OUR MAIN SITE click here: http://www.LettingFocus.com

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Advice

TO READ CLIENT TESTIMONIALS – from both organisations and private landlords click here: Testimonials

Discounted Products for Landlords: Landlords Resources

This blog is updated once a week, usually on a Monday or Tuesday (or more frequently when “hot” news items come up.

For my random thoughts on property plus a host of other things that make me grumpy or happy, please see our TWITTER PAGE: Twitter

IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR TO OUR WEBSITE?

Tags: Below Market Value Property, BMV, Buy to Let Mortgages, Get Rich in Property, Mortage fraud and buy to let, Mortgage Finance Gazette, Mortgage Fraud, Next Day Remortgages, Property Clubs, Property Lease Options and Rent to Buy
Posted in BMV, Below Market Value Property, Buy to Let Mortgage Fraud, Buy to Let Mortgage Regulation, Buy to Let Mortgage Strategy, Buy to Let Mortgages, Get Rich in Property, Property Clubs, Property Lease Options, Property Lease Options and Rent to Buy, Same And Next Day Remortgages | Comments Off

Landlords Still Wait for Advice from Buy to Let Mortgage Companies

Monday, January 31st, 2011

Mortgage companies writing buy to let mortgages could do more to reduce the possibility of future arrears.

It is a subject that we have written about extensively before at this blog, not least because the activities of the lenders exasperates not just would be borrowers but also mortgage brokers who often find many of the activities of the lenders hard to fathom. (To see what brokers think of mortgage lenders take a look at some of the comments posted on line at sites like “Mortgage Strategy.”)

I am adding to my own portfolio of properties and it’s clear to me that the mortgage lenders’ requirements have got even tighter than they were the last time I bought 15 months ago.

Certainly, the days when loans were handed out to landlords with just a credit check and a proof of valuation and rental income for the property to be mortgaged are long gone.

But that, is of course, a good thing, because lending practices in buy to let in the past were perhaps not as thorough as they should have been.

Information Vacuum

But while lenders now require a lot of info about borrowers before they will lend they still don’t require their borrowers to actually know much about the business of being a landlord.

The fact is that today, most landlords taking out a buy to let mortgage loan today are still given very little (or no) guidance at all from a mortgage company about how to make a success of the now very complex business of letting a property successfully and meeting their legal responsibilities as landlords.

In around 40% of lets the tenant is found by the landlord with no letting agent involvement. These landlords will their best to find the tenant, “reference check” them (to weed out potential problem tenants) and complete all the other administrative tasks too, with varying levels of success.

And for those landlords who do use letting agents, the quality of advice received is mixed at best. Whilst some agents are excellent there are also rogue letting agents who are more focused on their own incomes than in providing quality advice or even finding long term reliable tenants for the landlord.

Indeed, some rogue letting agents will actually structure their fee tariff so as to “churn” tenants in order to increase fees from landlords.

Advice from mortgage brokers is also scant. Most mortgage brokers are not set up to give detailed advice to landlords on how they can run their business successfully, (though some, being landlords themselves, will occasionally impart some knowledge informally for their landlord clients.)

Associations of Landlords

Today, less than 30,000 landlords are in a landlords association, just over 25,000 have bought my book and maybe a few thousand more are in local authority administered landlords’ accreditation schemes of one sort or another. Even if the 25,000 with my book are different to the 30,000 in the landlords associations, that’s still a pretty tiny bite out of the 1.3 million landlords now operating in the UK.

So why does this matter at all?

Being a Landlord is a More Complex Business Today

Well, the trouble is that the business of being a landlord is very much more complex today than it was back in 1996 when buy to let mortgages were born.

Back then the business of being in business as a landlord was much simpler than it is today.

In 1996 there was, for example, no requirement to register deposits in a tenancy deposit scheme and hence less incentive to do a thorough inventory.

There was no need for an energy performance certificate, disability rules were simpler, there were fewer rules on HMOs, there was no such thing as licensing schemes and there was a different and simpler set of health and safety rules.

There were also a much smaller number of people on Housing Benefit / Local Housing Allowance – a particularly hard and challenging sector for landlords to get to grips with.

And yet, despite the complexity of buying to let having moved on, the buy to let mortgage today is still a simple “take it or leave it deal”, with most mortgage companies making no attempt whatsoever to help landlords understand what they need to do or what they need to know.

This may reflect an assumption that landlords will somehow “find out what they need to know” from letting agents or even from mortgage brokers and that they will “muddle through.” But, as we have explained, this is a misplaced hope.

Gurus

As a direct result of this information vacuum the buy to let arena has been inhabited by a host of “get rich quick in property” gurus peddling new and dangerous ways for novices to get into property with “little money down.”

It’s possible that many mortgage lenders directly lost money as a result of some of the past activities of some of the supposed gurus who, all too often, encouraged landlord-investors to over-extend themselves using techniques like “next day remortgage” loans taken out in conjunction with bridging loans.

Mortgage companies failed to fully appreciate what was going on and in many cases ended up “fire selling” properties that had been bought by landlords using esoteric techniques and hoping to “get rich quick” but often lacking any idea about how to actually manage a let property.

Lack of Information

The paucity of information has reduced and continues to reduce a private landlord’s chances of being successful in buy to let. And unsuccessful landlords who are losing money are a higher risk to the mortgage companies because they are more likely to default on their mortgage, costing the lender money (as not all of the losses can be recovered from the borrower.)

Even the admin systems operated by mortgage lenders for buy to let seem out of date. (Buy to let mortgage statements from two of my current lenders run to end December, not to the end of the tax year – which, of course, is the relevant date for all landlords having to complete tax returns!)

The Penny Drops

On 26 March 2010 the Treasury published Mortgage regulation: summary of responses announcing that it would reconsider changes to the form of regulation proposed to protect consumers in the buy-to-let sector. The paper said “The Government will examine how to ensure the impact of regulation on the buy-to-let market is proportionate, particularly for individual professional landlords. It will also consider how best to protect consumers from the range of possible causes of detriment that may result from buy-to-let including, if appropriate, the consequences of poor investment decisions as well as unaffordable borrowing.”

Subsequently, the coalition government indicated that if industry did more to provide information for landlords it may not feel the need to introduce regulation of buy-to-let mortgages.

In response the Council of Mortgage lenders has now held discussions with the National Landlords Association (NLA) and others about how the industry can provide more information to help landlords.

The penny has finally dropped, it seems, but at LettingFocus we wonder, why the Council of Mortgage Lenders did not seize the initiative earlier.

How LettingFocus is Helping Mortgage Companies

We are pleased to say we are now working with a few more forward looking mortgage companies to raise their game in respect of what they provide landlords – the knowledge they impart to landlords, the way they control client and property risk, their admin and their customer service.

It makes sense for them because better informed landlords are far less likely to make a mess of their business and default on their mortgage loans. For many other lenders, however, the penny has still not dropped.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

Services to Businesses and the Public Sector

Primarily we are consultants to a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors and insurers. We help them with their landlord facing or buy to let product strategies, marketing and services.

We also write for property websites and we are regularly quoted by the media.

Services for Private Landlords

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

To read blog posts on related posts, use the tags and categories at the bottom of each post (after the list of links), or over to the top right, you can click on “Categories” and use the pull down menu to read all the posts on a specific topic.

If you want to reply:

If you are on the URL for this specific post, at the bottom of the post, you should see a space to “Leave a Reply.” If you are on the Blog Home Page, go to the very end of this specific post and biog (i.e. after the tags) and click on “No Comments” or “Comments” which should open a Reply Box. (Spammers please note: We delete all spam.)

THE HOME PAGE OF OUR MAIN SITE click here: http://www.LettingFocus.com

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Advice

TO READ CLIENT TESTIMONIALS – from both organisations and private landlords click here: Testimonials

Discounted Products for Landlords: Landlords Resources

This blog is updated once a week, usually on a Monday or Tuesday (or more frequently when “hot” news items come up.

For my random thoughts on property plus a host of other things that make me grumpy or happy, please see our TWITTER PAGE: Twitter

IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR TO OUR WEBSITE?

Tags: buy to let, buy to let loans, Buy to Let Mortgage Regulation, Buy to Let Mortgages, mortgage lenders
Posted in Buy to Let Mortgage Regulation, Buy to Let Mortgage Strategy, Buy to Let Mortgage Terms and Conditions, Buy to Let Mortgages, FSA and Mortgages, Same And Next Day Remortgages, Uncategorized | Comments Off

The Future for Buy to Let Loans and Mortgages

Monday, January 10th, 2011

Whilst one or two new lenders have appeared on the blocks in the last quarter of 2010, the overall picture of availability of mortgages in the world of buy to let lending still looks pretty subdued.

It is not so much the level of interest rates (which are low by historic standards) that is the problem. Rather, it is the high margins over base rate, the high level of deposits needed to get a half decent rate and the high “application fees” that are the stumbling blocks.

One of the cheapest lenders is the Bank of China (BOC). They have a variable rate of 3.38% over base rate (i.e. a current pay rate of 3.88%) for life, an arrangement fee of £1,695 (subject to loan amount) and a valuation fee of £275.

I like the low arrangement fees with this deal and the valuation fee is below what most other lenders charge but, even with this mortgage, the margin on the “follow on” rate is 3.38% above base which will mean a landlord will have to consider very carefully what happens if base rates rise (as they surely will.)

Sure, an alternative is to take out a fixed rate, but all fixes are limited in time and sooner or later landlords will end up on the lender’s standard variable rate or a follow on rate anyway.

But what I really like about the BOC deal is that at least they are pegging future interest rates for to the Bank of England Base rate.

A few other lenders still do this but increasingly lenders are setting the “follow on rate” for buy to let mortgages at an arbitrary Standard Variable Rate (which is usually not itself linked to Bank of England base rate.) In other words you are at the mercy of the lender in the long term – i.e. once the initial discounted or fixed term deal has ended.

I don’t like this trend at all and unless the alternative is a great deal with a big provider whose mortgage pricing I can trust to not be too wildly out of line, I will always prefer to plump for a rate where the follow on rate is linked to the BOE base rate because at least that way I get some certainty on rates over the time horizon of the mortgage.

Pay Back

Talking of rates, the Council of Mortgage Lenders (CML) has said that from April next year onwards, lenders will begin to have to repay the funding advanced through official support schemes. This is likely to limit the availability of credit to support mortgage lending next year and beyond.

This will not be good news for any borrower – buy to let or residential – and we could see the overall levels of rates rise even more and lending decisions become even tighter.

The CML has also recently taken another swipe at the Financial Services Authority, saying that its ongoing Mortgage Market Review which is intended to herald an era of ‘sensible lending’ (some fear this will mean ‘not much lending’) – “continues to be a major and unhelpful source of uncertainty for the lending industry”.

They also said, “Firms do not know when the FSA will issue firm rules or whether it will modify its current excessively risk-averse approach. This uncertainty will itself reinforce lenders’ caution.”

I have a feeling that the FSA review will not turn out to be as bad as all that and the CML’s words will win the day in Whitehall. Certainly, the government seems to be making noises that would seem to indicate that the FSA should “go easy.” Watch this space!

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information and I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years. 25,000 copies sold.

Services to Businesses and the Public Sector

Primarily we are consultants to a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors and insurers. We help them with their landlord facing or buy to let product strategies, marketing and services.

This work includes helping banks improve their buy to let mortgage lending practices and helping housing associations / local authorities find private landlords (private rented access schemes, local letting agency models etc.)

We also write for property websites and we are regularly quoted by the media.

Services for Private Landlords

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Tags: Buy to Let Mortgages, FSA Review of Mortgages, Mortgage arrangement fees, Mortgage fees, mortgage lenders
Posted in Buy to Let Mortgage Terms and Conditions, Buy to Let Mortgages, FSA and Mortgages | 2 Comments »

Mortgage Arrangement Fees, the HMRC and Tax

Wednesday, December 22nd, 2010

As soon as the last of turkey sandwiches have been consumed, the January 31^st deadline for filing tax returns for the year ending the previous April 6th begins to loom and landlords start to think about preparing the dreaded tax return.

One of the biggest deductions that they will all make will be the interest costs on their buy to let mortgages as well as the costs of arranging their mortgage.

On the financing front in Buy to Let Land, one of the biggest changes in recent years has been the ever rising cost of actually arranging buy to let mortgage finance.

I am old enough to remember a world of nil arrangement fees but the “arrangement fee” is now ubiquitous and a familiar part of the modern mortgage landscape (both for investors and those arranging mortgages and remortgages on their own homes.)

For private landlords and many other types of property investor the arrangement fees can be offset against rental income as a valid deduction in their tax return.

So far so good, but on the whole issue of how and when arrangement fees can be deducted, HMRC seems to be a bit “behind the game.”

Possibly they have been caught out by the sudden growth in the size of these fees in recent years but it would sure help if there was more detailed guidance in the Tax Return Land and Property Notes about how and over what timescale these arrangement fees can be claimed back as a deduction.

Paying Arrangement Fees

Most landlords opt not to pay the arrangement fee over to their lender in one go but prefer to add the arrangement fee onto the loan (a thing they are allowed to do by most lenders) and the landlord then goes on to validly deduct the interest they pay on that part of the loan along with the rest of their loan interest for as long as the loan is running.

But what of the actual fee itself? This cannot be claimed as a deduction against capital gains taxes in the same way as other legal fees connected with the purchase and sale of land, but the question is how and when can that fee be claimed as a deduction against income tax?

Well, herein is the problem – there just doesn’t seem to be enough guidance from HMRC on this.

The tax experts at Taxcafe are clear that you can validly deduct mortgage application fees on an annual basis over life of the mortgage loan for Income Tax purposes and it does not seem to matter if you paid the fee out of cash in one go instead of adding them to the loan.

In other words, no matter whether or not you add the fee onto the mortgage loan or pay it out of cash, you should still deduct over the course of the loan. So if the fee was £2,500 and the loan was over 25 years, that’s £100 per year you can deduct.

If you go on to clear the mortgage early – say because you sold the property or because you remortgaged it, then they say you can deduct the outstanding fee not already deducted in one go.

So, in this example, if you remortgaged after 5 years, (say because you found a better mortgage deal), as you would have only used up £500 (i.e. £100 a year for 5 years), the remaining £2,000 of the £2,500 fee could be claimed in one lump as a valid deduction in the tax year you remortgaged.

Doing it Quick

Some experts at TaxCafe go further. They say that you can deduct the cost far more quickly than by waiting to do so over the term of the mortgage.

They say that if you plan to remortgage to a better deal every 5 years or so, (which is what most people did in the pre-credit crunch days) it is only fair that you actually deduct the mortgage fee over a similar time frame – so in other words, in our example, this would be £2,500 over a “planned” 5 years time horizon, or £500 a year.

They also argue that “small fees” could be even deducted in the year they occur rather than having to spread these tiddlers out over future years.

Naturally, these methods will usually give a better result as it will bring the deduction to an earlier time and will be more valuable for most people (not least because the value of the deduction will be less eroded by inflation.)

Taxcafe also say that you should get your solicitor to ensure that, within his bill to you for any conveyancing services, he makes sure to split out as a separate item any “work relating to the setting up the mortgage” such as “dealing with charges over the property” as this bit of the legal fee can be deductible too, along with the application fee.

Finally they say that any exit fees charged for redeeming a mortgage are a valid cost to be deducted in the year in which they apply.

Valuation Fees

Whilst on this subject, it is worth mentioning the issue of the Mortgage Valuation Fee.

This cost, charged by mortgage lender to you is for services to value the property for mortgage purposes and would seem, to me at least, to be another valid cost in connection with the arranging of the loan to buy the investment property.

I cannot see any reason why this could also not be deducted along with the mortgage application fee (but I am waiting a response from my tax expert chums on this.)

Get Tax Advice

This whole area is complex and this blog represents my assessment (as a non tax expert) of the landscape at the moment.

If you are in doubt about what to do (and without doubt this is a grey area) you must ask a qualified tax expert who is familiar with this area of tax. I don’t give advice on tax but if you want some help I may be able to recommend you to someone.

I would like to invite tax experts to comment with their opinions.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information.

I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years. 25,000 copies sold.

Services to Businesses and the Public Sector

Primarily I am a consultant to a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors and insurers – helping them with their landlord facing or buy to let product strategies, marketing and services.

I help banks improve their buy to let mortgage lending practices. I help housing associations / local authorities find private landlords (private rented access schemes, local letting agency models etc.)

I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

You can use the tags and categories at the bottom of each post and over to the right to read blog posts on related posts.

Just click on the categories and use the pull down menu over to the top right to find all the posts on a specific topic.

If you want to reply, please make sure you are on URL for this specific post – if you are on the Blog Home Page, you’ll need to make sure you click on the link to the right of the page. At the bottom of the post, you should see a space to “Leave a Reply.” (Spammers please note: We delete all spam.)

THE HOME PAGE OF OUR MAIN SITE click here: http://www.LettingFocus.com

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Advice

TO READ CLIENT TESTIMONIALS – from both organisations and private landlords click here: Testimonials

IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR TO OUR WEBSITE?

IF YOU SELL SERVICES TO LANDLORDS, YOU COULD BE A PARTNER ON OUR AFFILIATE PROGRAMME. Ask for details.

This blog is updated once a week, usually on a Monday or Tuesday (or more frequently when “hot” news items come up.

For my random thoughts on property and various other things that typically make me grumpy, please see our TWITTER PAGE: Twitter

Tags: Buy to Let Mortgages, Mortgage arrangement fees, Mortgage fees
Posted in Buy to Let Mortgage Fees and HMRC, Mortgage Fees and HMRC, Mortgage Fees and Tax, Property Valuation Report and Survey | Comments Off

Local Housing Allowance Concessions Likely and Innovative Thinking Sought from Lenders

Tuesday, November 30th, 2010

I hope you are not too bored by our coverage of the Housing Benefit story.

If you are an organisation or public body and are providing / selling services or products to the private rented sector, you should still be riveted because it has big implications for the whole market.

Even if you are a landlord who never lets to tenants on Housing Benefit, the changes that are coming will have a significant impact on all rent, except for in the very upper end of the private rented sector. So, we think it is worth covering.

Anyway, the Government continues to tinker with what has been proposed. Here is the latest:

Concessions on Housing Benefit / LHA Changes Expected

It looks likely that the Government will make further concessions in its cuts to Housing Benefit by delaying cuts for existing private sector claimants.

The caps to the amount of Local Housing Allowance (LHA) existing claimants can receive look like being delayed until “anniversaries of review” starting from January 2012.

However, from April 2011, Housing Benefit will still be capped for new claimants (The caps depend on property size and range from £400 a week for 4 bed properties down to £250 a week for 1 bed properties.)

We expect to see some other concessions too, including possibly concessions for jobseeker’s allowance claimants who have a disability.

Coming soon is the report by the Department for Work and Pensions internal social security advisory committee which is due to be published at the same time as the statutory instruments are laid down. I expect the report may criticise the cuts. Should be interesting reading.

Once all the concessions are counted up and once the cost of the increased use of temporary accommodation has been added in (see 2 blogs ago for more on this) we wonder if the out-turn for savings from these big changes will be much to shout about.

Still, this is politics and it will keep some in the press happy that something has at least been done to try to tame the soaring cost of the Housing Benefit beast!

Local Government Grapples With the Changes

Local government officials that we meet in the course of our consulting work are doing an honourable job of grappling with the Housing Benefit changes. And it’s not an easy job.

To get new ideas they must constantly look over at what other boroughs do and how they go about accessing the private rented sector supply.

But with other boroughs also chasing the private rented sector supply too, they actually have to compete to some extent – so not the ideal environment for idea sharing!

Also, watching what others do can sometimes lessen the potential for innovative thinking. (With our understanding of the sector, how it’s structured and what landlords want, we do our best to help people break out of their paradigms.)

But there is some very clever thinking around Government too.

Picture This

Picture this – we have mortgage lenders repossessing properties. Lots of them!

The properties sit empty for ages while an estate agent tries half heartedly to sell them. (Fees for this work are low, so it isn’t top of an agent’s “To Do” or “To Sell” list at their Monday briefings.)

If they don’t sell via an agent, the property eventually goes to auction where it is often sold at below market value. And the properties sit empty all this time.

Meanwhile, the local councils are desperate for property.

Now, we know that mortgage lenders can act as “receivers of rent” so it would be nice if some kind of deal could be done where councils could use the repossessed property for temporary accommodation with the lender getting a gilt edged rental income.

Local and national government are predictably keen, but we would need some real innovative thinking from the mortgage lenders for this to happen.

I’ve said before that many lenders seem to lack the innovation of those involved in housing within Government so I’m not holding my breath that anything could happen here. I expect repossessed houses will continue to sit empty for ages and be sold off cheap.

School Closures – How You Know When You are Old

You know you are old when you have lived long enough to recall your school days and how they never shut schools then just because of a teensy bit of snow.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information.

Services to Businesses and the Public Sector

Primarily I am a consultant to a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors in build to let and insurers – helping them with their landlord facing or buy to let product strategies, marketing and services.

For example, I help banks improve their buy to let mortgage lending practices and I help housing associations / local authorities find private landlords (private rented access schemes, local letting agency models etc.)

I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

You can use the tags and categories at the bottom of each post and over to the right to read blog posts on related posts.

Just click on the categories and use the pull down menu over to the top right to find all the posts on a specific topic. (If you should want to find relevant posts from before 30 April 2010 (on our old system) you can also click on LettingFocus’s Old Blog - Categories, then search from the list for a topic that interests you.)

If you want to reply, please make sure you are on the URL for this specific post – if you are on the Blog Home Page, you’ll need to make sure you click on the link for this post to the right of the page. At the bottom of the post, you should see a space to “Leave a Reply.” (Spammers please note: We delete all spam.)

THE HOME PAGE OF OUR MAIN SITE click here: http://www.LettingFocus.com

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Advice

TO READ CLIENT TESTIMONIALS – from both organisations and private landlords click here: Testimonials

IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR TO OUR WEBSITE?

This blog is updated once a week, usually on a Monday or Tuesday (or more frequently when “hot” news items come up.

For my random thoughts on property and various other things that typically make me grumpy, please see our TWITTER PAGE: Twitter

Tags: Buy to Let Mortgages, Housing Benefit, LHA, Local Housing Allowance, mortgage lenders, Receiver of Rent, Repossessed Property
Posted in Buy to Let Mortgages, Estate Agents and Mortgages, Housing Benefit, Local Housing Allowance, Private Leasing Schemes, Private Renting Schemes, Private Sector Leasing Schemes | Comments Off

Getting a Buy to Let Mortgage A Useful Guide to Getting the Best Deals and Rates

Tuesday, October 26th, 2010

NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors (which now take place just once or twice a year): Next Property Investment Seminar and Networking Event

In last weeks’ blog I said I thought it would be worthwhile publishing a brief guide to buy to let mortgages.

So here is our short guide for investor landlords wishing to buy and let property. (Please note this is not a guide for people who might be classed as “property traders” (whose business is more about buying and selling property in a short time period) or “developers” (whose business is mainly about substantial renovations for developments with a view to sell rather than let out) though I hope they will find things of use to them here.)

In a nutshell, a buy to let mortgage is a mortgage which is used to purchase residential property that you will NOT live in.

The key difference between a buy to let mortgage and a standard residential one is that with a buy to let one, the lender is usually more concerned with the value of the property and how much it can be rented out for than how much you are earning (though if you DO happen to have good earnings from a day job that will mean you should have a better choice of buy to let mortgages to choose from.)

Rental Income Potential is A Key Factor

Lenders will want to know that the rental income you can achieve is more than the annual mortgage payment and the ratio that’s usually used is the rental must be equal to or more than 25% more than the interest payments on the mortgage (though some lenders want 30% more.)

Each lender has different criteria and some ask that you do have an income of at least £25,000 per annum – which can be on a self employed or employed basis. Self employed people may have to show at least one year of good accounts – i.e. more than £25,000 profit, and the business must be something other than property.

The minimum deposit you need to put down in most cases is 25%, though there are a few mortgages where only 20% deposit is required. However these are much more difficult to obtain, the interest rates are higher and you must be an experienced landlord and have a high credit rating to qualify.

It is advisable to get an agreement in principle in place from a lender before starting your property search so you will know that you are credit-worthy and the lender will be happy to lend to you. Also it means estate agents and property finders know that if they can find the right property you can move forward with the purchase quickly.

Credit Checking and Credit Scoring

Most lenders will use credit checking and credit scoring when you submit an application.

However, there are a couple of lenders now that don’t credit score, but they only offer mortgages to “experienced investors” at the moment. (An experienced landlord is usually defined as someone who has owned and let out at least one property for 3 years.)

Where a lender does not use credit scoring this could help those individuals that may have had some credit problems in the past – however the lender will want reasons for any problems, CCJs, loan defaults etc and information as to whether they have been settled. Interest rates will be higher.

You can buy a buy to let property when you do not own one already but you are very limited by the number of lenders available to you as lenders are now extremely wary when it comes to “inexperienced property investors.” Generally, it is always advisable to be a property owner or purchase with a property owner to get the best deals.

Most lenders like landlords with experience though Lloyds Banking Group (BM Solutions and Cheltenham & Gloucester brands) has rather bizarrely recently decided that they will no longer lend to landlords who have more than 3 mortgages with them across the group.

Things You Can Do To Help Yourself

Here are some things that can help you:

Get your credit report
Obtain an Agreement in Principle (an AIP) when you start your search
Look at the overall mortgage not just the headline rate.
If you use an independent broker, use one who is not tied to a specific lender and make sure they are regulated by the FSA.
When getting purchase funds together ensure you include all costs including deposit, stamp duty, legal fees, mortgage costs, furnishings etc
If using bridging finance to purchase property, always make sure you have a defined exit strategy (Bridging is not advised for inexperienced investors however it can be a good tool for an experienced investor who may need to purchase a property quickly, by exit strategy I am referring to a way to remove the bridging, this could be a buy to let mortgage or paying off the loan through sale of another property, but it is a good idea to know which route you are going to use as it can be an expensive form of finance and is only for a short term basis 6-12 months)
It can be more difficult to buy with a buy to let mortgage if you do not currently own a property and also if you do not have a job.
If looking at new build property always check lender’s conditions on loan to value and property type

Post credit crunch, getting finance has got much harder as lenders have tightened their criteria. But if you plan ahead and get your finances straight before you start applying you stand a better chance of success.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information.

Services to Businesses and the Public Sector

I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

You can also use the tags and categories at the bottom of each post to read blog posts on related posts or click on the categories pull down menu over to the top right. (If you want to find relevant posts from before 30 April 2010 you can also click on LettingFocus’s Old Blog - Categories, then search from the list for a topic that interests you.)

THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Mentoring

NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors (which now take place just once or twice a year): Next Property Investment Seminar and Networking Event

We have OFFERS on a few services and products here: Services and Products for Landlords

TO READ CLIENT TESTIMONIALS – from both organisations and private landlords click here: Testimonials

To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com – Please note we WILL NOT send spam or sell our mailing list to advertisers but please put us on your “white list” to ensure you receive our emails!

IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR TO OUR WEBSITE?

IF YOU SELL SERVICES TO LANDLORDS, YOU COULD BE A PARTNER ON OUR AFFILIATE PROGRAMME. PLEASE GET IN TOUCH!

This blog is updated once a week, usually on a Monday or Tuesday.

For my random thoughts on property and various other things that typically make me grumpy, please see our TWITTER PAGE: Twitter

Tags: buy to let, Buy to Let Mortgages, Estate Agents and Mortgages
Posted in Buy to Let Mortgage Terms and Conditions, Buy to Let Mortgages | 2 Comments »

Mortgage Fraud and Buy to Let

Monday, October 18th, 2010

I’m sad to say that at some recent events I have been to, quite a few punters came to me with pretty strong evidence that some property investment “advisors” are still encouraging people to carry out mortgage frauds as a way of buying property with little or no money down (NMD) and / or as part of a “buying below market value” or BMV strategy in buy to let investment.

The advisors often claim that they have uncovered a new clever way around the rules. I’m not so sure.

Let’s be clear here: If you do not declare the actual net property purchase price to the lender, you have carried out a mortgage fraud. There are no ifs and buts about this.

And no matter what a “friendly” solicitor says, if you know the price you sign to say you are paying on the mortgage application form is not the same net price that you have paid (taking account of all side agreements and options etc), then you have committed mortgage fraud. It’s that simple.

Lenders are now very sharp at detecting fraud as we can see from the many solicitors and brokers who have been struck off in recent months. And yet there are many more bent mortgage brokers and solicitors still at large who are still operating the dodgy deals and will do all they can to ensure the trail does not end with them.

They will ensure that it is the hapless investor, not them and not the property advisor who is exposed to the force of the law when the brown stuff hits the proverbial spinning thing on the ceiling.

A Plea for Common Sense

At a recent event two people came up to me to lament that they had paid thousands of pounds to property sourcing and property finding companies that had later gone bankrupt, taking all their money with them.

I really despair at this and have to ask when will people ever learn? I see some firms are now asking sums in the range from ten to sixty thousand pounds to either teach people all there is to know about property or to find them a few properties.

“Great” I say, “And what happens should that firm go bankrupt?”

Sadly, it seems that often people are too blinded by the concept of fast riches and “financial freedom” to worry over much about such an event occurring.

For me parting with that kind of cash would be too much of a risk. But then again, I know that 85 to 90% of all that someone needs to know about residential property investment in letting property is in my book:

Buy the Book at Amazon

Other good sources are Property Investor News and sites like LandlordZone and our low cost seminars:

Next Property Investment Seminar and Networking Event

Recent Mortgage Moves – The Latest and Best Buy to Let Mortgages

In next weeks’ blog we will publish a beginner and intermediate guide to buy to let mortgages. But this week I will have a quick look at what rates are available.

Most lenders prefer landlords with experience, though as noted in a previous blog, Lloyds Banking Group (BM Solutions and Cheltenham & Gloucester brands) have rather bizarrely recently decided that they will no longer lend to landlords who have more than 3 mortgages with them across the group.

This odd move has been countered recently by lender Paragon which has recently re-entered the market. For landlords with a number of properties, that’s good news because Paragon has always majored on portfolio landlords (though their rates have not always been the best.)

And two new buy-to-let lenders Aldermore and Precise Mortgages have also helped fill up the space vacated by the Black Horse. The Mortgage Works (part of Nationwide) are still offering buy to let mortgages at 80% loan to value but credit score is very important to them – so make sure both your Experian and Equifax credit reports are accurate.

Bank of China is offering good rates on Buy to Let up to 75% with fixed fees. Northern Rock offering buy to lets up to 70% loan to value with no income verification and refinances within 6 months. HMO lending up to 75% and loans for portfolios are available with a variety of lenders but will always cost more and you must be an experienced landlord.

There are currently 292 buy to let products available on the market, compared to the 266 products that were available in July 2010. The average variable rate has been reduced from 4.84% to 4.76% and the average fixed rate on the market is now about 5.55%, so whilst the margins over base rate are still very high on an historical basis, maybe these are small signs that things are finally looking rosier in the world of buy to let finance.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information.

Services to Businesses and the Public Sector

I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Mentoring

NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors (which now take place just once or twice a year): Next Property Investment Seminar and Networking Event

We have OFFERS on a few services and products here: Services and Products for Landlords

TO READ CLIENT TESTIMONIALS – from both organisations and private landlords click here: Testimonials

IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR TO OUR WEBSITE?

IF YOU SELL SERVICES TO LANDLORDS, YOU COULD BE A PARTNER ON OUR AFFILIATE PROGRAMME. PLEASE GET IN TOUCH!

This blog is updated once a week, usually on a Monday or Tuesday.

For my random thoughts on property and various other things that typically make me grumpy, please see our TWITTER PAGE: Twitter

Tags: Buy to Let Mortgages, Financial Freedom, Mortage fraud and buy to let, Mortgage Fraud
Posted in BMV, Below Market Value Property, Buy to Let Mortgage Fraud, Buy to Let Mortgage Terms and Conditions, Buy to Let Mortgages, Get Rich in Property | 1 Comment »

Evaluating Property Investments a Black Hole and Some Good News on Mortgages

Monday, October 4th, 2010

NEXT SEMINAR AND NETWORKING EVENT: Next Property Investment Seminar and Networking Event

When evaluating property investments, too many landlords fail to take account of the “opportunity costs” of their own money sunk into any project. Indeed I meet a lot of people in my consultancy who have hired me to assess an investment or set of investments but have forgotten to account for the opportunity costs.

I explain this in “Successful Property Letting”, but maybe my explanation there needs to be made even plainer. Buy the Book at Amazon

It’s simple really. If you have to put up say, £50,000 as a deposit for a property to let (with a bank putting up the rest) and you have transaction costs of say £6,000, then you have put up £56,000 in total.

That £56,000 could have been sitting in the bank earning say 4% (and 4% could be about right because, as a buy to let investor you are presumably putting away money for at least 5 years and 4% is attainable right now on 5 year fixed term bonds.)

4% of £56,000 is £2,240 – that amount is the opportunity cost. It’s basically like saying, “What could I have earned by doing nothing?” and it should be added to the cost side of any investment, thus reducing the potential profit for each year of the investment going forward.

Lost Money on Failed Property Transactions – The Black Hole

Very few landlords running residential property investment businesses and letting to tenants (as opposed to property traders and developers) realise that if a property purchase falls through, they cannot claims the costs of that abortive expenditure against rental property income or as a deduction before capital gains tax is levied either.

Yes, the money is lost. It’s a black hole which HMRC is aware of and it seems very unfair, but hey, that’s the situation.

Property transactions that fall through are especially common for landlords buying property at auctions for example where you can be more easily outbid. HMRC and my tax advisor are both clear on this– if this happens you cannot claim abortive costs like the cost of the survey valuation if you are a property investing landlord.

Good News on Buy to Let Mortgages

Landlords seeking mortgage finance and still smarting from Lloyds Banking Group’s odd decision to stop lending new money to landlords who have more than 3 properties across the group (which includes Lloyds, C&G, Halifax and BM Solutions brands) will be pleased to see that Paragon have started lending again. Some good news at last!

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information.

Services to Businesses and the Public Sector

I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: One to One Advice

NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors (which now take place just once or twice a year): Next Property Investment Seminar and Networking Event

TO READ CLIENT TESTIMONIALS – from both organisations and private landlords click here: Testimonials

IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR TO OUR WEBSITE?

IF YOU SELL SERVICES TO LANDLORDS, YOU COULD BE A PARTNER ON OUR AFFILIATE PROGRAMME. PLEASE GET IN TOUCH!

This blog is updated once a week, usually on a Monday or Tuesday.

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Tags: Buy to Let Mortgages, Tax and Buy to Let
Posted in Buy to Let Mortgages, Buy to Let and Landlord Tips, Buying Property at Auction, Capital Gains Tax, Tax on Let Property | Comments Off

LettingFocus

Posts Tagged ‘Buy to Let Mortgages’

Mortgage Fraud Buy to Let Lending and Property Clubs

Landlords Still Wait for Advice from Buy to Let Mortgage Companies

The Future for Buy to Let Loans and Mortgages

Mortgage Arrangement Fees, the HMRC and Tax

Local Housing Allowance Concessions Likely and Innovative Thinking Sought from Lenders

Getting a Buy to Let Mortgage A Useful Guide to Getting the Best Deals and Rates

Mortgage Fraud and Buy to Let

Evaluating Property Investments a Black Hole and Some Good News on Mortgages

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