BUYING PROPERTY AT BELOW MARKET VALUE – ADVICE FROM LETTINGFOCUS.COM

BUYING PROPERTY AT BELOW MARKET VALUE – ADVICE FROM LETTINGFOCUS.COM

Why the credit crunch makes it easier to buy property at below market value or BMV by David Lawrenson

Property expert David Lawrenson of lettingfocus.com looks at buying below market value, the specialist finance available to landlords to help them to do this including bridging finance and re-financing and when - and where you could use such finance to get a property bargain.

Many people are struggling with the effect of the credit crunch. People now face having to re-mortgage onto much higher mortgage rates - which will really put the squeeze on - forcing many to sell up.

Add to all that, many lenders have failed to pass on the Bank of England’s recent base rate cuts in a desperate bid to improve balance sheets.

Remortgaging borrowers are also finding that lenders have tightened up on their lending criteria so borrowers with poor credit ratings are finding money for new mortgages hard to come by.

And it’s not just the heavily indebted who are getting a shock. It’s now clear that the odd missed credit repayment will now not be overlooked either.

At the same time, many lenders have realised that many of the mortgage loans they previously wrote for new build properties (many made to landlords) were perhaps a little reckless. Beset by falling flat prices and sluggish rents on oversupplied city centre flats, most lenders are reining back or exiting entirely from making loans on new or recently built flats.

It all makes for a grim picture for many property owners and for those landlords who bought the wrong type of investment property.

Ideal Situation for Below Market Value (BMV) Players

But these dark clouds are manna from heaven for investors who buy property below market value.

Professional investors know that with property you make the bulk of your money when you buy and debt ridden property owners equals “motivated sellers” who will listen to cheeky offers. They know that buying property cheaply often comes down to buying from someone who is facing one or more of the three Ds – death, debt and divorce.

Many property investors looking for property bargains previously used bridging finance to get the deal done without using any of their own money. Here is how it works.

Financing BMV Deals

Suppose you found a property which is valued at about £300,000 but the owners want a quick sale and will sell to you for only £240,000. You would raise a bridging loan for the £240,000 and then complete the purchase.

At the same time you would apply for a remortgage supported by a valuation for £300,000 on which you applied for a mortgage loan of 85% or £255,000. This scenario would give you instant equity plus a bit extra which could go towards purchase costs and the cost of the bridging loan (which would be at least 1.5% interest per month on top of a set up fee.)

Case Study

In one recent deal, a BMV operator I know bought from a vendor who was wishing to sell fast to raise finance to clear his debts after his grandson’s business venture had failed. “The old couple had tried to help their grandson by raising money but following the business failure, the creditors were knocking at the door seeking to repossess,” he says.

“The deal I set up was a typical win – win deal that met everyone’s goals. The people could stay in their home, there were no estate agency fees to worry about and as they sold without vacant possession there was no HIP either”

Mortgage Lenders are Wary

However, as the credit crunch tightened its grip and arrears on these loans increased, lenders got more wary of financing back to back mortgage loans like this and in early 2008, the last lender that did this type of business - the Mortgage Express - finally pulled the plug.

So today all mortgage lenders will want to see 3 or 6 months ownership of a property before they will consider doing a re-mortgage.

The Future of Below Market Vaue (BMV) Deals

But despite the pull out of the main mortgage lenders, there will always be a market for some types of clever financing deals to help out struggling home owners at the same time as allowing investors to buy property from the "soon to be repossesed" with "no money down"

Indeed, those who sell seminars on how to do BMV say they have new cunning schemes in place though it is too early to evaluate these yet.

For investors with a cash pile available to help finance buying property at below market value, these are great times.

People will always need to sell fast for a variety of reasons – often because of sickness combined with consumer debt. And it seems more and more people are getting overcome with debt but want to stay in their own home.

In these circumstances selling to an investor and then renting back the property makes great sense because no one in their community needs to know they have been in financial trouble and they just continue living in their home with no black mark on their credit.

The Council of Mortgage Lenders naturally says that struggling home owners should talk to their lender first.

However, as lenders will often ultimately repossess, this is not a viable solution for many. And what guarantee is there that the lender who repossesses will get a good price for the property anyway?

For many people selling to an investor and then renting back will be the best way forward providing a win win deal for both investor and seller.

The seller gets to sell their property fast and does not pay any estate agency fees nor even need to get a Home Information Pack. It can be a very persuasive deal.

However, in the future Sale and Rent back deals look likely to be subject to regulation because many people in and out of government are concerned about the ethics of some practitioners of these deals.

If you need more advice on buying property below market value or buy to let investments in general please ask me.

I’m David Lawrenson from property investment mentors www.lettingfocus.com

I’m the author of the buy to let book “Successful Property Letting - How to Make Money in Buy to Let” which has been the UK’s top selling property title for the last 3 years. Buy the new edition here.

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 below market value.

What’s unique about lettingfocus.com is that we offer independent property coaching because unlike most people in the buy to let and property “advice” business we are not linked to a property company, developer, estate agent or bridging loan financier and do not receive commissions from any of these sources either.

For example, if a property investment you are thinking about is lousy, we’ll tell you straight and we can help with any aspect of being a landlord, buy to let and property investment.

And we won’t make silly promises that you’ll become a millionaire overnight.

We offer advice both at our seminars and also on a one to one basis.

Lawrenson and Lettingfocus.com – Freelance Writer, Speaker and Consultant

I am an independent expert on the UK property market and a well known property investment blogger.

I contribute to newspapers and a host of property websites as a freelance writer.

I also write a property investment blog and a number of columns in the press and I run a landlords advice service.

My work as a consultant also stretches to helping companies such as banks, building societies, housing associations and web portals with their buy to let and property products and services.

You can read more of my property investment blog and read details of my networking, advice and buy to let networking programme at my website www.lettingfocus.com.

For contact details, follow the links at the site.
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