development finance

Case Study: Can’t get development finance

We were approached recently by a landowner who had obtained planning permission on a parcel of her land, adjoining a business premises.

She had no development experience, and required help to raise the development finance and project manage the development.

Attempt 1

We approached the “usual” development lenders but were unsuccessful.
They were unwilling to lend to someone with no experience, and on a “small” £300k building contract.

Attempt 2

Then we secured lending based on PropVestments’ track record from one lender, to undertake the project as a joint venture. However this was the week leading to BREXIT, and so at the last minute even this lender pulled the plug.

Attempt 3

Another development lender, however their rates were comparable to bridge lending and to make matters worse, their lead time was 6-8 weeks for credit approval.

Solution: Non traditional Development Finance

Finally PropVestment arranged finance with a private bridge funder, with favourable rates and monies disbursed within a few days. To make matters even better, the bridge was structured like development finance with monitoring surveyor sign off in stages. This means the landowner does not have to pay the interest on the full amount like many other bridge loans.

The build process is well underway, a happy land owner, and solution provided in a tricky situation.

Development can be undertaken by anyone, with the right guidance and partners you can make a success of it. Do not be intimidated by rigid lenders and red tape.

PropVestment can help project manage, secure development finance and recommend contractors and property professionals. 

  • Do you have a plot of land which has development potential?
  • Do you need advise in how to maximise the potential value of your land?
  • Do you need help securing development finance?

We have experience and the professional network that can ease the stresses of property development and allow you to realise the returns hidden in your property.

Development finance

Stamp Duty

Stamp Duty changes: #AS2014

#SDLT (Stamp Duty Land Tax) has been totally reformed in the Autumn Statement by George Osbourne. First time buyers gain, and buyers of property over £937,500 lose out.

98% of people who will be paying Stamp Duty will pay less

Under the new rules Stamp Duty will follow a scale similar to income tax, with thresholds where the rate is due proportionally.

New Stamp Duty

What is the impact on First Time Buyers or regular home owners?

First time buyers will benefit. Under the new rules first time buyers will pay on average £400 less. The average price paid for a first home is £210,000. Under the old system the rate was 1% on the whole amount therefore £2,100. However under the new system only amount above £125,00 so ££85,000 is taxed at 2% totaling £1,700.

What is the impact on Property Developers?

For property developers the new is not so good. With so many sites coming in over the £1m mark, property developers will be hit hard. In Particular those in London and the South East where even the smallest sites come in over the £937,500 threshold from which point the effective rate is higher under the new system.

SDLT Autumn Statement

The critics are calling this move George Osbourne’s own engineering of the Mansion Tax. However this will definitely help smaller, less affluent families and most of all first time buyers. The upper end rates are really quite high and will impact small developers more, who operate on a smaller scale and rarely get other subsidies like the larger ones.

It must be noted that these rates and changes do not affect commercial property, therefore many developments may not be harmed that much.

Will this reduce or increase the net proceeds to the treasury?

In conclusion, this is a positive move by the Chancellor, it just waits to be seen how this translates for first time buyers and conversely with property developers in reality.

budget buying a property

Hidden costs of buying a property

Cost of buying a property go well beyond the deposit required

Many new buyers often make the miscalculation that the money they have saved up, is the amount they should budget for buying a property or putting down a deposit. There are many other costs that arise that new buyers should be aware of. Here are just a few examples.

Legal costs of buying a property

Legals fees are a must, remember you get what you pay for. Use a reputed conveyancing firm. Depending on the complexity of your deal typical costs could vary from £500 to £1000. In some cases you can get the lender to contribute to some of these costs, however beware that they do not cover this by charging else where.

Stamp Duty costs of buying a property

Considering very few property purchases are below the £125,000 threshold most people will have to pay stamp duty. This is a tax an is payable on completion, therefore must be budgeted into your calculations.

Purchase price of property Rate of SDLT
(percentage of the total purchase price)
£0 – £125,000 0%
£125,001 – £250,000 1%
£250,001 – £500,000 3%
£500,001 – £1 million 4%
Over £1 million – £2 million 5%
Over £2 million 7%

Source: https://www.gov.uk/stamp-duty-land-tax-rates

Check out this easy stamp duty calculator.

Survey costs of buying a property

Surveys can typically cost £400 to £800. This must be paid regardless if the purchase goes through, so do your own research before instructing a survey. Make sure the value stands up and the purchase is not too risky for the lender. Sometimes the lender covers the cost of the survey or adds it to the mortgage.

Valuation fees when buying a property

Mortgage lenders will charge a valuation fee, that can vary from £300 to £500. They sometimes cover the cost or give you the option to add it to the mortgage amount. Look at the fine print and get clarification.

Mortgage arrangement fees

Lenders have become smart and crafty. Often as the interest offered on a mortgage goes down, the arrangement fees go up. In reality this is a pointless fee but they do charge it. It can be over £1000 in some cases.

Moving costs & repairs

Moving costs if you are hiring help can run into over £1000 for a single day. Calculate how much you have to move and plan the move well.

When you view your property before completion check things thoroughly, the last thing you want is a boiler failing, the roof collapsing as soon as you move in.

How can PropVestment help?

budget buying a propertyWe can provide you with a walk through of purchasing a property and put you in touch with our preferred and vetted financial advisers, solicitors, and moving team. Contact us today for a no obligation chat.

Image courtesy of Stuart Miles / FreeDigitalPhotos.net
Mortgage Market Review

#MMR : How will the Mortgage Market Review affect you?

The Mortgage Market Review (MMR) was brought in by the FCA and is in practice from 26th April 2014. The aim is to avoid a repeat credit crunch caused by over and responsible lending in the mortgage market.

What is the Mortgage Market Review?

It means that Financial Advisers will not be able to provide services on a Non-Advise basis. All IFAs will need to hold a relevant qualification. This means there will be better qualified IFAs, and the lack of competition should make this service profitable and worth it for the best IFAs. Overall this is better for people buying property as they will get better advise.

For Lenders: They are now fully responsible for assessing someones ability to pay back a mortgage and affordability. Therefore they will scrutinise income and expenditure to the finest detail.

Mortgage Market ReviewFrom the FCA:

They will look at your spending in three categories:

Essential expenses

This is what you regularly spend on the things you cannot do without, such as:

  • food
  • household cleaning and laundry
  • gas, electricity and other heating costs
  • water bills
  • telephone
  • essential travel (such as travel to work or school)
  • council tax
  • buildings insurance (it is usually a condition of your mortgage that the building must be insured)
  • ground rent and service charges (for leasehold properties)

Basic quality of living costs

This is what you need to spend on occasional essentials, with some allowance for leisure costs, including:

  • clothes
  • household goods (such as furniture and appliances) and repairs
  • personal goods such as toiletries
  • basic leisure costs, including non-essential transport
  • TV licence
  • childcare

Repayments and other commitments

This covers other payments you know you will have to make, including:

  • debts you are paying off, like credit card bills, loans or hire purchase payments
  • child maintenance and alimony payments

The exact details you are asked for will vary between lenders, but you should expect to discuss your regular spending in all these areas.

MMR could be responsible for the surge in the housing market in recent months. Due to the fact that the lending process will be longer and more indepth, potential buyer will have rushed buying to get their transactions complete prior to these new rules coming in place.

What does MMR mean for Buy to Let?

It is still unclear if these rules are applicable for Buy to Let investments, especially as in most cases the loan to value is lower and mortgage payments are intended to be paid with the rental income.

Please comment if you have any further information in relation to Buy to Let impact.

Property Tribes has some interesting points here:
http://www.propertytribes.com/start-preparing-now-big-changes-coming-btl-lending-t-9621.html 

– Thanks Vanessa Warwick

Conclusion

Although the point of MMR from the FCA is to make sure mistakes of the past do not happen again it will damage the property market especially for those responsible lenders, IFAs and investors.

Immediately we will see a drop in market transactions and decrease in first time buyers on the market. The seasoned investors should remain mostly unaffected.

Lending holding back property investment in London

Stringent lending stopping property investment

Property Investment stopped by lending

It has been a long standing observation that one of the main reasons the UK property market is struggling is due to the lack of funding in the market place.

We have had a series of funding schemes proposed by the government and other institutions to encourage property investment. These include the likes of NewBuy, FirstBuy, and Funding For Lending.

Funding for Lending is the latest scheme to encourage lending where the banks can borrow cheaply provided they lend it out to the public, be it as mortgages or commercial lending.

FirstBuy and NewBuy is primarily restricted to new builds, which benefit constructors but represent a very small proportion of the property on the market.

Over the last few weeks at PropVestment we have been working on a deal for a young professional first time buyer. However we have it a brick wall with strict, inflexible, non-subjective lending criteria by all the major lenders.

*Due to confidentiality and to protect our exclusive property sources, details on this article will be disguised
 

The investment property

Property Investment in Elephant & CastleLOCATION – Elephant & Castle – Zone 1 – London

  • Elephant & Castle has £1.5 Billion being spent for regeneration.
  • 2 mins walk to the London Underground and Bus stations.
  • Opposite the famous “Strata Building”

 PROPERTY

 

2 Bed Duplex in Ex-council block, currently under full refurbishment.

  • Each leaseholder has spent almost £40k for new concierge, lifts, windows
  • Elephant & Castle - Property next to Strata20th floor with views of London, from the Gherkin, Canary Wharf, O2,  Shard, all the way to Crystal Palace.
  • Large Balcony. Full wall to wall windows across all rooms.
  • 118 Year Lease

Rental expectation – upto £1500 per month currently. PropVestment predicts this will hit £2000 in 5 years. Strata building demands this level for smaller compatibles.

Asking price – £220,000

Gross Yield is over 8%

If lending 75% Purchase Price, there for deposit £55,000
If mortgage at 4% repayment over 20 years £1011 installment per month
Surplus for Buyer after mortgage £5868 per annum.
10.7% return on cash invested annually

 

The First Time Buyer

  • Mid twenties
  • £50,000 savings, plus £10,000 promised contribution from family
  • £40,000 a year salary before bonus.
  • Over £2000 monthly saving after expenses
  • City working professional, currently living with parents
  • Buying either to stay in and share or rent out fully.

Why the banks won’t lend?

  •  Ex-council
  • Concrete & Steel Construction

If the councils have approved a £40 million refurbishment of the block, clearly there is no risk to the building. Considering most of the block is still council owned they would not put so much of their own money in an unsafe building.

Being Ex-council ensures that maintenance is always prompt and reasonably costed.

The banks have very little risk here because the rental will cover the mortgage repayment by 135%, the usual criteria for Buy to Lets is currently 125%.
The buyer has £2000 disposable income every month, for any major shortfall or unforseen circumstance.

PropVestment’s Thoughts

After all this and almost a model buyer, why are the banks not lending?
Banks are given cash via the Funding for Lending scheme and still are not making it available to the public.

By the banks not lending, we, as in property professionals, end up having to offer such properties to cash buyers from abroad.
Ideally we want young property owners from the UK, however due to the circumstances the only investors that can afford to pay full cash are foreigners. This means that the profits also get taken out and do not recirculate in the UK economy.

The government must do something to ensure banks lend to boost UK home grown property investment.

For any property investment advise, analysis, deals or thoughts, contact us today for a no obligation chat. Sharing thoughts and ideas is how we progress.

 

PropVestment 2013 – UK Property Market Outlook

UK Property 2013 – House Prices, Lending, Supply, Rents…

There is always much speculation about how the UK property market will fair when we start a new year. How will the market correlate to the economy as a whole, and the biggest question of all is whether its recovering from the credit crunch?

  • House Prices
  • Lending
  • Supply
  • Rents

UK House Prices in 2013

House prices are low currently and the advise from PropVestment is that property prices will not stay low forever. Simple demand and supply, population is growing faster than new supply, together with smaller family units means shortage. Further lending is still tight but there is major pressure to improve. If you can afford to buy now, do it.

Today Rightmove are claiming that sellers are pricing 0.2% higher in 2013

UK Property Lending in 2013

Investment property services

Lending to first time home buyers in the UK increased 11% in 2012 compared to 2011, however this is still considerably lower than pre credit crunch. There is constant pressure on lenders to lend more but the criteria remains tight. Hopefully 2013 will mean more realistic and universal schemes rolled out by lenders, with more scope than last years NewBuy and FirstBuy.

Read more

Slow London auction market: Observations from Brendons Auction


Brendons Auction, London Ealing Hotel, Wednesday 11th July 2012

Brendons Auction

Today PropVestment attended the Brendons auction with a client looking to bid on a lot.
As usual we had done our homework in terms of reading all the legal packs and researching rental and resale value of potential buys.

What was very surprising when we got there, expecting 400 people like the last Brendons auction was only around 30 people. Further 7 of the 18 lots “SOLD PRIOR” or “WITHDRAWN”.

Ultimately only 2 of the remaining lots sold, both of which went considerably over guide.  Both were development potentials that needed substantial work to be done in them. Our client unfortunately got outbid with the sale going 30% over guide.
All the other 9 lots, thats 50% were “UNSOLD” due to reserves not met or no bids whatsoever.

Property Market Analysis:

  • Sellers holding out at unrealistic prices.
  • High reserves show low confidence in market prices and auction mechanism.
  • Sellers bidding mainly on “bargain” or “distressed” properties with a quick refurb and resell in mind.
  • Low attendance, means low volumes in market, potentially as finance remains scarce.
  • There were no under 30s bidding. Mean no first time buyers.

It is clear the property market is struggling, finance must be opened out. People with finance are extra cautious. They are only investing where there are strong returns at low risk.

Uptill now we have seen all the auctions we have visited and analysed as booming with high sales and lots of people, seems like that hype is slowing. Possibly as this was not in central London there was lack of presence of cash rich overseas investors.

This is a huge change from earlier in 2012 when we observed booms: Auction are for selling . We also have analysis from Allsop and McHugh and Savills

We currently have many off the market properties in London, please contact us for exclusive deals. We do not publish  everything online. Email info@PropVestment.com
Many below market value deals and development projects.

“There is always an opportunity to make money in property”

 

How to get a first time buyer mortgage

Taking out a mortgage for the first time buyer has become increasingly harder since the credit crunch. With the slowdown of the economy, the rules have become more stringent and lenders too have become more particular regarding whom to lend to. There are a few new schemes available too.

First time buyer: Taking out a mortgage

First time buyer mortgage

First time buyer mortgage

The things that you would require to take out first time buyer mortgage are:

  • Good affordability – In order to take out a mortgage even if it is a first time buyer mortgage, it is important for you to have high affordability. This will mean that if you have high affordability, you will also be able to manage to make the timely mortgage payments. Lenders prefer people who have at least more than average or high affordability.
  • Good credit score – It is important for you to have a high credit score so that you can get a mortgage with low interest rate. Without a high credit score, you may not be able to get low interest mortgages.
  • Clean credit report – In addition to high credit score, you should also have a clean credit report with no missed payments. When you apply for a mortgage, lenders pull your credit reports. If you have missed payments, lenders tend to believe that you are not a responsible borrower. Thus, your loan application may get rejected. Check your reports at Experian, Equifax and Call Credit
  • Low debt to earnings ratio – In order to take out a mortgage, you are also required to have a low debt to earnings ratio. This is checked by lenders to decide if you are a responsible borrower.


Other than having these, in order to obtain a mortgage, you will be required to:

  1. Check out different offers – In order to take out a mortgage, it is important for you to check out the different offers by various lenders. You will have to compare and then decide which the best offer is for you.
  2. Use a mortgage calculator – In order to decide on the cost of a mortgage, you can use a mortgage calculator. This can help you in determining which mortgage you can afford to take out.
  3. Get pre-approved – It is good for you to get pre-approved for a mortgage as this can help you to obtain a loan easily enough. Use an a recommended advisor

So, these are the things that you will be required to do in order to take out a mortgage to buy a home for the first time. Look into new schemes like NewBuy and Helpful Start that have recently been launched

For impartial and honest advice and a FREE consultation get in touch with us info@PropVestment.com

 

Invest Carefully with Right Equity Release Plans

Suffering from huge amount of debt is common now-a-days. People who thought about pursuing luxurious lifestyle ended up in knee deep debt. They took every kind of loan to satisfy their soul. In this way millions and millions of dollars are still pending. The failure of the people in clearing their debt has ignited the economic crisis. Many even predict that the number is likely to rise in the coming years.

There are numerous ways to pay the outstanding debt. The government offers consolidation, rehabilitation and other programs to benefit the borrowers. But if you tag yourself with defaulted loan status then it’s hard to receive governmental financial aids. Sometimes, the government departments size a portion of your income and restrict you to get tax benefits. These situations have made the debtors to start thinking about other ways to generate money.

How to receive Equity Release?

Read more

UK Property Market in 2012, the Investors’ perspective: Part Two – Market Activity

– Public Confidence

– Lending

Public Confidence

Market activity is dependant on a few things, firstly public confidence, this has seen a recent resurgence with many agents claiming great interest and newly registered clients in the post Christmas period.  People property search in agents as certain sectors start to turn around or the fact that the public know that interest rates are likely to stay low for the near future, houses start to seem affordable again. Together with the fact that many news sources are predicting higher rents on the market this year, a general upward trend is only exaggerated due to the Jubilee and Olympics.
Therefore buying sounds like a good option.

According to estate agents, the typical number of house hunters registered per branch in December was 294, 32 more than the average figure for November, with viewings continuing right up until the Christmas break, the National Association of Estate Agents (NAEA) found.
The percentage of first-time buyers also rose to 21% , continuing the increase since this section of the market hit its lowest proportion in nearly three years last autumn, although first-time buyers made up a quarter of the market during the same period last year

London was the only area to see price increases in December while respondents in the West Midlands and Yorkshire and Humberside reported the biggest drops.
At the same time, new instructions edged up for the third consecutive month during December, with 12% more respondents reporting rises in homes coming onto the market.
London saw the greatest increase in supply, with 38% more surveyors reporting a rise – the highest figure since January 2005

Lending

However there is a second all important component of buying a new property as well as confidence and interest is mortgage aspect. New lending is still very low and the stricter criteria means that even though people want to buy and sell, this is becoming the stumbling block, and as a result the sales are at one of the lowest points at the moment.

Transaction levels are likely to see a slight resurgence in 2012 and climb back to around 880,000, roughly the level of activity recorded in 2010. However, to put this in context, total sales in 2006 were almost double this amount at 1.67 million.

The weak economic picture anticipated for the next six months, along with the prospect of increased unemployment, means that demand to purchase property is unlikely to see any significant increase and will remain relatively flat.

Commentators and analysts expect sales to stay low – perhaps even lower than they have been in the past year. That means 2011’s eventual total might even be lower than 2009’s figure of 859,000 sales for the whole year – the lowest since modern transaction records began in 1978.
Even the reluctance of lenders to repossess many of the borrowers who are now in arrears has played its part.
With tens of thousands fewer homes being repossessed than lenders had predicted just a couple of years ago, the market has been deprived of the cheap homes that would otherwise have been put up for sale.

PropVestment Conclusion

The public are ready, investors are ready, the financial institutions are holding the property market back.

People are looking to buy a house?

Sources:
http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/9024366/Property-sales-fall-to-lowest-level-for-a-year.html
www.bbc.co.uk
www.homemove.co.uk