Stringent lending stopping property investment
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.
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.
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
LOCATION – 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”
2 Bed Duplex in Ex-council block, currently under full refurbishment.
- Each leaseholder has spent almost £40k for new concierge, lifts, windows
- 20th 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?
- 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.
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.