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

brexit uk property market

#Brexit Impact on UK Property Market

In light of the LEAVE decision from the EU referendum there may be effects on the UK property market.

The headlines:

The immediate impact has been market uncertainty, the FTSE has dropped approx. 10% since the decision was announced and major house builders like Taylor Wimpey, Permission, Barratts, and Berkley Homes have all lost between a third and half their value.

Further the sterling has dropped against the dollar from 1.50 to 1.30 and that is still falling.

Interest Rates

The EuroZone base rate is already negative and some experts are expecting the Bank of England to drop the UK base rate to zero to boost the economy and this may be further pushed in order to keep inflation low in the light of the currency falls which will impact the cost of imports.

The Bank of England will want to encourage investment in the economy therefore rates will remain low.

Supply

There has been an increase in construction activity over the past 24 months, buoyed by relaxation of some planning laws and extension of permitted development rights.

Although the market impact on large house builders, they will still want to complete projects, even if new project starts are delayed.

Demand

There are many factors that influence demand and attractiveness for housing in the UK that are not EU related, such as depth of skills, education, lifestyle and language. Further to this, supply is always below demand with an increase in the number of households and smaller family units. The affordable end of the market will continue to have the highest demand.

High end property, in particular may see an increase in demand as Dollar based Middle east and Asian investors will now consider the short term buying opportunities within the property market and look to acquire residential property priced above £1million. The currency correction more than compensates for the changes in stamp duty which had previously discouraged high value property transactions.

House Prices

House prices will depend on regional factors and differences. Some regions may see a correction some may stagnate; however it is too early to speculate specifics.

Rental Market

Rental market is linked to employment as well as affordability and ability of renters to become home owners. The rental market especially in London and the South East is also heavily influenced by migrant workers and students, depending on how working rights and students will be impacted will determine long term effects.

Lending

The measures in the budget in April already discourage buy to let purchases, therefore banks currently have more than the usual surplus to lend, this is reflective in the record low rates on the market.

Lenders may tighten criteria especially on rental expectation but overall lending should not be adversely effected in the short run.

Investment

Investment especially in buy to let has slowed since the introduction of measures in the budget, however with lower interest rates expected, as well as the drop in sterling, investing in the UK is now cheaper, together with the low savings rates in banks, property investment is by far the better investment.

Conclusion

Overall Article 50 will only be exercised after a new leader is elected and then after 24 months will Britain actually leave, therefore uncertainty may remain till then end of 2018, however not much else will change.

The UK Property market will remain resilient and still a strong place to invest.

How the Budget 2016 affects property investors

With the Stamp Duty surcharge coming into effect today, we look back at the key points from the Budget 2016 affecting the UK property market.

  • The planned stamp duty surcharge on purchases of additional property, to include those who buy more than 15 properties. Previously if you owned more than 15 properties you were exempt from the surcharge.
  • An 3% surcharge will be applied to residential stamp duty rates on all purchases of property not intended as the buyer’s main residence, from today, 1st April 2016.
    stampduty
  • The threshold at which people pay 40% tax will rise from £42,385 to £45,000 in April 2017 and personal allowance up to £11,500.
  • 0.5% rise in insurance premium tax.
  • Commercial stamp duty
    0% rate on purchases up to £150,000,
    2% on next £100,000 and
    5% top rate above £250,000.
    New 2% rate for high-value leases with net present value above £5m

Other issues to consider from previous budgets

  • Withdrawal of interest relief

Under current rules, taxable profits are reduced by interest on money borrowed for the purposes of the letting business.  Phased in over a four year period starting with the 2017/18 tax year, UK taxpayers will no longer be able to deduct interest in calculating taxable rental profits.  Instead, landlords will obtain a reduction in tax equal to basic rate tax on any interest borrowed.

The changes will be introduced gradually, so that the amount of interest which is deducted from rental profits is 75% from 6 April 2017, 50% from 6 April 2018, 25% from 6 April 2019 and 100% from 2020/21.

On the same dates, a reduction in tax will be given for the interest which has been disallowed.  The tax reducer is the basic rate tax (currently 20%) multiplied by the disallowed interest.  In practice the tax reducer will be 20% of 25% of interest for 2017/18, 20% of 50% of interest for 2018/19, 20% of 75% of interest for 2019/20 and 20% of the whole interest from 2020/21.

By 2020/21, a landlord who is a higher rate taxpayer will effectively only receive basic rate tax relief on mortgage interest payments.

Conclusion

Overall the positives for the Budget 2016 are a few; higher income tax thresholds and allowances and lower corporation tax.

The negatives are greater with the surcharges on Stamp Duty, higher insurance, and removal of interest relief.

The impact of new investors is much higher with the increases upfront Stamp Duty expense, and for those who are heavily mortgaged on their buy to let investments.

However it will take some time to effect rents and house prices, these may balance some of the additional costs for buy to let and property investors.

With interest rates still so low, property investment still out weighs leaving your money in the bank.

 

Sources:

LRS Forum

Coman & Co

Stamp Duty rise won’t kill property investment

On the 1st of April 2016, the “Landlord Tax” or stamp duty surcharge comes into affect of a 3% surcharge for anyone buying a second home or an investment or buy to let property.

However what will be the impact for the property investor? Will it reduce prices or first time buyers? Will the extra cost be passed on to renters? Will the UK property market crash?

Today the ONS released statistics that property prices are rising 6.7% year on year in 2015, and that is 9.4% in the UK. So in effect and extra 3% is the same as if you delay the purchase of your property in London by 4 months, or alternatively you will cover the cost by the increase in prices within 4 months.

Stamp duty increaseWell this is not exactly the case as usually a buy to let investor puts in about 25% deposit, and stamp duty is not covered by the mortgage value, so really the buyer needs that much extra cash available.

In this case an investor may try to pass on the additional cost to the renter. This will be a completely possible strategy and the property market will allow it. However will this make up the difference. For example a residential property yielding 6%, there for a 3% stamp duty surcharge would mean 6 months rent. If the Landlord increases rents by say 10% then it will take 5 years to recover the surcharge.

But, and its a big but, with the FTSE being volatile and the interest rates not likely to rise anywhere near enough to compete with property, an investors best place to invest is still property.

In conclusion the stamp duty surcharge will not really put investors off, it will just increase rents and increase the tax revenue.  

Stamp duty

Do you want to avoid the stamp duty surcharge?

Look into other options for property investment. Contact us we have a number of opportunities where you can invest in property development deals, with profit shares or fixed incomes. Contact info@propvestment.com

 

Sources:

BBC Article

 

Office to residential conversionx

Office to Residential Conversion made permanent

The Prime Minister announced today that the Permitted Development Rights that enabled office to residential conversion without full planning permission is set to be made permanent. The scheme with initially ran from 2013 to May 2016 will be extended indefinitely.

In other boosts for house building today, the PM is also announcing that a temporary rule introduced in May 2013 allowing people to convert disused offices into homes without applying for planning permission will be made a permanent change – after almost 4,000 conversions were given the go ahead between April 2014 to June this year.

This is great news for potential buyers of homes as well as property developers and all professionals connected to the industry. It will mean an flood of new development sites to the market and an increase in available housing stock. This should start to be realised within 12 to 18 months, the usual length of time required to convert a building.

Office blocks are usually in inner city location or near transport links making them ideal locations for residential units. Perfect for young buyers who rely on these links. Furthermore converted building are typically cheaper than new builds and many often come with a character that new builds just do not.

We at PropVestment are actively looking for office sites to convert into residential units, please email nirav@propvestment.com.

Office to residential conversionx

CDM

CDM Regulations 2015

From 6th April 2015, the Construction (Design and Management) Regulations 2007 were replaced by the Construction (Design and Management) Regulations 2015 (the “Regulations”).

The Regulations are intended to be less bureaucratic than the previous regulations and to improve the planning and management of projects from the start.

CDM changes

The Regulations brought about key changes, which include:

  • Introduction of Principal Designers to replace CDM Co-ordinators
  • Inclusion of domestic clients
  • Clients having to undertake more duties
  • Changes in notification thresholds
  • Requirement for all projects to have a written Construction Phase Plan
  • Abolition of the Approved Code of Practice
  • Contractors and designers are to ensure that they have the necessary skills, knowledge and experience to fulfil their roles and the person appointing them has to satisfy themselves of this also

CDM 2015 creates a new duty holder, the Principal Designer (PD) 

In many cases this will be the architect who on the majority of projects is appointed first by the client but not always. The HSE think that some designers will not want to take on the functions of the PD and many would not be capable of doing so for all but the smallest of projects.

The PD must be a designer as defined in the Regulations, i.e., anyone who as part of their business (a) prepares or modifies a design; or (b) arranges for, or instructs any person under their control to do so.
A “design” is widely defined to include specifications, bills of quantities and calculations prepared for the purposes of a design.

The HSE consider that “Chartered Surveyors and Technicians” are also “designers” under CDM 2015. Equally, anyone who selects a product for use or develops a detailed design which is then manufactured for a project is also treated as a designer according to the guidance.

A six-month transitional period is in place from 6 April – 6 October 2015.

What does this mean for current construction projects during this transitional period?

In this period, special provisions will apply before the Regulations take full effect across the board. Such provisions apply during the transitional period as follows:

  1. Projects where as at 6 April 2015, the Construction Phase has started, no CDM Co-ordinator is in place and where there is more than one contractor:
  • a Principal Designer may be appointed in writing by the Client (but this is not obligatory);
  • a Principal Contractor must be appointed in writing by the Client as soon as reasonably practicable;
  • the Principal Contractor must draw up a Construction Phase Plan, or make arrangements for one to be drawn up as soon as reasonably practicable;
  • where the Client has not appointed a Principal Designer, the Principal Contractor must also prepare the Health and Safety file as soon as reasonably practicable and ensure that it is reviewed, revised and updated from time to time;
  • where a Client has failed to appoint a Principal Contractor, in commercial projects, the Client must fulfil the duties of Principal Contractor and in domestic projects, the Principal Contractor is deemed to be the contractor “in control of the construction phase”.
  1. Projects where as at 6 April 2015, a CDM Co-ordinator has been appointed by the Client and where there is more than one contractor:
  • the CDM Co-ordinator appointment continues until a Principal Designer is appointed by the Client;
  • the deadline for the Client to appoint a Principal Designer is 6 October 2015 (unless the project comes to an end before that date);
  • until such appointment is made, the CDM Co-ordinator will take on additional duties as set out in Schedule 4(5) of the Regulations which largely cover the role of the intended Principal Designer;
  • where the Client fails to appoint a Principal Designer by 6 October 2015, the Client is to take on the responsibilities relating to the Health and Safety Plan and must assist the Principal Contractor in preparing the Construction Phase Plan.
  1. Projects with only one contractor:
  • there is no requirement for the appointment of a Principal Designer;
  • the contractor must draw up a Construction Phase Plan or make arrangements for one to be drawn up as soon as reasonably practicable.

Make sure you are CDM 2015 compliant. These regulation changes effect the smallest projects to the largest. At PropVestment we can advise and recommend professionals who can ensure you are compliant and can take on the Principal Designer role for you.

 

 

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.

London Property

Is the London property market slowing?

Property Investor LondonWednesday 3rd December was the last McHugh & Co auction of 2014. Focusing on residential property in London this auction gives a good indication of the state of the London property market.

PropVestment attended the auction on the instruction of client’s interested in some of the lots on offer. Here is how it went:

Key observations:

  • Only 50% of the lots sold
  • Development lots sold the best, 5 of the 8 sold, at an average of £1.865m which was on average 55% above the guide price.
  • Houses did not sell well, only 3 of 9 selling, at an average of £499k, on average 17% above guide price. For the ones that did not sell, reserves were not met at an average of 3% above guide price.
  • Flats sold fairly well, 6 out of 10, at an average of 34% over guide price.
  • Lots in Zone 1 & 2 sold well and above guide, however many outside central areas did not sell.
  • Lots sold by councils, or trusts sold well, where as private sellers seemed to keep high reserves.

London property analysis

Developers were hungry for prime development lots in good locations, where there is confidence that final products will sell and where there is potential to achieve higher values. However locations away from prime residence or commercial zones did not fair so well. Some lots were offered by London Borough of Camden, the ones on normal residential streets sold well, but ones in proximity to estates and tower blocks did not. Council are cashing in.

Flats sold well, these are properties that are more affordable and hence there is greater demand.

Luxury houses suffered, where sellers are anticipating very high prices. The irony is that with the Stamp Duty announcement in the Autumn Statment these properties will be less desirable and therefore sellers will not achieve the prices they want.

Another factor that may contribute to slower sales is the up coming holiday season, with many auction lots requiring 4 week completions it is not desirable or possible to complete. Auction purchases require greater legal scrutiny and finance is still difficult.

For advise, appraisals or general consultancy on London property feel free to get in touch: info@PropVestment.com

London Property

 Note: PropVestment only attended the first 30 lots on offer, data is from first hand observation, although we aim to provide accurate information this information is not verified with McHugh and Co.
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.