Saturday 19 January 2008

BMV property mortgages & leads

With the current housing market as it is below market value or BMV property is starting to make big gains in the amount of business I and other mortgage brokers arrange for their clients. My previous article on what is bmv property? explains how the system works and how buyers can benefit from falling house prices.
I receive a number of emails every day seeking advice on BMV property finance and even more on BMV property leads. For BMV purchases to work you need to consider a number of factors to ensure you can get a great deal and secure BMV mortgages.

Open Market Value
Many BMV websites in the UK will quote the open market value, OMV, as being substantially higher than the true amount, often because the cheaper lead suppliers allow the seller to guess what their house is worth. How many people who know they are going to give a discount off their property will give a true reflection? How many people would undervalue an asset which they may have spent over 10 years building and investing in?

I often find the true OMV is only really known often the surveyor has assessed the property, usually after spending over £300 on a non refundable survey report.

You need to do your research, HomeTrack is one useful tool along with RightMove and local agents. Use all of these resources before deciding to pay the mortgage valuation.

Rental assessment & mortgage available
This is the one major sticking point when we try to stack up if a property in worth buying or not. The only real mortgage lender currently offering same day remortgages is Mortgage Express which currently require 125% pay rate to offer the mortgage on the property. Time and time again deals which have looked promising fall through due to either investors or agents over calculating the rental return. To work out how much rent you need to borrow a fixed amount or visa versa there is a helpful formula below based on a Mortgage Express mortgage of £100,000 with an interest rate of 5.39% which is currently accurate and a property which can rent for £575 per month.

What rental would you need
Take the amount of the loan: £100,000
Multiply by the lenders interest rate: 5.39% (100,000 * 0.0539)
Divide by 12 which gives monthly: 100000 * 0.0539 = £5,390 / 12 = £450
Multiply this by the pay rate (125%): 550 * 1.25 = £560
This amount is how much rental you would need to achieve to be offered the £100,000 mortgage.

How much can I borrow based on rental
Take the monthly rental: £575
Divide this by pay rate (125%) : 575 / 1.25 = £460
Calculate annual amount: 460 * 12 = £5,520
Divide by interest rate: 5,520 / 0.0539 = £102,411
This example shows you could borrow up to £102,411 or 85% of the OMV, whichever is lower.

Speak with local letting agents to get an idea of how much you will rent the property out for and even see if its possible to have the letting agent asses the property your interested in. They will often offer to do so at no cost due to potential future business.

Negotiating Property Discount
Some BMV lead providers will negotiate the purchase price for you and others will simply supply the lead details and calculate the open market value. For BMV property investors new or inexperienced then make sure the price have been agreed and fixed before hand, you want to make sure you get the biggest discount available which means you need experienced negotiators agreeing a sale price.

For a true no money down or cash back deal you need to be achieving a discount of at least 17.5% off the OMV and still have the rental stack up.

The current mortgage lenders will offer up to 85% of the OMV on same day re-mortgages with broker, bridging loan and legal fees generally around 2.5% of the purchase price this would mean an agreed discount of 17.5% would mean a true no money down deal minus the valuation costs. Any discount above this and your looking at the possibility of cash back which is why many BMV property investors look for deals which are discounted over 20%.

Sourcing BMV property leads
This, by far, is the most common question asked when looking at BMV property. For true no money down or cash back deals you have to be proactive in sourcing leads. Calling a broker or lead generator and expecting to sit in you home while people bring you deals with 20% is not realistic. Why would I offer you BMV property leads with 20% discount when I'm also a property investor? I wouldn't and neither would most people involved in BMV, I can offer you 100's on 15% deals but that's not a true no money down deal. My best advice would be get out and be proactive in your area such as leaflet drops, local store adds, auction fall through, etc.
For long term success sign up with a data supplier rather than negotiated lead supplier which is far cheaper along with profitable. If your going to use BMV lead providers find out who they are; Do they invest in BMV property? Where do the leads come from? How do they value the OMV and Rental? What is their returns policy?
I know of two reliable lead providers which are bmvpropertyleads.co.uk and discountpropertyauction.co.uk both offer different services by I have spoken or met the owners and can say their business is selling property or leads, not buying and selling the weak ones.

Other financing methods
There is another option to buying and financing BMV property which is through an assignable contract using a third party. It's rather more complex than same day re-mortgages so I wont go into too much detail but you can contact me is you would like to find out more.

A third party will buy the BMV property at discount and sell to the investor at OMV with an assignable contact giving the client for example an upfront rental guarantee of the discounted amount which is paid after completion.
This allows the investor to purchase the property with any buy to let mortgage as its no longer a re-mortgage its a purchase. This type of structure is getting more popular due to the lack of buy to let mortgage lenders offering same day re-mortgages without high fees or rental requirements.

I hope this article on BMV finance and property purchase has helped you gain a better understanding of how it works and what factors you need to consider before deciding on a property, broker or lead provider.

BMV Mortgage Brokers
There's a never ending supply of stories regarding deals gone wrong due to the mortgage broker not truly understanding how BMV finance works. A client will call them and explain what their planning to do and the broker, never one to turn down business, offers their services. BMV mortgage brokers tend to charge higher fees than normal brokers, me included, due to the contacts and experience they have in getting mortgages through and deals completed. People will often shop around for the cheapest broker but "buyer beware" if they are charging NO BROKER FEES as one of two things are generally the case;

(i) They are relaying on the mortgage lenders commission only making them volume brokers, try getting hold of these people when things go wrong. They operate by moving to the next deal as quickly as possible leaving any issues behind. They don't have the time to talk deals through.

(ii) They make their money else wear via bridging lenders or conveyancing. Its the same as a broker fee except wrapped up differently. If they hide how their paid what else are they hiding?

There are hundreds of good brokers and a useful place to start is by looking on the SingingPig forums. Just remember that like most things in life you get what you pay for. Question how their paid, what experience do they have and are they BMV investors themselves, if you don't feel you can build a long term relationship then move on. A good broker can help you succeed in your BMV property investments, its in their interests that you do well!

Here's the sales bit ;)
I'm a BMV mortgage broker and investor myself so if you have any questions or would like to find an experienced BMV broker then give me a call and we can discuss your finance and property needs.
I charge a 1% broker fee and can offer packages where the total costs add up to 2.5% of the purchase price. After the first deal my broker fee is negotiable due to most of the work such as applications, ID, sharing of my knowledge & experience, etc happening during the first deal. My standard fee is 0.5% - 0.75% of the purchase price. I feel this is honest, upfront and fair for my experience and contacts in the BMV market.



Written by Daniel Morgan
Mortgage Broker & Finance Writer

2 comments:

Anonymous said...

Great guide, thanks!
Honest & upfront too. Nicely done...

Pity I am planning to operate in London. Do you have any brokers or solicitors that you would recommend down here?

Anonymous said...

Thank you for reading my blog. I cover the whole of UK not just Wales so give me a call on 0800 084 2202 and we can talk further about BMV finance.