BMV investors using one day closed bridging and same day re-mortgages with Mortgage Express were accessing rates of 5.39% which enabled deals to stack well very well.
BMV investors using different financial methods were accessing even lower rates of 5.07% or lower with rental calculations based on only 110% of pay rate. There were very few deals that I and other BMV mortgage brokers couldn’t get to stack up.
Unfortunately like all good things, this has all come to an end.
LIBOR rates
Although the Bank of England has reduced rates twice in recent months, with another cut expected within the next few weeks, the real cost of borrowing for banks have increase. The rates at which banks lend to each other has increased to record levels in recent months resulting in several buy to let mortgages being pulled.
BMV Market
The BMV industry in general has come under the spotlight over the past few months with several banks imposing stricter criteria on borrowers, particularly those buying at discount. One large building society will no longer offer mortgages if they feel the property in a Sell and Rent Back deal.
There are good reasons why lenders don’t like lending to BMV investors, invariably the investor has put little if any money into the deal. The risks to the investor are lower due to no personal capital being tied into the property making it easier for the investor to “walk away” from non performing properties.
LTV (Loan to Value)
There is a lot of focus on LTV’s being offered to buy to let investors in recent weeks. CHL (Capital Home Loans) recently reduced all its range to a max LTV of 80%, down from 90% last year and 85% this year. CHL then went on to pull all rates this week which will have knock on effects to other lenders.
Several other lenders have also reduced their maximum LTV’s in light of figures suggesting house prices are likely to fall further this year. Lenders are actively seeking to reduce their risks on the
Victims of our own success/greed
There are likely to be several consequences resulting from all our success in the recent BMV buying bonanza. Properties are likely to get more difficult to stack as higher interest rates and stricter criteria will make deals more difficult to work.
One underestimated problem faces Buy to Let and BMV investors looking to remortgage recent purchases. If you purchased your property 2 years ago on a CHL 90% LTV mortgage with high arrangement fees and decreasing property prices, how will you re-finance your investment if 80% LTV becomes the norm?
In my eyes this is more important that any other issue effecting Buy to Let investors as we may all be feeding an extremely difficult period.
The good news
Never one to end on a bad note, there is good news to all this doom and gloom.
Investors were more likely to buy bad investments when rates and rentals were so easy to stack. Properties with little positive cash flow or equity were being purchased due to little or no money down being required. The “nothing to loose” mentality has been strife in recent months without thinking above the underlining question on the value of the investment risk you have taken.
Now investors have little choice but to cherry pick BMV properties with more equity and increased positive cash flow. This will lead to a better long term model reducing the risks of a declining housing market or any spells of vacancy.
On the whole the market has become more difficult to stack but when has making money ever been easy?
There are winners and losers in every market change, losers include Lead Generators unable to sell leads without higher discounts. First time investors will find it more difficult to stack deals on offer (not necessarily a bad thing). Winners include buyers who can get deals to stack in the more difficult market – these investments are likely to yield higher returns along with ease of re-finance over the next few years.
Written by Daniel Morgan
Daniel Morgan is a BMV investors and Specialist BMV Finance Broker.
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