BMV Financing gets wake up call

It’s almost been too good to be true over the last few months; we have market leading interest rates in the Buy to Let Mortgage market with rates below 5% and rental calculations of 100% of rental income.

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 UK housing market as property values continue to fall and a number of high profile cases involving Surveyors over valuing in some developments coming to light.

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.

Interest Rates Stay at 5.5%

It has just been announced by the Bank of England that interest rates will remain at 5.5% resulting in surprise by most of the market. Many analysts predicted interest rates to be cut a quarter percent (0.25%) today after evidence suggesting the UK housing market has seen a slow down with some areas reporting property price reductions.
It is still believed interest rates will be cut in the near future with the next review taking place in February.

Housing market gap between north & south England

There has been an increase of over £15,000 in the north-south divide in England's house prices during 2007, this comes despite growth in all regions of the north except Yorkshire and Humberside, Nationwide stated this week.

Figures from Nationwide show typical house in the south of England is almost £90,000 higher than in the north which was originally a £75,000 difference.
The gap has been opening since 2004, and widened in 2007 as prices in the south grew by 9% compared with an annual growth rate of 3.4% in the north.

Nationwide stated that the recent years saw prices in the north catch up with those in the south, however the gap is now back to a similar level to 10 years ago.
Its figures, which focus on prices in the last three months of 2007, show the London market remaining buoyant, despite a recent slowdown in the economy.

The annual growth rate in the capital fell from 16.5% to 12.8% in the last quarter, but it remains the highest in England and second in the UK with Northern Ireland experiencing the highest increases.

Nationwide stated the property market fell by 0.2%, the fist quarterly price fall in five years in Northern Ireland. This still resulted in an annual growth rate of 24.2% which makes it the highest in the UK.

In 2007 property prices in Northern Ireland have increased by almost £120 a day.
Across the UK, the annual rate of price growth is believed to stand at 6.9% which is considerably lower then previous years yet still substantially higher than annual inflation.

0% Growth predicted by the end of 2008
Although shortage of housing stock will ensure demand in some areas it is unclear how the market can continue at rates experienced up until last year.

Nationwide building society, the largest lender in the UK, has predicted house prices increases will fall to 0% growth in much of the UK by the end of the year.
Nationwide BS’s chief economist, Fionnuala Earley, stated;

"While insufficient supply is supportive of house price growth, it does not mean that prices will continue to increase at the pace of recent years.

"In a period of poor affordability or uncertainty demand can become more elastic, and even those who want to start up an independent home can be frustrated by financial or other constraints.

"In the short term, supply issues are likely to provide some support in the areas where supply constraints are most critical, but over the longer term the growth in pent-up demand is likely to mean that the market will turn around more rapidly once confidence and affordability have been restored to more usual levels."

This is following the latest figures from the Bank of England showing new mortgage applications down from 89,000 to 83,000 which represents a three year low.

Written by Daniel Morgan
Independent Mortgage Broker