Buying property below market value (BMV)

There have been countless reports over the previous months, from me included, that the UK's property market is heading for a significant market adjustment with property prices expected to fall over the coming months. Whilst this, if correct, will be bad news for homeowners looking to sell their home it may have a silver lining.
If you’re looking to invest into below market value (BMV) properties you may have a prosperous new year ahead.

What are BMV properties and how can you benefit?
BMV properties are homes which are being sold for below the current market value, hence the purchaser could benefit from equity and long term rental income along

Why would someone sell their home BMV?
There could be a number of reasons ranging from the sellers being unable to maintain their current mortgage payments. Although the seller will receive less than the current market values the property many will have sufficient equity in the property to still make a profit. The seller may also need to sell fast due to job or family relocation in a different part of the country or different country altogether. Bereavement of the homeowner will often result in family members requiring selling the property quickly to settle the deceased person’s estate and payout the fund to beneficiaries.

How can this be financed?
There are two main options depending on your investment goals;
(i) Place a 10% – 15% deposit on the property and take out a Buy to Let mortgage or even a residential mortgage and move in yourself.
(ii) Buy the property with a one day closed bridging loan and remortgage immediately, this will often allow you to purchase the property without a deposit in place.

How do one day closed bridging loans work?
The theory is simple; if you purchase a property for the first time you can get around 85% of the purchase price or market value, most importantly, whichever is lower. If however you’re re-mortgaging your property you can get 85% of the current market value. The one day closed bridging loan works by purchasing the property first, then you re-mortgage the purchase with a buy to let mortgage thus releasing the discount you have received off the purchase price.

How much does it cost?
Generally you are looking at around 2% of the property purchase price when you take into account the bridging loan, mortgage, legal & broker fees. You may also need to pay for BMV leads from property sourcing companies if you can’t or don’t want to find your own.


What are the drawbacks to this financing method?
(i) It is ever more difficult to find properties which are over 15% BMV
(ii) The rental calculation can be difficult to stack up
(iii) There are very few lenders willing to fund this sort of purchase
However with 2008 expected to be a difficult year for the property and mortgage market don’t be surprised if you start hearing more about this type of investment in the national media.

Written by Daniel Morgan
Mortgage Broker & Property Expert

Discount Purchase Properties

There is a growing trend in recent month, in response to a slow housing market, for investors to demand larger discounts on the open market value (OMV). The way it works is buy purchasing the property at a discount and then having a buy to let mortgage on the OMV thus reducing or even eliminating the need for a deposit.
Example
Open market value of property: £100,000
Purchase price: £85,000
Mortgage: 85% of market value: £85,000
However it is not as simple as purchasing at a discount and then taking out a mortgage to finance the project, you need a one day closed bridging loan to facilitate the purchase and then a buy to let re-mortgage to release the value and equity in the property.
I have been carrying out this type of finance for the last 2 months and have seen a sharp rise in demand from investors for this product.
With expectations of the housing market remaining slow in Jan and Feb we should see this type of finance increase dramatically.
If you are interested in learning more about this type of finance then please feel free to give me a call or email me and I can explain how I can help build you a large property portfolio with little if any money down.
Daniel Morgan
Independent Mortgage Broker
info@fruitmortgages.com
07815161734