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.

Sourcing BMV Property Leads in UK

The major problem facing BMV property investors today is no longer the finance but the quality of the leads along with increased competition in the BMV investor market. The more popular BMV purchase becomes with investors the harder it has become to get those big discounts and large cash backs to stack up.

BMV is not exactly rocket science and the problem today is to know which lead providers you can trust and which you should stay away from.

This article is designed to help inform BMV property investors on the various lead sources available to them. If you haven’t already done so, I recommend you read my articles on BMV Property & BMV Mortgages which will give you a good insight into the workings of this relatively new phenomenon.

Estate Agents
By far the most effective way to source local leads are through estate agents but don’t expect to pick up BMV deals from the shop window. If you have contacts within the estate agents you can achieve some great results from this lead source.
Remember most estate agents will already either be buying BMV property themselves or have investors lined up and waiting for properties. The only way to make this work is through incentives for the agents, if they know that a good lead and quick completion will earn them £500 - £1,000 as a finder's fee then you’re likely to get better deals than just asking for anything that they can't sell.
Either go direct to the managements of independent estate agents or negotiate deals direct with the agents of larger agencies.

Positives
• You have professional agents who are in the local area every day dealing with potential sellers.
• Long term relationships can be achieved with constant steam of leads to service.
• Agent can help flip properties for instant profit or negotiate on your behalf.

Negatives
• Most agents will already have a database of willing investors requiring less than 15% discount.
• Many agents will require larger finder’s fees due to the constant supply of investors.
• You need to achieve a high conversion rate to keep the agents happy and willing to continue sourcing BMV deals on your behalf.

Repossession Leads
Not an easy job but its here you can negotiate deals of 30% or more BMV. It involves long hours, street walking, spending time with people who are often in sad circumstances and then negotiating the lowest possible price before the property is taken into repossession.
This is not a route for first time investors and is often difficult for experienced investors to work successfully although if done right the rewards are often worth all the effort.
The process involves obtaining lists of homeowners due to attend court regarding repossession of their property and carefully targeting these homeowners with information about your services. Many investors will target the local area and hand post notes through the door stating they are looking for property to buy in the area.
The number one rule is not to personalise the letters as this will often scare the homeowners on how somebody else could know their personal business.
Buying BMV property through this process will usually take from 2 – 6 weeks to convert and you have to deal with a lot of time wasters along with homeowners agreeing when it’s already too late. You need to be a fantastic people person and show your empathy with people's situations, you could spend hours with someone only to leave with nothing other than a sad story.

Positives
• If successful you can achieve discounts in excess of 25%.
• You can target your local area.
• Opportunity to help distressed sellers avoid repossession.

Negatives
• Can be extremely time consuming with a lot of hassle from homeowners along with time wasters who are inevitably going to have their home repossessed.
• Many of the home owners have high LTV mortgages which often make the deal impossible for the seller, lender and buyer to agree on.
• Difficult to manage outside your local area as the best results are often achieved with hand delivers notes and home visits.

Unqualified leads
These leads come from a range of different sources and will generally include the homeowners full contact details, mortgage amount, property value, reason for sale and agreement to sell at a discount.
This is currently the most popular form of lead purchase which generally come from homeowners searching online for companies who will purchase property quickly. They will complete an online form and these details will them be sold on the open market.
My warning on these leads would be to find out if the lead generators buy BMV property themselves and if so why are they selling them?
Another thing to remember is that these leads are generally sold for £75 - £250 each which requires an amount of confidence on your part to know the leads are of good quality and will have a high conversion rate. The major problem with these leads involve the homeowners themselves, they will often submit their details to a number of websites, resulting in homeowners playing the buyers against each other for the highest offer.
Getting anything more than 15% - 20% BMV is extremely difficult unless you’re a strong negotiator. Remember that after winning the bidding war the seller could still pull out of the deal at any moment whilst their still contacting every possible buyer under the sun.

Positives
• Lower price for leads compared with ready made deals.
• Contain most of the information required to assess profitability.
• Often room for cash back.
• Some providers have lead replacement policies.

Negatives
• Extremely competitive market with buyers competing with unknown number of other bidders.
• Risk of sellers being time wasters and only interested in what they “could” get for their home.
• Hidden fees often attached such as sourcing fees often up to 2%.
• Number of lead providers will sell the same lead to multiple buyers.
• Leads are often ones which the lead providers are not interested in themselves.

Ready made deals
This is the armchair investors dream, go online, find a ready made deal, accept the terms and the BMV property, finance, lead, and legal fees are taken care of for you. They are packaged as one price with rental and valuation calculations already completed and then sold as packages generally in the region of £500 per lead.

Positives:
•Deals are ready made, no need to negotiate prices, work out rental & valuations or often arrange the finance.
•Great for first time buyers with little knowledge of BMV market required.

Negatives:
• Deals often carry hefty fees with £500 for the package, 2% set up fee and broker fees added on top.
• Cash back is often little if any and some deals require capital investment.
• Rental calculations are often 100% of the mortgage which could spell trouble if tenants don’t pay.

In conclusion I urge any BMV property investors to research their lead provider thoroughly before committing yourself and your money by getting answers to the following questions;
• What are the true costs including all the fees?
• What experience does the lead provider have?
• Where do the leads come from?
• Does the lead provider also invest in BMV property and if so why are they selling the leads?
If the lead provider requires you to use its solicitor, broker and agents be very cautious as there are a number of rogue traders out there searching for people new to BMV investment to prey on.

Get a good BMV mortgage broker who understands the BMV market and who can assess possible deals and give you guidance on its merit.
Don’t hunt for the cheapest lead prices; they are often the ones that no one else wants.
Join specialist BMV property forums and lead exchanges before beginning your venture into BMV as they are often filled with peoples experiences and advice.
Personally I use the following websites but remember that what’s right for one may not be right for another.

singingsig.co.uk
bmvpropertyleads.co.uk
leadsexchange.co.uk
discountpropertyauction.co.uk

I hope you found this article useful and I’m more than happy to talk to anyone new to BMV property along with experienced investors. I am a specialist BMV mortgage broker and property investor with a wealth of knowledge & experience of the market.

Written by,
Daniel Morgan
Buy to Let Mortgage Broker & Property Investor

Flat Rental Demand Falls - BMV Troubles

Flat rental has fallen dramatically according to a survey carried out by The Royal Institution of Chartered Surveyors (Rics).
Demand for flats have been falling over the last 3 months to 17% - down from 37% in the previous quarter which could have an impact on investors holding large flat portfolios.
The Rics stated the report highlights the sluggish market in the new build flat sector, this sector has been under increased scrutiny of the past 6 months as many first time investors with large LTV buy to let mortgages are finding it increasingly difficult to make the rental stack up.

Many investors were purchasing property BMV, below market value, and in effect not requiring a deposit - A high risk strategy as often the rental barley covers the monthly mortgage payments.
Many new build flat investors are also finding it extremely difficult to sell the property at the price they originally paid due to the new appeal value and resale value differing.

The other problem with the resale of the properties is they also fall short when stacking up the buy to let mortgage for rental calculations, many buy to let mortgage lenders now require 125% rental calculation on the mortgage payments which makes it difficult to achieve, especially now with the fall in demand.

125% Rental Calculation Example
Mortgage amount: £100,000
Monthly payments: £500 (at 6% interest)
Rental required: £625 (£500 x 1.25)

In the current market it is extremely difficult to find new build flats under £150,000 in the current market with an even more difficult challenge to find properties that would rent for over £700 per month. Another factor effecting the buy to let mortgage market is that many lenders, having seen the problems with rental and resale of new build flats, will not lend money if the property is under a certain number of years old.

There are still good buys to be had where rental stacks up will with easy resale, be cautious of the hundreds of websites offering large discounts of new build properties whist also offering 100% mortgages, most will require a membership fee, finders fee and deposit. In my own experience I have found it near impossible to find a buy to let mortgage of these offers.
Be warned.

For more information on Buy to Let mortgages and ways to put little if any money down then you can visit my website or contact me for more info.

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