Back in the day, there were literally herds of new-to-the market property investors buying new-build residential properties, especially flats, on the basis of advice gleaned from property investment seminars (promoted and sponsored by companies such as Inside Track, which went into liquidation some time ago). Just before the recession hit, customers were buying up properties like the proverbial “lambs to the slaughter”, convinced that they were actually buying under value, when in fact they were buying at the top of a market!
We are not sure what was worse, the mortgage lenders supporting it, or the buyers rushing to do it; neither was good. However, we all know where it ended up, particularly for those mortgage lenders involved in financing under value new-build flats with no investor contribution!
So we needed to find out if lenders will consider lending on undervalue residential property transactions now?
Well, the answer, is a qualified “Yes”.
Basically, if there is a compelling reason to believe a property is being sold under-value, such transactions are indeed possible to finance, with or without the use of bridging finance. Here are some examples that came up during our investigation:
- purchase of a property or a flat in a block, where the developer has become insolvent
- sitting tenant purchase from a landlord/freeholder
- purchase of a property from parents or close family members
- purchase of a repossession property
- probate sale
- purchase as a beneficiary of a trust, where the trust is the current owner
- purchase by a director of a limited company, from the company
We found several ways of obtaining mortgage finance for such transactions, depending on the intended use of the property. In today’s article, we are going to focus on a repossessed property purchase, to be retained as a main residence.
In the case of a repossessed property, for residential or commercial use, they are often in a poor state of repair and are often uninhabitable. This is another reason why most residential lenders run a mile, not just on hearing the words “under-value”.
The solution to the residential lenders reticence to lend is to find a way to sort the property out and then to go to them when it is finished. This can be done by using a short term bridging loan, which does not seem to put a residential mortgage lender off the transaction. We found that the most important point is to establish, before entering into bridging finance to purchase and retain a property, that you and the finished article are acceptable to the exit lender AT OUTSET. In this way you should not be stuck with expensive bridging finance without an “exit strategy”.
We found one bridging loan company that could provide 100% of the purchase price, providing this did not represent more than 85% of the open market value (OMV) and providing that there is documentary evidence that a “term loan”, that’s jargon for long term mortgage loan, would be available.