Corporate Finance Associates Blog

Many times the pervading view is that bargains can be had when buying at auction however, property auctions are not for the faint hearted and the risk can be that you go overboard in the heat of the moment.

Some bargains can be had at auction but usually only for those with the skills to capitalise, namely builders and developers who can add value to the stock and overcome the challenges that are often the reason why the property went into the auction in the first place.

I have seen 1st time buyers looking for a property that they can “do up” to live in but the fundamental point is that a lot are not mortgageable by standard means and often involve bridging for a short time until they are. A point to be aware of here is that some lenders, if strictly following the Council of Mortgage Lenders guidelines, may not be prepared to finance you out of the bridge for 6 months, so you need to know that the deal will stack up with 6 mths worth of bridging costs potentially being included.

A lot of stock ends up in the auction because there may be title issues, condition issues or in the case of a lender repossession they have to be seen to be getting the best price on the day, which the open auction is designed to achieve.

You also need to factor in that the 10% has to be paid on the day in cash (or draft) and you will lose it if you cannot complete because the fall of the hammer is deemed the actual exchange of contracts. Some auctions are also 14 day completion so watch out for those.

So what I would say is don’t discount it out of hand if you do not class yourself as experienced in these things, but do your own due diligence. Get the auction catalogues, select some suitable properties, view them critically, and decide what you think they are worth with all the tools that are available on the internet, go to the auction BUT DON’T BID! Just see what they go for and what sorts of people are buying them.

I would suggest you need to visit at least 5 or 6 auctions as an observer first to get a feel for things. If it is then right, surround yourself with the people who can help you, a capable broker like ourselves, a solicitor used to completing in auction timeframes (extremely important) who can also scrutinise the legal pack first, possibly a tame surveyor who might look at the property for you for a “drink” and maybe a builder who can give you the “warts and all” costs to turn the property into something that will have value.

The bane of my life is the amateurs who have watched only a few episodes of “Homes under the Hammer” or Sarah Beeny’s “Property Ladder” and think they can do anything.  Good luck to them if they enter into this sort of transaction, as long as they go into it with their eyes wide open, but many don’t, and remember the auctioneer’s guide prices are just to get people through the door and put “bums on seats”, they often bear no resemblance to what these properties may go for, but they alone obviously get some potential purchaser’s juices going.

We are often asked to help with funding auction purchases for commercial or investment purposes and we frequently need to resort to some form of bridging or short term funding to achieve that.  Do give us a call if you have seen something in an auction catalogue that catches your eye, but do it early on and we can do our best to guide you through the process should you intend to be successful bidding at auction.  Contact us here for further details.

Surveyors expect to see rent rises in the New Year as the number of rental properties coming onto the market fell for the first time since January 2008, says the latest RICS Lettings Survey.

The following from the RICS Website -

Shortage of new instructions bolsters rental outlook

• Tenant demand picks up speed but the new instructions net balance turns negative for the first time since the early part of 2008
• Downward pressure on rents appears to be easing with the forward looking rent expectations series moving smartly back into positive territory
• London is leading the turnaround in rental expectations followed by the North and the South East

Tenant demand for residential property picked up speed in the three months to October. A net balance of 16% more surveyors reported a rise in new tenant lettings over this period compared with 11% in the previous three months.

Within this aggregate figure, demand picked up particularly sharply for the renting of houses; the positive net balance in this sector of the market jumped from 6% to 22%.

Meanwhile, the net balance of respondents recording a rise in demand for flats remained unchanged, albeit still in positive territory, at 12%. More significantly, the latest survey shows the new instructions net balance to have fallen for the first time since the early part of 2008.

The Full Link to the RICS Survey download 

Landlords are both taking out more mortgages, with new deals being launched to serve them, and feeling more positive about the next 12 months.  Generally this is because their returns have come out of the red and are back in the black

Lending is on the up

Lending in the Buy to Let (B2L) sector grew in the third quarter of this year for the first time in two years, according to data published last week by the Council of Mortgage Lenders (CML).

It totaled £2.1bn over the quarter, 10% higher than in the previous quarter. This latest period also saw the first increase in two years in the physical number of B2L loans advanced, from 21,600 to 23,700.

It is better news, albeit from a very low base compared to 2007 lending levels.

Lending within this sector was up for both purchases and remortgages, with house purchase lending ‘appreciably stronger’ according to the CML – that’s not surprising when many borrowers are reverting to low standard variable rates (SVRs) and deciding to sit tight until rates rise.

With no B2L deals available at over 80% LTV, anybody with less than 20% equity would be unable to remortgage, whether they wanted to or not. Lucky for them that many SVRs are low!

There has also been a continued improvement in the number of arrears in the B2L sector as well which serves somewhat to allay the Doom and Gloom Merchants, principally helped by the current lower rates. According to the CML the number of mortgages with arrears of more than 1.5% of the balance, dropped for the third quarter in a row, falling in from 22,900 to 20,500 representing 1.7% of all outstanding B2L mortgages.

The CML points out that while the recovery in the sector is only modest is does show that B2L is “here to stay”.

Landlords feeling a little more Bullish

The positive stats are supported by happier landlords, with many feeling much more optimistic about the sector in the third quarter of this year.

According to B2L lender Paragon Mortgages who have not been actively lending throughout the Credit Crunch, landlords expect the net value of their portfolios to increase over the next 12 months and have been taking advantage of lower house prices since the first quarter of 2007.

On average they owned 11 properties at the beginning of 2007, which increased to an average of 12 properties by the third quarter of 2009.

Plus they are feeling good about the future with a third of landlords now saying that tenant demand will grow over the next 12 months, and 57% predicting it will remain stable.

Paragon added that it is unlikely that the mainstream  mortgage market will recover for a number of years, which is something we have been advising our investor clients for quite a while now, and that this means that large number of people will continue to be excluded from buying, and will need to rent property.

Positive returns at last

Landlords have even more reason to feel cheery following the latest rental index from property company LSL property services. It says that annual property investment returns turned positive in October for the first time since the UK fell into recession.

After taking rental income and the fall in house prices into account, a landlord investing in property in October 2008 would have made an average annual return of 2.4% – the last time the return was positive was way back in July 2007 before all this blew up.

The rental index also showed that tenant arrears have improved – an issue that has been a huge problem for landlords during the recession.  By the end of October, arrears had shrunk to 495,000 or 14.6% of UK tenancies, the lowest level since LSL began calculating these figures one year ago.

What about mortgages?

More good news is that  the mortgage market is also improving with lenders offering more B2L deals.  According to financial information provider Moneyfacts, there were just 179 B2L mortgages in September 2009 and now there are 239 available.

But that’s still a drop of 93% from the peak of the market two years ago, when there were over 3,600 B2L deals on offer from a multitude of lenders, many of whom are no longer anywhere to be seen, and don’t have a business model that could be adapted to the current financial climate..

Maximum LTV ratios are still tight but there are a couple of deals available up to 80% LTV from sister lenders Yorkshire Bank and Clydesdale Bank. For any real choice though landlords still need to find 25% upfront and 30% if they want the more attractive deals that are on offer.

This is a world away from the market two years ago where 85% and 90% mortgages accounted for 65% of the B2L market. Plus lenders are still tightening some criteria, such as restricting the size of portfolios that landlords can have.

But if you want a B2L deal, there are some options around, provided you have that all-important equity of course and we are more than happy to explore the options that are currently available, especially if you are an experienced portfolio landlord.  To do so click here to contact CFA

The recession could be over for the buy-to-let market, as mortgage lending to the sector picks up once again and landlords look to take advantage of more affordable property prices and high tenant demand, says Lettingsearch.co.uk

Buy-to-let investors are beginning to fight their way back into the property market as prospects for the sector improve following a sustained period of restricted financing and, until recently, weak rental yields. With banks finally increasing their buy-to-let lending in quarter three, a period of sustained investment in the industry is set to follow.

Many professional landlords still have liquid cash available to invest and are now likely to look to expand their portfolios over the next few months, buying property at the more affordable levels before prices climb too far. Investments in other asset classes continue to under-perform, and as a result, city bonuses will also be channelled into investment property, bolstering the buy-to-let sector further.

Investment in the sector will be underpinned by strong and rising tenant demand for lettings accommodation, as homeowners and first time buyers turn away from the sales market and will fuel heightened activity in the property market as a whole.

Phil Calderbank, Director at lettingsearch.co.uk, comments:

“Mortgage lenders are once again recognising the important role lettings has to play in the property market and as investors with liquid cash make a move to take advantage the affordable property, strong tenant base and improving returns, I think we can safely say that the recession is now over for buy-to-let.

“Many so-called reluctant landlords have discovered a new income stream and we believe some of these people will stay in buy-to-let and even expand their portfolio. This will further strengthen the buy-to-let sector.

“The current rate of house building cannot meet the demand from potential buyers, and while lending to homeowners remains scarce and the uncertainty over unemployment looms on the horizon, we will see people choosing lettings from every rung of the ladder.”

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