On 6 April 2006 mandatory HMO licensing came into force across England. If you let a property which is occupied by three or more tenants, who form two or more households, and they share a bathroom, kitchen or toilet, then it is likely that you are venturing into HMO territory.
The www.propertylicence.gov.uk site give a full breakdown of definitions and very useful interactive guide to establishing the status of a property. The site also points out that failure to apply for a license is a criminal offence and can result in a fine of up to £20,000, and even lead to a landlord being forced to pay rent back to tenants.
According to the government HMO licensing was brought it to raise the management and amenity standards in rented property. Because HMO’s were perceived as being of a poor standard they were targeted for specific legislation.
A HMO licenses is granted by a local housing authority if they are satisfied that the property is reasonably suitable for occupation by multiple households or persons. The local authority also have the power to impose conditions and a limit on the maximum number of occupants.
When the licensing scheme came in to effect there was some controversy surrounding the implication of fees. With local authorities free to charge what they liked landlords felt that they were being penalised for owning property in the wrong area. As well as concerns over the funding of the scheme commentators were also worried about the effect the scheme would have on student accommodation and rents in general.
Around the time that the HMO scheme was being implemented, some landlords were trying to get rid of any properties that would be affected by the new regulations. And at the same time many buy-to-let lenders also started to exclude susceptible properties.
However, many landlords and lenders are starting to see the benefits of having HMO’s in their portfolios. One advantage of a HMO is that by definition the income from the property is coming from different sources. The biggest attraction however, is that rental yields can be substantially higher than conventional buy to let property.
So, whilst there are challenges to be met, it would appear that a well managed and properly licensed HMO can be a valuable part of an investment portfolio.
[tags]hmo, buy to let[/tags]
When people first start looking for property development finance they are confronted by a range of different options. One common misconception is that property development funding is only applicable to larger projects.
In fact, there are plenty of lenders willing to assist with quite modest refurbishment schemes. In one recent case a borrower with limited experience wanted to raise property development finance to convert a "House of Multiple Occupation" (HMO) back into a single dwelling. Whilst the lack of experience does not necessarily present too many challenges, the fact that the property was a grade two listed building was always going to add complications.
The challenge with listed building consent is the potential for the development to go over budget, very often planners will place conditions on the use of specific materials etc.. In this instance the broker in question was able to place deal with a specialist property development funder who was very happy to consider merits of the case.
All too often the client's lack of experience in this type of project could have stopped the project moving forward. In this particular case the lender and broker were very impressed by the clients determination and the quality of their preparation. Aside from the merits of the application the other major factor which allowed the conversion scheme to move forward was the borrowers willingness to work with their broker and to accommodate the lenders concerns
The main reason that this deal was able to proceed, was that the broker and client established a good rapport and understanding of what could be realistically achieved.
[tags]uk property development finance, property funding[/tags]
There are an estimated 5.2 million commercial properties with in the UK with the total size of the retail, office and industrial stock presently estimated to be over £610 billion. It may surprise you to find out that 52% of these commercial properties are investment stock. The remainder are obviously owned by owner-occupiers, mostly using a commercial mortgage to pay for them.
It should come as no surprise then that there has been a substantial rise in the number of investors looking to buy commercial properties, despite the confusion caused by the government's change of heart over the use of commercial property in pension schemes.
With this increased interest in commercial property by investors and business owners alike the role of the commercial mortgage broker has become a more integral part of the process. Since the Financial Services Authority (FSA) took over regulation of residential mortgages in November 2005 over 60% of mortgage brokers claim profits are down.
Commercial mortgage lending is no longer the preserve of the high street banks. In the past the mainstream lenders seemed to cherry pick customers and would show a preference towards existing customers.
Well that has now changed. In a competitive market the advantage passes back to the well informed customer. Because three years audited accounts are no longer a requirement and adverse credit clients are now considered, the choice of commercial mortgage products requires an in depth knowledge of the commercial mortgage market-place.
Do your homework, and make sure that if you are using a commercial mortgage broker he has done his too!
[tags]commercial mortgage broker, commercial mortgage[/tags]
Buy to Let lenders have started adjusting their lending criteria as the long awaited buy-to-let price war hots up. Lenders, including The Coventry Building Society, have recently announced changes to their rental calculations. A few short years ago rental cover of between 130% to 150% was the norm, now The Coventry have reduced theirs to 120% with some lenders dropping cover to just 100%.
Maximum Loan-To-Values (LTVs) are another casualty of this skirmish. There are rumours within the industry press that one lender is soon to become the first to launch a 95% LTV buy-to-let deal. So, with maximum LTVs increasing and rental cover shrinking how are these lenders going to make any money? Well if they were operating on tight profit margins then there would be scope for genuine concern. As it happens these lenders have been making considerable profits from very generous margins, so there is still plenty of room for manoeuvre.
Lenders are also starting to change are minimum income requirements for buy-to-let mortgages, which indirectly leads to more “self-cert” buy to let mortgages. As if all that was not enough, the latest survey from the Paragon Group reports that tenant demand for rental properties is at its highest rate ever, with almost a third of landlords reporting demand is on the up!
Whilst many people were focusing on the impact of the recent (and unexpected) interest rate increase there was one other piece of news. The Association of Residential Letting Agents (ARLA) and the National Association of Estate Agents (NAEA) are to merge to create the National Federation of Property Professionals. The two bodies have joined forces to create a single organisation focused on supporting the property professional.
[tags]buy to let[/tags]
Whilst most of the UK is experiencing a chronic shortage in housing stock, the “one man band” property developer is probably going to be the unsung hero.Why? … Well, most of the larger property developers do not see enough profit in refurbishing existing property and are more interested in grand scale new-build schemes.
Meanwhile the mid-sized property developers are chasing the most profitable development opportunities they can get their hands on. Converting empty buildings into flats and upmarket apartments can turn a very healthy profit. How many neighbourhoods have lost their cinema or at least one pub to the craze for modern style luxury apartments?
This leaves the existing housing stock, much of it ageing and in need of substantial repair available to a new breed of property entrepreneurs. To accommodate this growing need Property Development Finance has evolved with the market and has developed into a “vehicle” where aspiring property developers can quickly refurbish multiple properties.
Thanks to numerous television programmes an increasing number of people are now purchasing property to develop or refurbish with the intention of either renting it out or selling. It is this developing trend which will help regenerate inner city neighbourhoods and alleviate the UK's shortage of houses.
Property Development Finance offers the flexibility to obtain funds quickly, for example buying a run down property at auction and then providing the finance to carry out the refurbishment work. Usually refurbishment projects do not take long to complete, often the sales process can take longer than the refurbishment phase, for this reason having the right property development finance in place can help move on to the next project whilst selling the current one.
[tags]property development finance, property funding[/tags]
When the need for a bridging loan arises people are often concerned that a poor credit history may cause problems. Well, the basic condition of Bridging Finance is that the lender's advance is covered by the value of the property being offered to secure the loan.
Bearing in mind that the value of the subject property will always need to be confirmed by a professional surveyor, the lender is not generally too concerned about a bad credit history even though there may be issues with poor credit such as mortgage arrears, CCJ's and IVA's.
Remember that we are specifically talking about bridging loans provided by lenders who are willing to lend money based entirely on the value of property. Obviously if you approach your high-street bank you will get a very different response once they discover that you have a poor credit history. Although bridging finance lenders do not concern themselves about the state of the borrower's credit history they still need to know the background, and would take a very dim view of any attempt to hide or cover-up a problem.
Bridging loans can run from one to twenty four months and of course the lender will want to be assured that funds are going to become available to repay the loan at the end of the term. This is often referred to as the "exit route". Some lenders have a minimum loan term although this is becoming the exception to the rule.
It's ironic that bridging finance can be made available precisely at that time when a borrower has been under severe stress as a result of pressure from creditors or other serious cash flow problems. A bridging loan provides temporary relief at this time - making it a fast, flexible and very useful facility.
The year 2006 has been another one of expansion for the Bridging Finance sector seeing a record number of enquiries and loan completions. Additionally new lenders are starting to enter the short-term property finance market-place which means rates will start to fall as competition increases.
Many observers believe that this growth in Bridging Finance is a result of a combination of factors, most importantly the increasing number of property entrepreneurs who understand the benefits of the flexibility that short-term property finance offers. The number of people trading in property has been further boosted by numerous television programmes extolling the benefits of buying property at auction.
Despite interest rate increases in the later part of 2006 and early 2007 the number of property transactions will continue to sky rocket in some areas of the UK. This is good news for investors but even better news for bridging finance lenders as investors and property developers battle for property. Another reason for the rapid growth in bridging finance is the increasing number of lenders now competing for business. As recently as 2005 there were only a handful of specialist bridging lenders who were willing to take on the risks associated with short-term funding. 
Now there are far more. Again this is great news for the potential borrower as it means that excessively high interest rates and rigid lending terms should no longer be the norm.
The addition of so many bridging finance lenders does have other less obvious implications for 2007. Residential mortgage brokers have had a really tough time since the Financial Services Authority (FSA) took over regulation of the industry. Many residential brokers are now turning to the commercial sector to boost their flagging incomes. Although this will help increase the awareness and availability of bridging finance, borrowers would be well cautioned the ensure that the broker they choose has the necessary experience and training to assist them properly.
Organisations such as the National Association of Commercial Finance Brokers (NACFB) are gaining in credibility and borrowers should seriously consider only working with brokers who are members. A great metaphor I once heard was that Bridging Finance is a tool, and like any tool it's very useful when used correctly, but a danger when used in the wrong way. One thing that is certain is that you are going to hear a lot more about bridging finance during 2007
[tags]bridging finance[/tags]