Capital raising on inherited ex-LA flat with an unusual construction type

Capital raising on inherited ex-LA flat with an unusual construction type

28.02.17 | Written by: Erin Gallacher

We were approached by a primary school teacher from Manchester, looking to raise capital on an unencumbered flat she was due to inherit from her mother who had passed away. The flat has two bedrooms, and is in a former Local Authority block of four in Stockport.

Whilst waiting for probate to go through the client had begun renting the property out to tenants, but with the process nearing completion, the client was keen to refinance the property onto a buy to let mortgage to release capital.

On the advice of her accountant, she had opted to take a mortgage in her personal name, and she planned to use the capital raised to invest in further buy to let properties.

There were several challenges with this case which meant that finding a suitable lender would be restricted to just a few options:

1.  This is the client’s first buy to let
2.  Construction of the property is unusual (classed as Cornish type 1) 
3.  The property is ex-local authority

Cornish property types 1 and 2 were declared defective under the Housing Defects Act in 1984, after it was discovered that the concrete used tends corrode the reinforcement and can deteriorate over time.

Some specialist lenders will consider lending against this type of property but only if it has a Pre-cast Reinforced Concrete certificate which confirms that the property has undergone licensed, structural repair, including replacing PRC components with traditional cavity wall construction.

The client did not have a PRC certificate and was not willing to consider one because they are expensive to get and, an intrusive, survey must be performed even if all necessary works have already been carried out.

It should also be noted that some mainstream lenders would also require the whole block to have a PRC certificate.

Taking all of the above into consideration we approached Keystone Property Finance, a lender which takes a manual approach to underwriting. After assessing the case an offer was made with a product from the Solutions Range largely because the property was in a strong rental location and the loan to value was quite small.

Here are the details of the deal:

Property value: £95,000

Loan amount: £33,000

LTV: 35%

Rate: 6.89% term tracker

Term: 15 years interest only

Borrower: Individual applicant

Lender arrangement fee: 3% (£990)

Mortgage payment: £195 pcm

Rental income: £525 pcm

Gross yield: 6.6% pa

Consultant: Erin Gallacher, 01625 416 392

ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.