Jeni Browne answers the latest questions submitted by property investors for the December 2020 MFB Live!
Question: Rolling over current funding mortgages to renew the term of the loan?
I think this question is regarding people’s ability to extend their current mortgage, once it is reaching the end of its full term. Fortunately, extending a mortgage is relatively easy to do. However, there are caveats around your circumstances and the type of property you are looking to extend the term on.
If your 10 or 25-year mortgage term is coming to an end, you may be able to remortgage onto another term. We often do this for clients in their 70s, and even early 80s, coming to the end of a 25-year term. If you’re concerned that your age may inhibit your ability to extend your term, planning is key; consider remortgaging before necessary. Saying that, lender attitudes towards applicants in the higher age brackets have changed a lot over the last five years. The majority are comfortable with those between 75 and 80, while some don’t even have a maximum age upon application. This is undoubtedly something a broker will be able to help you with.
Question: Hi, I am looking for easier ways to raise money to develop properties.
The term 'property development' covers quite a broad spectrum of possible scenarios. You could be purchasing a property and making cosmetic improvements (new kitchens, bathrooms, maybe windows) and selling it on for a profit. It can include reconfiguring the internals (making it an HMO for example) or extending out or into the roof. Of course, it can also mean building something new from the ground up!
There are a few ways to finance development projects, from bridging finance to full-on development finance, and which you require depends on the project. If you give us a call, our experienced team can advise on what would be the most suitable finance route based on your property development plans.
Question: My broker tells me that most lenders are actively moving away from lending to corporations, especially those which own HMOs. I would like to know where the experts see this trend going post-COVID and ask their advice on future acquisitions for buy to lets.
I’m afraid I have to disagree with this sentiment. At the start of the pandemic, lenders were nervous about HMO properties, in particular, student HMOs. The reason for this was that no one knew what was going to happen to the student market, and whether these properties would be empty come the autumn. As it turned out, students flooded back to their universities and confidence in the market has returned.
Concerning social or professional tenants, there was some uncertainty about house-shares when people were advised to minimise contact with others. Again, while some lenders moved away from this sector, the majority have returned, and pricing has come down.
Looking the future, I highly doubt lenders will cull criteria in this area. What we are still seeing is a lack of higher loan to value products, I think due to uncertainty about what house prices will do as we move into spring 2021. While I don’t doubt there will be a little dip as demand wains, I can’t see this being more than 5%. I also expect this to recover by the autumn.
Question: Is anybody lending to pure commercial properties these days?
In short, yes, there are still lenders lending on fully commercial property. Obviously, there is a concern in this sector around tenants and the ability to keep up with rent. What we're seeing is lenders be very sector-specific about the type of businesses which can use your commercial property. For example, properties which can be let to a doctor’s surgery is going to be a reasonable covenant. On the other hand, businesses which have struggled throughout the pandemic or are likely to tail off after it, maybe more difficult to find finance for. The sector is still very active; it just relies more on individual circumstances than it did pre-COVID.
We have a dedicated and very experienced team of commercial brokers who will be able to advise you on current lender appetite for certain commercial premises, so do give them a call if you have any further questions.
Question: I purchased several properties four years ago, and I'm thinking about selling them just in case property prices dip, and I end up in negative equity with them. Also, as a portfolio landlord, the LTV on these will then impact on the rest of my portfolio when I go to re-mortgage. Your advice is much appreciated.
When you're a portfolio landlord, lenders are mostly interested in your overall loan to value (LTV) across all your properties. That level varies depending on the lender; some specify that for portfolios of over ten properties they require a maximum 65% LTV, some might allow 75% LTV.
In response to your concern about negative equity, while this is not a desirable situation to find yourself in, as long as the whole portfolio isn't in negative equity, some lenders take a more flexible approach. Although the LTV is important, they do consider rental income and will look at things on a case by case basis. If you're concerned about your portfolio, we do offer a free portfolio review where we comb through it and come up with suggestions as to how you can improve things and what challenges you might encounter when applying for a mortgage. Doing this may help you make a more informed decision about whether or not to sell parts of your portfolio.
Question: Inheritance tax planning. What is the best way to Pass on my properties and keep the tax liability to a minimum? I have properties in my name and in my limited company.
So, inheritance tax planning, capital gains tax and putting properties into trust - while I'd love to answer these questions I am not qualified to do so. A professional tax adviser will be able to help you with questions regarding structuring companies, capital gains and tax planning. What we can do is provide you with illustrations for personal vs limited company mortgages which may help in your planning.