Unable to obtain mortgage on auction purchased ex-local authority flat?

Guest Author

11:39 AM, 19th December 2016, About 8 years ago 14

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I’m in a bit of financing conundrum and was hoping your good selves might be able to provide some potential strategies for financing.

So the situation is, I purchased an un-modernised 2 bed split level (80sqm) flat in a council estate at auction for a bargain price in May 2016 into a LTD CO SPV. The property was located in Brixton, London (zone 2), across the road from the ever trendy market and 1 minute walk from the tube station. I attempted to obtain a mortgage within the 20 day auction completion timescale but was unsuccessful, citing that the property needed to be refurbished. So I purchased the property in cash and spent the best part of 4 months full refurbishing the property to a high specification, new kitchen, bathroom, floor, repainting throughout and the property. It’s now a gorgeous space and have secured tenants on a 12month AST for 1900 gbp PCM.

Here are the numbers:
Purchase price 275k
costs – stamp duty, auction fees, legals etc, 25k
refurbishment cost 40k
Total cost 340k

So after the refurb I went back to my broker, who forwarded it onto the original lender and responded that they would be “very interested” to look at the property again and instructed another valuation. The letting agent advised that the surveyor advised that he was “impressed” with the flat and on the report recommended it as suitable security and valuing it at 430k. So have 90k in equity and feeling good about myself after all the hard work refurbishing the flat, thinking the mortgage is a foregone conclusions. BUT the mortgage company turned around the knocked back the application, citing that it was in a council estate!

Never mind that it was a large 2 bedroom apartment, in the fastest gentrifying area in London, across the road from a lovely market and 1 minute walk from a tube station and above all let for 1900pcm. They don’t want to lend on it because it’s in council estate. I was completely shocked by this decision, that they’d be unwilling to lend on a gorgeous flat in such a desirable location, purely because it’s in an estate.

My broker advised that because I purchased it in an SPV, it’s cut down the amount of lenders I can apply for and they proceeded to forward it onto every conceivable lender in the space but all have come back and said no.

I would really like to keep this property in my portfolio due to the yield % and feel that it will continue to increase in value due to it’s excellent location.

So my question is, are there any strategies I can employ to finance this purchase at 60-70& LTV, (save bridging finance, which makes no finance sense to the exorbitant interest rates), or do I have no option but to sell it due to the amount of capital locked up in the property?

Many thanks for your responses in advance

regards

Keir

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Comments

denis knockton

12:56 PM, 26th December 2016, About 8 years ago

145% will not apply to Ltd. co. borrowing anyway.

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H B

13:59 PM, 26th December 2016, About 8 years ago

Reply to the comment left by "denis knockton" at "26/12/2016 - 12:56":

Good point!

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John Constant

17:35 PM, 26th December 2016, About 8 years ago

I wouldn't want to make a recommendation regarding the original poster's situation, but his intention was to raise what he could to recoup his outlay so far. A sub 60%LTV mortgage would probably not be too high up this person's priority list.
You are correct about the niche lenders being not so competitive, but they tend to rely on loading the fees rather than the rate as much; but then this was never going to be a market leading proposition in any case. In my experience, borrowers would take the higher rate in order to get back the Capital that they had invested in order to move onto the next project.

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KeirD

11:38 AM, 10th January 2017, About 8 years ago

Hello All,

I wanted to thank you all for your incredibly informative responses to my query.

Despite my desirable ex-la Brixton flat being in a great location and commanding great rent, I believe I have been unable to secure a SPV BTL mortgage for the property because of the following reasons in order of importance:

1. The estate in question I have had confirmation is less than 10% privately owned.
2. The property is on the 7th of the estate so classified as 'high rise'
3. The property is owned by an SPV so cuts down the amount of lenders that will lend.

I believe if I had purchased the property in my name, I may have been able to obtain funding. But we all know since the legislation changes, this is not a prudent decision.

I'm going to pursue the commercial funding option and failing that, I will sell the property on the open market.

Thanks again to you all for all your incredibly knowledgeable responses. This is my first investment property purchase and only the beginning of my journey which i'm thoroughly enjoying despite the frustration of purchasing and refurbishing a property only to be find it unmortgagable. I will keep a watchful eye on this forum and be contact with you all in the near future.

Many thanks

Keir D

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