6538

100% Retention Of Mortgage Funds

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6538   

Just had a call from my mortgage person regarding a flat I'm buying. The lender had their survey done last week which reccomended a £2K retention for some improvement works to be carried out.

The lender, however, has said that they will only proceed on the basis of a 100% retention!!!

From my point of view this is a very good thing.

Firstly; I can use it as a barganing tool to hammer the price down significantly - not a bad thing in todays market.

Secondly; it means that I can get all the work sorted - the entire renovation - between exchange and completion and get the place back on the market before I have to stump up a single penny in deposit or finance expenses.

Jittery times have their advantages, it seems.

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Guest DissipatedYouthIsValuable   
Guest DissipatedYouthIsValuable
Just had a call from my mortgage person regarding a flat I'm buying. The lender had their survey done last week which reccomended a £2K retention for some improvement works to be carried out.

The lender, however, has said that they will only proceed on the basis of a 100% retention!!!

From my point of view this is a very good thing.

Firstly; I can use it as a barganing tool to hammer the price down significantly - not a bad thing in todays market.

Secondly; it means that I can get all the work sorted - the entire renovation - between exchange and completion and get the place back on the market before I have to stump up a single penny in deposit or finance expenses.

Jittery times have their advantages, it seems.

You'd still be a plonker to buy a depreciating asset with leverage though.

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Secondly; it means that I can get all the work sorted - the entire renovation - between exchange and completion and get the place back on the market before I have to stump up a single penny in deposit or finance expenses.

Are you mad?

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6538   
You'd still be a plonker to buy a depreciating asset with leverage though.

Depends what I'm paying for it though.

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Guest DissipatedYouthIsValuable   
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Depends what I'm paying for it though.

It's probably still too much.

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laurejon   
Just had a call from my mortgage person regarding a flat I'm buying. The lender had their survey done last week which reccomended a £2K retention for some improvement works to be carried out.

The lender, however, has said that they will only proceed on the basis of a 100% retention!!!

From my point of view this is a very good thing.

Firstly; I can use it as a barganing tool to hammer the price down significantly - not a bad thing in todays market.

Secondly; it means that I can get all the work sorted - the entire renovation - between exchange and completion and get the place back on the market before I have to stump up a single penny in deposit or finance expenses.

Jittery times have their advantages, it seems.

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6538   
Do you honestly think a vendor is going to allow access to a builder before any money has changed hands ?

Of course they will. It happens all the time; I've done it before with stuff I've both bought and sold.

You weren't paying attention to the detail of my original post. I said that the work would be done "between exchange and completion" . If we have exchanged then the seller is protected because I can be forced to complete. Even if I don't, what's the worst case scenario for the vendor? He gets his old and dated flat renovated for free and still has the opportunity to sue me if my builders f*ck things up.

Edited by 6538

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Guest DissipatedYouthIsValuable   
Guest DissipatedYouthIsValuable
A big assumption on your part.

Give us some numbers, details and locations then.

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laurejon   
Of course they will. It happens all the time; I've done it before with stuff I've both bought and sold.

You weren't paying attention to the detail of my original post. I said that the work would be done "between exchange and completion" . If we have exchanged then the seller is protected because I can be forced to complete. Even if I don't, what's the worst case scenario for the vendor? He gets his old and dated flat renovated for free and still has the opportunity to sue me if my builders f*ck things up.

You have possession and have not paid a bean, he in the meantime is commited to purchase elsewhere and has no funds to complete the purchase.

I have been asked many times if access can be had prior to completion to carry out work and I have always said no, show me the colour of your money.

If you can get away with it I would be suprised, his current lender would whip his ars3 if he handed over possession without any money changing hands.

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6538   
You have possession and have not paid a bean, he in the meantime is commited to purchase elsewhere and has no funds to complete the purchase.

I have been asked many times if access can be had prior to completion to carry out work and I have always said no, show me the colour of your money.

If you can get away with it I would be suprised, his current lender would whip his ars3 if he handed over possession without any money changing hands.

Assumptions, assumptions, assumptions. People on here are good at that.

How do you know the vendor is comitted to a purchase elsewhere? How do you know there is a current lender involved? Besides, if there were, how do you know his current lender hasn't agreed, especially if the property is in such a bad condition as to be unsaleable/unmortgageable.

As for being in possession without having paid anything - so what? You are under contract and a completion date is specified in said contract. If you don't complete you can be quite easily forced to by the seller, regardless of how badly you may have shagged up his property. Alternatively, you can be sued by him. That's the whole point of being under contract.

As I've said already, this is not so unusual and I have done it several times before, both selling and buying. A common reason would be that a property has no bathroom or kitchen, or mains services, so cannot be mortgaged.

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Assumptions, assumptions, assumptions. People on here are good at that.

How do you know the vendor is comitted to a purchase elsewhere? How do you know there is a current lender involved? Besides, if there were, how do you know his current lender hasn't agreed, especially if the property is in such a bad condition as to be unsaleable/unmortgageable.

As for being in possession without having paid anything - so what? You are under contract and a completion date is specified in said contract. If you don't complete you can be quite easily forced to by the seller, regardless of how badly you may have shagged up his property. Alternatively, you can be sued by him. That's the whole point of being under contract.

As I've said already, this is not so unusual and I have done it several times before, both selling and buying. A common reason would be that a property has no bathroom or kitchen, or mains services, so cannot be mortgaged.

YEP - Access undertaking - not that rare at all.

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If you don't complete you can be quite easily forced to by the seller, regardless of how badly you may have shagged up his property. Alternatively, you can be sued by him. That's the whole point of being under contract.

All these things are true, but are only any good if you have any assets. Otherwise, he is stuck with the 10% deposit you have paid, and maybe a flat with no roof.

I think I'd want more than 10% deposit were I vendor. But of course it depends on how desperate V is.

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Assumptions, assumptions, assumptions. People on here are good at that.

How do you know the vendor is comitted to a purchase elsewhere? How do you know there is a current lender involved? Besides, if there were, how do you know his current lender hasn't agreed, especially if the property is in such a bad condition as to be unsaleable/unmortgageable.

As for being in possession without having paid anything - so what? You are under contract and a completion date is specified in said contract. If you don't complete you can be quite easily forced to by the seller, regardless of how badly you may have shagged up his property. Alternatively, you can be sued by him. That's the whole point of being under contract.

As I've said already, this is not so unusual and I have done it several times before, both selling and buying. A common reason would be that a property has no bathroom or kitchen, or mains services, so cannot be mortgaged.

So I take it you're a property "flipper" buying unmortgageable properties for cash, doing them up into a mortgageable state, and selling them for a profit.

You might get your fingers burned with this crash if you buy at what you think is, say, £20K below the market value only to find that the only market is an auction sale for £50K below.

Still I'm not complaining - if people with cash, such as you, are buying now then you won't have cash left to buy when the market has really crashed in a year or two - so you won't be competing with me when I use my STR cash to get an even lower price then.

Edited by neil9327

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6538   
All these things are true, but are only any good if you have any assets. Otherwise, he is stuck with the 10% deposit you have paid, and maybe a flat with no roof.

I think I'd want more than 10% deposit were I vendor. But of course it depends on how desperate V is.

It's irrelevant. You are under contract, the vendor can seek to have you complete the purchase via asking a Court to apply the remedy of specific performance. Meaning, you are forced to complete your contractual obligations. The purchasers lender has already agreed to advance the money - which the vendors solicitors have verified - so funds are available. There is no risk on the part of the vendor, apart from the sale taking a little bit longer of the buyer shags things up.

It happens all the time as many properties are unmortgageble and the owner may not have the means to repair them.

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6538   
So I take it you're a property "flipper" buying unmortgageable properties for cash, doing them up into a mortgageable state, and selling them for a profit.

You might get your fingers burned with this crash if you buy at what you think is, say, £20K below the market value only to find that the only market is an auction sale for £50K below.

Still I'm not complaining - if people with cash are buying now then you won't have cash left to buy when the market has really crashed in a year or two - so you won't be competing with me when I use my STR cash to get an even lower price then.

Never said I only buy unmortgagable properties.

Anyone might get their fingers burned in any type of business. That's just life my friend.

Making a few quid is all about getting your figures as right as they can reasonably be and, given what I am paying for stuff these days, I'm quite happy to rent it or sell it either way. By the way, "a few quid", is only what I make (ie; a comfortable living) I don't invest my hard earned money on the basis of it being some get rich quick scheme.

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Never said I only buy unmortgagable properties.

Anyone might get their fingers burned in any type of business. That's just life my friend.

Making a few quid is all about getting your figures as right as they can reasonably be and, given what I am paying for stuff these days, I'm quite happy to rent it or sell it either way. By the way, "a few quid", is only what I make (ie; a comfortable living) I don't invest my hard earned money on the basis of it being some get rich quick scheme.

I think you may find your whole arm reduced to a pile of smoldering cinders in addition to some burned fingers in this crash.

But as you said, its your money not mine...

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O/T So you can't get a mortgage without a bathroom?

Why?

Surely a house sans bathroom still has a valuation as an asset?

This can act as collateral for a loan?

Well, you learn something new every day.

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6538   
O/T So you can't get a mortgage without a bathroom?

Why?

Surely a house sans bathroom still has a valuation as an asset?

This can act as collateral for a loan?

Well, you learn something new every day.

A lender will almost never lend on a "residential" property that is not fit for residential habitation in its current state. Yes, it's still an assest of some form but how do you value it if it cannot be lived in?

Take things further. If you have a 3 bed house and it not only has no bathroom and no kitchen but you have also ripped out all the internal walls, floors the windows and heating system then can you still call it a residential property? Technically speaking, I do not think you can even advertise it as being a residential property under these circumstances. It's like if you build a new bedroom in your loft but it had no provision for letting in natural light - you couldn't legally call it a room. If you have removed all the kitchen and bathroom fittings then you cannot call it a kitchen or bathroom. You would have to say, "room for kitchen", etc.

A lender has to be sure about what it's security is. If you have a shop and you rip out the internals so that it's a shell and then call it a house - is it then a house? Is the lender taking a security on a shop or a house?

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It's irrelevant. You are under contract, the vendor can seek to have you complete the purchase via asking a Court to apply the remedy of specific performance. Meaning, you are forced to complete your contractual obligations.

I agree with that theory, but the remedy of specific performance is no good if you haven't got the money

The purchasers lender has already agreed to advance the money - which the vendors solicitors have verified - so funds are available. There is no risk on the part of the vendor, apart from the sale taking a little bit longer of the buyer shags things up.

In the current market your loan may just disappear before you get your hands on the money. I bet there's a margin call term in your contract with the bank. Were I vendor - or vendor's solicitor - I should want to be very wary in this market.

As for 6538 losing money on the deal, so what? It will just give him a trading loss that he can offset against tax, and it will make his next property cheaper to buy. If his money is to stay invested in property, then he is in a win-win situation whether the market rises or falls.

is a shop with the fittings ripped out a house?

No, for the planning is wrong.

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6538   
I agree with that theory, but the remedy of specific performance is no good if you haven't got the money

But you would, because you have the mortgage agreement.

In the current market your loan may just disappear before you get your hands on the money.

It can't because in these situations the lender is contractually bound to carry through and advance the money by the very act of telling you that can exchange and do the work. Besides, you would get the lender to agee in writing anyway.

This is not an unusual situation, as someone else has confirmed, and lenders are fully conversant with these situations because it happens all the time. Indeed, it's better security for the lender because they are taking on a newly renovated and well presented property as security for a loan based upon the purchase price of an unmodernised, tatty property.

I bet there's a margin call term in your contract with the bank.

Explain?

Were I vendor - or vendor's solicitor - I should want to be very wary in this market.

Why? The vendor is taking no risk other than that of a slightly longer period to get to completion if he has to force the matter. He will even be compensated for whatever small financial loss will be incurred during this time. The market could fall through the floor but the vendors sale money is safe because it's contractually protected all the way back to the lender. In fact I think he can actually choose to skip the purchaser and enforce the contract of sale against the lender.

In fact, neither the seller nor the buyer is taking any greater risk than the other as they can both enforce the contractual obligations of the other or bring proceedings for damages in the event of a breech. I certainly wouldn't be entering into such an arrangement if I thought I would be in line to loose money if the vendor decided not to go through with the deal. So if I can't loose money then neither can he.

As for 6538 losing money on the deal, so what? It will just give him a trading loss that he can offset against tax, and it will make his next property cheaper to buy. If his money is to stay invested in property, then he is in a win-win situation whether the market rises or falls.

Believe me I have no desire to make a loss, for tax reasons or otherwise. All I want is a sensible income.

No, for the planning is wrong.

Again, irrelevant. If I rip out the interior so that it could not be used for any purpose, regardless of what the planning department says I can do with it, then how does the lender value it? It's just a square of bricks.

If I dismantled my car to the point that it was a bare chassis with a VIN plate screwed to it is it likely that somone buying it would be ablke to get finance on it even thugh DVLA will tell you it is definately a car?

Edited by 6538

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Explain margin calls

Many BTL mortgages have a clause that if the LTV rises above (say) 85% then the borrower has to top up the mortgage (or rather the equity) until the LTV is again acceptable.

If the borrower is unable so to do, then the loan is foreclosed.

So, in your example, Pay 100 for flat, loan of 85, deposit of 15. Your spare cash of 5 pays for new kitchen, at which point you wish to complete.

Unfortunately, the value of the flat has dropped to 50 - yet you still owe the vendor 85. You no longer have any way of raising the money as the biggest loan you can raise is 42.5. The lender has used the margin call clause.

The courts can require specific performance as much as they like - they won't get it as you cannot raise the cash to complete.

Don't get me wrong, I fully support your right to make money from property; I hope this doesn't happen to you; I doubt it will happen to you; I agree it is a clever way of financing the build.

Finally, you will make at least as much money in a falling market as a rising one. Your profit amount on each transaction should be similar, but the financing costs lower.

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6538   
Many BTL mortgages have a clause that if the LTV rises above (say) 85% then the borrower has to top up the mortgage (or rather the equity) until the LTV is again acceptable.

If the borrower is unable so to do, then the loan is foreclosed.

So, in your example, Pay 100 for flat, loan of 85, deposit of 15. Your spare cash of 5 pays for new kitchen, at which point you wish to complete.

Unfortunately, the value of the flat has dropped to 50 - yet you still owe the vendor 85. You no longer have any way of raising the money as the biggest loan you can raise is 42.5. The lender has used the margin call clause.

No. The margin call only comes in upon re-mortgage. Lenders don't periodically re-value properties mid term, as far as I'm aware. The lender, in agreeing to the "Exchange-renovate-complete" course of action has agreed to lend you according to the valuation it originally obtained and is contractually bound from the point at which it contracts this with you (which will coincide with yours and the sellers exchange, or thereabouts).

In addition, even if I'm wrong on the above, then this course of action actually works to mitigate the effect of any margin call in these jittery times. If the purchase price of the property in it's tatty state is 100 and the market drops (and we are only talking about maybe 6 - 8 weeks for the renovation) then even in the case of a large crash the value of the now renovated property would have to drop below that before the margin call had any effect on my finances.

Edited by 6538

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