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Randall Herbert

""owing To The Current Over-supply Of Newly Built Property..."

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By Lorna Bourke

LONDON (Citywire) - For those of us who have always thought that 'special offers' from property developers are largely a rip-off, there is evidence from the professionals that we were not wrong.

Buy-to-let lender The Mortgage Works has announced that it is not accepting any new applications for buy-to-let mortgages on newly built properties. From now the lender will only accept buy-to-let applications on properties aged over one year. All current applications in the pipeline will be honoured, and the change only affects new buy-to-let mortgage applications.

"Owing to the current over-supply of newly built property, valuation in this sector is more of an art than a science," is the explanation from Matthew Wyles, director of The Mortgage Works. "Some developers are now prepared to do deals on price outside of the formal contract."

What this means is that the developer is prepared to quote a buying price of, say 250,000 pounds for a property on which the buyer applies for an 85 percent loan of 212,500 pounds. The mortgage goes through and the money is paid to the developer. But in the meantime, the developer has agreed with the purchaser that the real price is - 212,500 pounds and the lender finds itself financing 100 percent of the purchase price.

Wyles confirms: "In these cases the lender may be unaware of the actual price being paid and ends up relying on a valuation which may in turn be based on erroneous assumptions. We will go back into new build buy-to-let when we believe that the market forces of supply and demand have reached equilibrium."

There are other risks for buy-to-let investors purchasing on new developments. A discount of 10 percent may look attractive but is the original price right in the first place? A sensible investor will always get an independent valuation from a qualified chartered surveyor. Many of these new developments are wildly overpriced.

"We applaud this decision by The Mortgage Works to withdraw from the new build market," commented Lee Grandin, managing director of Landlord Mortgages, the UK's largest buy-to-let broker.

Grandin said: "New-build properties are often sold on an off-plan basis whereby an investor purchases a property up to a year prior to it being built. This is a very high risk; high reward strategy that we feel can prove particularly dangerous in the current competitive market.

"Investors who choose to purchase an off-plan property leave themselves vulnerable to factors such as low resale value due to oversupply, investor flooding and valuations which can be out by as much as 10 percent. We suggest that people are not tempted by the gifted deposits offered by these schemes and stick to basic buy-to-let principals such as only doing the deal when the figures stack."

'Investor flooding' is where all the properties in a development come on-stream at the same time and buy-to-let investors find themselves competing with other landlords with identical properties for a limited number of tenants.

This will drive down rental yields and could leave investors with a shortfall on their mortgage repayments. Buy to let investors should take note of this change in the market. When the professionals and lenders start to get worried, then something is usually going wrong."

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But...! But...... Don't they know there is a national SHORTAGE of housing? Watch my lips a national SHORTAGE of housing? Supply and demand, shortage shortage, must build more and more and more to get the prices down, ftb priced out, shortage shortage, prices can only go up up up , ladder now or you'll never get on the ladder again, plateau.....bumbling along, not falling at all..... strong economy.... low unemployment supply and demand shortage shortage ...... the **** is falling out of my BTL protfolio.......got to keep the confidence of the mugs up.... shortage shortage supply and demand, .....hmmm

Perhaps there isn't a shortage at all and never was? Perhaps its just that the asking prices are far too much over their real value?

Shortage of housing? You've got to be kidding.

Welcome to the CRasH!!

Edited by Randall Herbert

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What this means is that the developer is prepared to quote a buying price of, say 250,000 pounds for a property on which the buyer applies for an 85 percent loan of 212,500 pounds. The mortgage goes through and the money is paid to the developer. But in the meantime, the developer has agreed with the purchaser that the real price is - 212,500 pounds and the lender finds itself financing 100 percent of the purchase price.

.. and of course the price that feeds into the HPI indices is 15% over the real price paid.

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What this means is that the developer is prepared to quote a buying price of, say 250,000 pounds for a property on which the buyer applies for an 85 percent loan of 212,500 pounds. The mortgage goes through and the money is paid to the developer. But in the meantime, the developer has agreed with the purchaser that the real price is - 212,500 pounds and the lender finds itself financing 100 percent of the purchase price.

I think this is wonderful news - hopefully it will make everyone realise how much the prices developers are setting are deliberately set ridiculously high and will make people who negociate a 10-15% discount realise that this is not a genuine discount -- it is just like when shops bump up the price of a product for the required 30 days just so that they can then reduce the price and promote it at 30% off!! or whatever without breaking Trading standards rules. It's one of the oldest tricks in the book..

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I actually have a friend that this happened to!

He part exchanged his house for a house on a new build development, after fleecing them by getting loads of free stuff worth about £8k he then went through with the sale.

Basically, the bank knocked back the morgage on the newly built house because they said it was OVER-PRICED (I KNOW!). They explained to my friend that, basically, the house builder offered all these buyer incentives (deposit paid, moving fees paid, legal fees paid etc) but just upped the price by £10k or so so that the buyer pays for them in the end anyway. :angry:

Armed with this my mate is now negotiating a new price for the house. :lol:

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Until its a year old? So once they've been unsold for a year they can BTL them? Surely this is just going to get put into the costs of developing flats?

And think of the hundreds of flats in Manchester still being built!

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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