You'll Love This - 100% Btl

[Marcos Scriven]

I was reading in some forum or another a question from someone wanting 100% BTL. I stated that absolutely noone would lend more than 90%, and if above 500k no more than 85%. I was intrigued to find someone claiming that it was possible, and to contact them... so I did (I am NOT saying this is a good idea - it's a terrible idea!)

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Hello Marcos,

Thank your for your e-mail enquiring of 100% BTL finance.

I can confirm that this is indeed possible - it is based upon a Gross valuation price and the investor achieving an actual net price for purchase at least 15% below. This means if you achieve a discount of 15% on a Purchase Price of £100,00.00 the net price you will pay is £85,000.00. Providing the original gross price of £100.000.00 is indeed true and is valued as such the acceptable borrowing is 85% of this, meaning you have geared 100% without using your own money.

We at Property Matters source many such properties and opportunities for our clients regularly as we have support and contracts with many reputable builders.

Let me know if you require further information,

Kind Regards

Steven J Corner

Managing Director

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So basically it sounds like they find vendors and/or valuers who are happy to fiddle the asking price. I am astonished...

[Tonester]

If you had a house valued and going through Land Registry at a price higher than actual exchange (due to some later backhander) that would be classic mortgage fraud - think of the poor mortgage lender. However, if the mortgage lender themselves are promoting this, it just means the land registry have a distorted view of house prices....

[Marcos Scriven]

Great for gamblers then - some backhanders or favours to get an inflated valuation 15% above the market price and bingo, no money down and zero risk to you if you don't own the property you currently live in. How could any gambler not take the bet? - it's like betting on a one horse race to win using someone elses money, madness!

Well, to be fair, while its 100% BTL, it would be 100% your loss if prices went down. However, it does sound almost fraudulent. Not sure if I should look into it further, purely by ay of investigation...

[deano]

I was reading in some forum or another a question from someone wanting 100% BTL. I stated that absolutely noone would lend more than 90%, and if above 500k no more than 85%. I was intrigued to find someone claiming that it was possible, and to contact them... so I did (I am NOT saying this is a good idea - it's a terrible idea!)

-----------------------

Hello Marcos,

Thank your for your e-mail enquiring of 100% BTL finance.

I can confirm that this is indeed possible - it is based upon a Gross valuation price and the investor achieving an actual net price for purchase at least 15% below. This means if you achieve a discount of 15% on a Purchase Price of £100,00.00 the net price you will pay is £85,000.00. Providing the original gross price of £100.000.00 is indeed true and is valued as such the acceptable borrowing is 85% of this, meaning you have geared 100% without using your own money.

We at Property Matters source many such properties and opportunities for our clients regularly as we have support and contracts with many reputable builders.

Let me know if you require further information,

Kind Regards

Steven J Corner

Managing Director

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So basically it sounds like they find vendors and/or valuers who are happy to fiddle the asking price. I am astonished...

They are colluding with biulders to hoodwink the lenders who's money is at risk. The lenders caught on to this last year but it had been happening all over the country. They have tightened up a bit now but from the above, its still going on. Maybe a little more subtle though.

Edited February 14, 2007 by deano

[Warwick]

Well, to be fair, while its 100% BTL, it would be 100% your loss if prices went down. However, it does sound almost fraudulent. Not sure if I should look into it further, purely by ay of investigation...

Yes, it is similar to Gifted/Vendor Deposit schemes.

But it does rather beg the question of why someone would accept 85% of MV, if he/she could get 100%?

It may require a "sympathetic" Valuer.

[RJG18]

I would suggest that if the asking price is £100k, but it sells for £85k, then £85k is actually its current value, and it is indeed actually a 100% mortgage.

I guess the only exception would be if the seller had two comparable, completable offers, one at £85k and one at £100k, and chose to accept the £85k offer, then you could argue otherwise. But that would require the seller to be somewhat of an idiot.

[stevie1969]

and don't forget that BTL is non-regulated with no complaint process and no ombudsman as there is for regulated business. Your only redress is to go to court if you are financially at a loss.

[Tonester]

I see so you have a developer with a bunch of flats to sell. He wants to give illusion of high prices. Some FTBs fall for it, the 'savvy' BTLs negotiate a 15% reduction. The valuer is happy with full price because some of the other flats sold at full price, or he's bent. Then the BTL agency here takes your money, adds 15%, it gets logged with the land registry, then builder gives back 15%?

Sounds a plausible way to inflate prices of new build flats anyway. Not sure it would be common place in private sales.

[Jason]

Should should real them in, asking more questions.

Then finish off by asking if this is fraud.

[Michael]

[quote name='T

[bugged bunny]

Yes it would, but what I'm saying is for those who have nothing to lose (ie. they have no real assests that can be seized if they go bankrupt) then why not have a gamble?. If it's not your money then what have you to lose?.... surely you have everything to gain, hence amateur BTL'ers with multiple properties that are not so concerned about yields, however low.

This IS the best deal in town if you like a flutter - forget the bookies!

These people want the capital appreciation and who can blame them?!. Lets see - 5 properties valued at £200K each at the end of 2005 which increased by 10% in 2006 - portfolio now worth £1.1 Million. That's a gain of £100k in 1 YEAR for not much effort and using someone elses money. Nice, no wonder you can't go wrong (yet) with BTL as long as you've picked the right area - London is good but Belfast is even better.

There's no shortage of gamblers out there - most Millionares are often very risk averse people.

I doubt they'd grant one of these mortgages to someone with no assets

[Marcos Scriven]

ok, here's the resulting emails (in reverse order) from these 100% BTL guy. Doesn't fill me with confidence!

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It's not dodgy, quite the opposite and your lack of understanding of my

points made is astounding. Your e-mail is very insulting.

Please tell me what you want as I'm very busy.

-----Original Message-----

From: marcos@scriven.org [mailto:marcos@scriven.org]

Sent: 14 February 2007 17:49

To: Steven Corner of Property Matters

Subject: Re: Buy to Let Finance

I have to say that sounds dodgy at best - basically manipulation of

valuations.

Wouldn't the lender be unhappy that basically their security of 15%

doesn't exist?

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Touchy or what? Perhaps I touched a nerve...

[Marcos Scriven]

oh, and here's the company website - doesn't exactly look established...

http://www.propertymatters.gb.com/

[pkotak]

Exactly how it works (I know this from experience, having bought in this mode, and yes, like CATFLAP says, its a gamble)

However, a few points about subtleties in the situation:

1) The discounts are often genuine-ish. You might get 5%, 7% if you are lucky, if you went to the developer looking to buy one property, but you won't get 15%. Having said that investment companies will typically take about 3% back in commissions anyway, so you will be left with a discount of about 7% on RRP, ie about the correct price if you were to resell immediately. The point is, you have managed to aquire an asset (or debt if you prefer!) with virtually zero outlay.

2) The lenders are NOT being hoodwinked, they have access to the same internet as everyone else, face it, they are incahoots, they are turning a blind eye, exactly the same as they would if you get a residential mortgage and then let out the property. Lenders don't care as long as payments are met. Man from the building society is not going to turn up at your door demanding to know why you let the property. The max retribution you will face if found out is a letter from the lender to tell you to put in an extra 5% equity (not the biggest deal).

3) It's not fraudulent if you do things and show the money in the right order: if you show the lender you have the 15% deposit upfront (it may have been borrowed temporarily!) and

then the developer gives you back 15% after the transaction completes, the lenders will typically know this is happening and won't object.

4) It doesn't need any FTBs to fall for it and pay the full price (although that helps), a couple of "transactions between friends" at RRP, involving the developer, will do the job as far as valuations are concerned.

5) The real victim in the game is the poor patsy who is under pressure from his/her better half to buy, pointing to internet research which shows the RRP being paid. The discounts are masked, and the said poor patsy will be more inclined to pay higher prices in the face of irrefutable evidence.

6) when CATFLAP says "How could any gambler not take the bet? - it's like betting on a one horse race to win using someone elses money" this is exactly right.

If you can, Why would you not do it? As long as you are not stupid and set aside enough to subsidise the shortfall from rent and IR swings, perhaps 2K to 3K per annum for 2 to 3 years, say 10K in total, it's a bet with considerable upside potential and some downside risks. If prices go up you are ok. If rents go up you are ok. If IRs come down in a year or so, you are ok. If prices crash but you can find tenents, you are not forced to sell and you will be ok in the long run. If prices keep rising for say 18 months and then crash, well as long as you were smart enough to have MEWed after the rise, you will be in a position to use the banks own money (which they wouldn't lend you post crash) to subsidise rent shortfalls, voids etc while you wait for better times. There are many subtle ways to protect yourself with this type of buying. You could hedge against a crash by making small (but high-return) bets on house prices falling on IG Index. If prices don't fall, you lose your bet but HPI should cover that. If they fall, you can use your winnings to offset your HP loss. If you can also buy say, in Europe, with a Euro mortgage, perhaps that asset will rise even though this one in the UK falls in value. You could then perhaps do MEW on your Eurpoean mortgage in a couple of years and subsidise the shortfall here. Given that there is an IR gradient, if you can transfer UK debt to a Euro mortgage, all sorts of properties which look as though they won't pay for themselves, suddenly will. You may get double-bubble (or suffer a double-whammy) if the exchange rate moves.

If prices crash and you can't find tenents for an extended period you are screwed, but you are losing, mostly, the banks money.

IMHO I think there is some likelihood of a mini-crash within the next 24 months, but I also I think there will be a superfast recovery post crash within perhaps 18 months, (like the Equity markets after 1987), because of the structural shortfall in housing in the UK, and SWOM.

All those waiting to benefit from a crash are likely to find the banks more wary, and credit much tighter and you may not be able to borrow enough to aquire the assets you want. The time to do it is now, when the banks are stupid enough to lend.