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Property Finance Success Story: Funding an £8million development
Development can mean high profits - but to achieve those profits a high scale of funding will be required. At Rangewell, we recently helped fund a development with a total budget in the region of £8million. TL:DR - Thanks to the pandemic, the number of lenders willing to finance property developments reduced substantially and those that would lend would only do so at a higher rate of interest. We found an accountant's developer client the funding he needed by carefully structuring the deal they needed - a £2million loan towards the cost of buying the site and, using the land as security, providing a 100% loan to cover the cost of the building work, with staged payments. When large sums are involved, lenders have to be cautious. Even those who are prepared to fund whole developments may have a ceiling on the amount they can lend on a single project. Others may be reluctant to offer funding for certain kinds of development. Those that will lend may require a high rate of interest. Getting the deal you need for your plans - and turning your ideas into profits - requires expert support. Without in-depth knowledge of the lending industry, it can be extremely difficult to find the lenders who can provide the most competitive rates for specialised funding such as Development Finance. At Rangewell we have the necessary knowledge. We recently helped an Essex-based developer accountant find a solution for a borrower who was planning a major development - which required a total of £8,000,000 in funding. In the current climate, such a high-value loan, may be difficult to arrange - and the developer realised that he would need help to secure the funding he needed at a rate which would allow him to retain sufficient profits. “I found a brownfield site in a bustling Essex town. The county has become very popular thanks to the good road and rail routes into London, and good sites for development have become hard to find. But I was certain that the location was ripe for a profitable development of luxury homes.” The site would be ideal for the development of two blocks of luxury flats, with apartments and penthouses, and the developer had outline planning permission for 35 new homes. The costs were substantial - it would cost £3.5million to buy the site, and building costs would be a further £4.5 million. “I needed to find the funding - and, of course, I needed it to be competitive. But the problem was that thanks to Covid, most lenders were simply not lending. The only lender I could find who was interested was only prepared to offer funding at 7% - and even then, they were reluctant to offer as much as I wanted.” Property Development Finance is aimed at experienced property developers Property Development Loans are a type of short-term lending that, at the lower end of the scale, allows a developer to finance renovation or refurbishment of a property. However, in theory at least, there is no upper limit to Development Finance, and much larger development loans may allow the funding of large-scale development projects, including the build of entire new estates. All lending is arranged on an individual, project-by-project basis. Projects fall into three broad categories: Small-scale loans to cover light refurbishment Lending to cover renovation and major conversion projects Funding for ground-up development, starting with an empty plot of land Lower-cost projects can be covered by a relatively straightforward loan, while for light and heavy refurbishments you might want a 'refurbishment bridge’ finance option, which funds 6–24 months of building costs and may include the option to convert into a mortgage once work is complete. Ground-up development may be funded in a number of ways. The key point to remember is that his type of property funding is always arranged on an individual basis. For more extensive projects, more complex finance arrangements will be needed. Funding is often sought by those who already own land and who will offer it as security to raise funds to cover both land purchase and building costs. Lending for property development can include a roll-up of interest and associated costs into the loan, which would be paid off once the development is sold. How much can you borrow? Lenders will often provide up to 60% of the Gross Development Value, or GDV, of a development project and may expect at least 40% equity of the GDV to be funded by the client with the acquisition of the site. Funding will then be provided on a phased basis to cover the costs of development or re-development. Very large multi-unit block developments, however, may require pre-sale of each phase before funding can progress to the next stage of the project. But if an experienced developer wants to buy a plot of land and build on it, a lender might finance 50% of the plot purchase and 70% of the build. If you are ready to find better answers to your business funding needs, contact the Rangewell funding hotline on 020 3318 2613 Finding a solution We looked at the deal that the client was wanting, and saw that his project was, in fact, very viable. We knew that many property development funders had shut up shop until the post-Covid future became much more clear - but we did know of one that might be interested and still prepared to lend. We approached them with full details of the project and were able to get a positive decision. The deal we arranged We were able to negotiate funding at 6% - substantially lower than the developer’s only other quote - and to cover his entire lending needs. We were able to do this by providing a carefully structured deal. This would provide a £2million loan towards the cost of buying the site - in effect 60% loan to value. With the land as security, it would then be possible to provide a 100% loan to cover the cost of the building work, with staged payments. The total funding advanced would be £6.5 million, with a 15-month term, and with all interest to be rolled up and repaid at the end. “The funding was exactly what I needed and we started work immediately. It looks as though we were right about the desirability of the project. The first 10 units have already been sold off-plan, effectively covering the costs of the finance we took out - and letting us look forward to some very worthwhile projects with another 25 to sell.” Why we were able to help At Rangewell, we work with all the lenders in the UK market, and not only do we know which are most suitable for a particular type of deal or a particular sector, we know those that can offer the most cost-effective solution for an individual need. We were able to secure the funding required by our client at just 6% £8,000,000 at 6% over 15 months Getting the right deal for your business Finding the right lender for your development project can be crucial to its success and profitability. That’s why it is important to speak to the Rangewell team without delay. Our team is made up of industry specialists. Whatever your line of work, we have someone who understands the challenges you face - and the ways to answer them. Our team includes experts in Property Finance, and our service is personal. |It lets you talk to a property funding expert who understands your challenges sector to find a solution that is planned around your business needs. We will discuss your plans then call on our network of lenders, which includes virtually every name in the UK market, to get the funds you need quickly. And when the solution requires going the extra mile and out of the box thinking - you can rely on us for that too. Just call us and one of our experts will be able to discuss your options and work out the most cost-effective ways to provide the funding you want - whatever the challenge your business plans present. And, in most cases, our services are absolutely free. To find out more call the Rangewell Property Funding team for an informal discussion on 020 3318 2613 or email [email protected] Property development costs less with help from Rangewell Individual arrangements tailored to your circumstances Adverse Credit – no problem Repayments geared to your revenue stream - including interest roll-up Understanding the funding challenges for your sector Personal service Talk to Rangewell – the business finance experts
Rangewell’s report on the economic performance of Independent Healthcare during the Coronavirus pandemic
Summary: There is significant evidence to show that Healthcare, as a sector, was one of the hardest hit from the economic fallout of Coronavirus. The anecdotal testimony of the consequences of the crisis has been prevalent since February, and now the economic data seems to support the ‘word on the street’. The GDP data indicates there is little difference between the output of the sector during the lockdown and after. GDP data in other sectors shows that some saw a 25% increase of output since the lockdown, while Health and Social Care saw its output remain below 25% of its February output. This could be down to a number of reasons, including: Dentists and Opticians practices, on the whole, were legally obliged to close. Some firms say they were still spending £10k a month to just keep the business going even whilst it was closed. There was a rise in drug prices, with many Pharmacies reaching their credit limits and even falling behind with the drug wholesalers. The Association of Independent Multiple Pharmacies forecasted in March that Pharmacies needed an extra £10k per pharmacy, per month to ease the cashflow squeeze. One Pharmacist estimated that overtime costs were £5000 per week during April. The ongoing cost of Personal Protective Equipment (PPE) was costing a group of 23 care homes £70,000 extra per month in May. The IHS Markit UK Household Finance Index in September showed that there was a reduction in household spending, savings and personal credit availability. This may have caused a knock-on effect on cosmetic or non-urgent healthcare services. Healthcare GDP Like with all other industries, Health and Social Care saw a dramatic drop in output while the cases and Government restrictions rose. While other sectors saw output return to their February levels, Health & Social Care saw its output flatline at 25% below their February output. Monthly output (March, April, May, June, July, August 2020) as a proportion of February 2020 output; February 2020 output = 100% Source: Office for National Statistics, GDP monthly estimate, UK: August 2020. PHE Weekly Cases data, people tested positive, UK Whole. The story behind the number During ‘lockdown’, Dentists & Opticians practices were legally obliged to close their doors, with patients, instead, being referred to hospitals for urgent care. An independent high street Optician told one of Rangewell’s Healthcare Finance Experts that, even after taking the Job Retention Scheme into account, the firm was spending £10k a month just to keep the business going whilst it was closed. This was typical of all healthcare businesses who were required to shut their doors during the lockdown. The economic effect can be seen sector-wide, even with the businesses that remained open, such as Pharmacists. Due to the way the Government has changed the way Pharmacies are paid - that is the reduction of the payment they get from actually dispensing medicines to delivering services, which they are paid per-service or in a banded manner - the pandemic hindered their ability to deliver services and they became reliant on the fees paid for dispensing. To make this worse, the huge spike in prescriptions increased Pharmacist wholesaler bills at the same time as a rise in drug prices. As the NHS pays three months in arrears, the delay affected Pharmacists’ ability to balance the books. In March, the Association of Independent Multiple Pharmacies welcomed the loan from Public Health England of £300m to Pharmacies but forecasted that they would need an extra £10k per Pharmacy, per month in April and May to help with the additional costs and to ease the cashflow squeeze. Staffing costs are adding further pressure onto Independent Healthcare providers. With a shortage of NHS testing, many professionals will have been forced to self-isolate. Speaking to Pharmacists in April, Mike Hewitson of Beaminster Pharmacy estimated the overtime costs for one week alone were £5000. The ongoing cost of Personal Protective Equipment (PPE) in health and social care has been yet another overhead that businesses have needed to factor into their costs. Derek Luckhurst of Agincare told The Guardian in May that PPE for his 23 care homes had cost his business an extra £70,000 a month. The IHS Markit UK Household Finance Index also shows that there has been a reduction in household spending, savings and personal credit availability. This may well also have an effect on Healthcare as less might be spent on cosmetic or nonurgent services/sundries. 1 Wickware Carolyn ‘Leyla Hannbeck: ‘COVID-19 has many pharmacies struggling to keep their heads above water’, Pharmaceutical Journal, May 6 2020 https://www.pharmaceutical-journal.com/news-and-analysis/opinion/qa/leyla-hannbeck-covid-19-has-many-pharmacies-struggling-to-keep-their-heads-above-water/20207939.article?firstPass=false 2 Cox Thomas, ‘Crushing’ demand for medicines pushes pharmacies to the brink’, Chemist and Druggist, April 9 2020 https://www.chemistanddruggist.co.uk/feature/crushing-demand-medicines-pushes-pharmacies-brink-coronavirus 3 McDonald Henry, ‘Higher PPE costs of care homes passed on to clients’ Guardian, May 4 2020 https://www.theguardian.com/society/2020/may/04/higher-ppe-costs-of-care-homes-passed-on-to-clients-uk-charity-warns 4 IHS Markit UK Household Finance Index, 21 September 2020 https://www.markiteconomics.com/Public/Home/PressRelease/32ab67d3ae7d4b0bab35344cee1af94
Property Finance Case Study: buying below value
Buying property below market value may be a shrewd decision - but it can complicate your mortgage arrangements. TL:DR - When a client struggled to finance a bargain property purchase because it was valued below market rates, his 30% deposit was at risk. He turned to the Rangewell team who were able to arrange a second valuation, and were successfully able to negotiate a Property Development Loan at 7% fixed for two years, which not only allowed the purchase to proceed, saving the client's hefty deposit, but also meant that he could remortgage the property to a much lower rate once work completes. When you apply for any kind of property finance or mortgage, the lender will want a valuation based upon the purchase price and not the value of the property. You will only be able to borrow a certain percentage of this price – this is called the 'loan to value ratio' (LTV). if you secure a property bargain - a property below market value - the lender may actually become wary, because their lending is secured on the value of the property as it stands, if it has to be sold on. Any property that has to be sold below market value, therefore, causes alarms bells to ring. If it can only be sold below market value, it may not be possible for it to be resold for the full price - or not sold at all. However, although there are some challenges, there are some major advantages to buying below market value. Buying property below market value gives you an immediate paper profit. If you sell at market value quickly, you’d make a good return on your investment. So if you paid £200,000 for a property valued at £200,000, you’d make nothing by selling quickly. But if you only paid £180,000 and then sold at the market value of £200,000, you would make a handsome return on investment (ROI). If your original investment was your deposit of £50,000, and you made £20,000, this means you enjoy an ROI of 40% - although you will have costs to pay. “You might think that lenders would be keen to help you buy a property that is below market value and obviously a bargain. But it seems that things don’t quite work that way. I had found myself a bargain, but I was having a real problem in finding the funding to buy it." At Rangewell, we recently helped fund a small unfinished block of flats which was sold off by the developer at below market price. This can be a common scenario when large developers run into cashflow difficulties. They may need additional funds to complete a large development, but rather than incur additional lending fees, they may offer a few properties for sale to provide the cash they need quickly. The client was offered the block of two-bed flats for just £115,000 - substantially below the market value for the finished flats, which should have been closer to £200,000, and possibly more as the development was completed and landscaped and the area became more attractive. “I knew that I had a good deal lined up - the area is up and coming and the property was aimed squarely at the young professional market who were starting to come into the town. It would be perfect for renting out for a year or two while values climbed some more - and then easy to sell the flats on. But I had not bargained for the problems. Buying a bargain makes lenders uncomfortable - and so did the Covid crisis." There would be work to be done. The block was a bare shell, with second fix electrics and fitting out of bathrooms and kitchens required. These might cost another £50,000, but our client was confident that he would still be able to turn a good profit from renting out the flats, and then go on to resell the properties when the time was right. He had secured the property with a 30% deposit. However, he would require funding to complete the purchase - and found that he had run into a serious problem. Because the flats were unfinished, lenders were reluctant to help. Without kitchens or bathrooms in their current state, they could not be sold on to buyers who would use them as a home. It is usually essential for a property to be sellable to act as security for a loan. The valuation provided by most property professionals working with lenders was either substantially even lower than the purchase price, or negative. It looked as though our client would be unable to raise the additional funds he needed and was, therefore, in danger of losing his deposit. He turned to us to find a solution. Why was there a problem? In the current climate, financial uncertainties have made lenders even more cautious when large sums are involved - even when the security is provided by saleable property. Without property that could be resold to recoup the loan if the borrower became unable to pay, most lenders would not look at this deal at all. And those that would lend may require a high rate of interest - which would remove any profit from the deal. Without in-depth knowledge of the lending industry, it can be extremely difficult to find the lenders who can provide the most competitive rates for specialised funding such as below market value finance. At Rangewell, we not only have the necessary knowledge, but we can also put it - and our network of contacts throughout the property lending market - to work for you. We found another valuer who was able to take a fresh look at the property - and a lender who was prepared to work not on the basis of the valuation of the property as it stood, but on the Gross Development Value or GDV. Gross Development Value may be used as part of a residual valuation, the process of valuing a property with development potential. It is essentially the value of the completed property, less the costs of the work required. We believed that the GDV of the property would be much higher, and found a local valuer who suggested a value of £180,000. Armed with this figure, we were able to approach a lender we believed would be prepared to offer the funding required. Some negotiation was required, and we needed to call on our own experts to provide opinions that the lender would be convinced by, but we eventually arrived at a deal that would allow the purchase to proceed - and save our client’s deposit. We sourced a 70% property development loan at 7% fixed for two years. If you are ready to find better answers to your property funding needs contact the Rangewell property hotline on 020 3318 2613 About Property Development Loans Property Development Loans are a type of short-term lending that can allow an experienced developer to finance renovation or refurbishment of a property. All lending is arranged on an individual, project-by-project basis. Projects fall into three broad categories: Small-scale loans to cover light refurbishment Lending to cover renovation and major conversion projects Funding for ground-up development, starting with an empty plot of land We knew that many property development funders had shut up shop until a post-Covid future became more clear, but our knowledge of the market allowed us to go straight to the lender best placed to help - and to secure the funding in the shortest possible time. The cost of the finance was high compared to a straightforward Commercial Mortgage, but the client was able to proceed and will be able to remortgage the property to a much lower rate once work is completed. Fitting out the flats is already underway, and he hopes to have tenants in place before the end of the year. “The funding was exactly what I needed to move forward and to save the deal - and the money I had already put down. We were able to start work immediately despite the lockdown. The boost to the value of the property thanks to an unexpectedly buoyant market is making things look brighter than ever.” Why we were able to help At Rangewell, we have a team of property funding experts and we work with all the lenders in the UK market. We have built up close contacts with many of them, and not only do we know which are most suitable for a particular type of deal or a particular sector, we know those that can offer the most cost-effective solution for any individual need. This means that, whatever your property finance challenge, we can help you find the answers you need - in less time, and frequently at a lower cost. What’s more, when it is a matter of Property Finance, our services are free. Getting the right deal for your property plans Finding the most appropriate lender for your development project can be crucial to its success and profitability. That’s why it is important to speak to an expert team without delay. Our team includes experts in property finance and our service is completely personal. It lets you talk to a property funding expert who understands the challenges you face with your project to find a solution that is planned around your business needs. It often means finding solutions that our clients did not know were possible - and it always means having a property expert working to save you money. We will discuss your plans and then call on our network of property lenders, which includes virtually every name in the UK market, to get the funds you need. If you have a property project in need of funding, or simply want to scope out a potential deal, call us and one of our experts will be able to discuss your options and work out the most cost-effective ways to provide the funding you want - whatever the challenge your business plans present. And in most cases, our services are absolutely free. To find out more call the Rangewell property funding team for an informal discussion on 020 3318 2613 or email [email protected] Property development costs less with help from Rangewell Individual arrangements tailored to your circumstances Adverse Credit – no problem Repayments geared to your revenue stream - including interest roll-up Understanding the funding challenges for your sector Personal service Talk to Rangewell – the business finance experts
Property Finance for a pharmacy
Running a pharmacy as a high street chemist can be a particularly lucrative business, letting you use your professional skills whilst also providing a huge range of commercial opportunities. TL:DR - When two existing pharmacy owners decided to come together for a joint venture, they found that the scale of the funding needed, along with the additional challenge that the banks saw their new venture as a start-up, despite both having extensive experience in the pharmacy sector, meant funding challenges they could not overcome alone. We went above and beyond to help, calling in a team of accountancy specialists and valuers to support their application, and succeeded in getting them a funding deal of £1,900,000 at 3.75% above base rate currently 0.5% with a term of 15 years. Running a chain of pharmacies can be even more rewarding, letting you benefit from economies of scale. But whether you are opening a new pharmacy or taking over an existing chemist shop, being able to capitalise your business at the lowest possible cost is key to success. Acquiring an existing business or premises will need external funding tailored to your cash flow. At Rangewell, we understand the particular challenges you face because we work with pharmacists across the UK and help them find solutions to their funding needs. We recently helped two partners acquire two existing chemist shops to add to their existing businesses - and had some challenges to overcome when we provided the funding. About finance for buying a chemist shop The high street chemist shop should be a relatively safe business. As a mature retail sector, the profits of any given shop in a particular area should be relatively easy to calculate based on some simple demographic calculations. If an experienced chemist shop operator takes over an existing business, the prospects for both ongoing trade and the potential of the business for growth should be easily predictable. However, the business is changing as competition from discount chains and the supermarket pharmacies increases. Some lenders may be more wary of funding chemist shop businesses than they might once have been. Buying a chemist shop, like any other type of business purchase, will mean costs that reflect the turnover currently being delivered. Other factors, such as the location of the business and its potential for the future, may be taken into account. Whether the business is a leasehold or freehold will also influence your price - but although buying a business with a property may be more expensive in terms of the purchase price, it might actually be advantageous as the lending can be secured on the property rather than the business turnover. Remember - if you are a professional in the pharmacy sector, you may be eligible for lending at particularly attractive rates. We were approached by two pharmacists who both had small chains of shops in their own names but saw that the future was in scale - and decided to acquire a pair of additional shops as a joint venture. “Working in the pharmacy business for a few years had shown us the problems as well as the opportunities, and with the way things are going, we were certain that scaling up was the best solution for both of us. With our existing supplier contacts, we could reduce our input costs, and we knew that as well as increased buying power we could leverage our experience. We had experienced staff we could put straight in.” The partners had found two shops that were being sold by an owner ready for retirement. They were both in good positions and in locations which would complement their existing operations. “Basically, we were buying shops which would fill up holes in our existing spreads. We would be reinforcing our existing operations, not taking customers away from them - but at the same time, they were close enough for us to easily manage from our existing sites for delivery and the like. The challenge was the same as it always is - finding the right way to fund the acquisition.” The two shops were profitable and in owned premises and the current owner was under no illusion about their value. “He wanted £2million for the two shops. An independent valuer confirmed that the price was fair and, when we looked at the books, we had to agree. The businesses were profitable as they were, plus they had plenty of potential for the future. One was close to a large housing development that would mean plenty of extra customers walking past the door.” The partners first thought was to approach their banks - but it was then that things started to become complicated. They were both successful business owners, but they had not worked as partners before and setting up a joint venture was complicated. “Naturally, we had the support of our account and solicitor, but even with their professional skills, the application was looking complicated from the beginning. The bank wanted all kinds of documentation. It is understandable enough - we needed to fund £2million after all.” It soon became apparent that the partners would need more support than their advisors could provide. The needs of the bank they wanted to work with were highly specific, and they turned to our experts at Rangewell for help. As experts in business lending, we understood what the banks needed and began work on preparing a report which would provide the information required in the form that the banks would find the simplest to deal with for their purposes. When large sums are involved, lenders have to be cautious. Even those who are prepared to fund may have a ceiling on the amount they can lend on a single project in the current climate. And those that will lend may require a high rate of interest. Getting the deal you need for your business development plans and turning your ideas into profitable business realities requires expert support. Without in-depth knowledge of the lending industry, it can be extremely difficult to find lenders who can provide the most competitive rates for your particular business needs. At Rangewell, we have that knowledge. If you are ready to find better answers to your business funding needs, contact the Rangewell funding hotline on 020 3318 2613 Finding a solution We looked at the deal that the partners were looking for and saw that their plans were sound The asking price was £1million for each shop, which was a fair price for a practice with a combination of ample floor space and a turnover that was already excellent, with more than 5,500 prescriptions served each month. However, the way the business would be structured was causing problems. Both partners had existing businesses, with debts as well as assets, but their new venture was technically a new business. Banks are often reluctant to provide funding for new business ventures - particularly at the current time - as there is no formal evidence that the business would be successful. We, therefore, had the task of creating a detailed report that would demonstrate the viability of the business plan, along with the skills and experience of the partners. We called in a team of specialist pharmacy accountants to support the application and assembled an application based around lending secured on the value of the property itself. There were several problems to overcome, not least that the valuation of the properties was found to be rather optimistic. We used our negotiating skills to reduce the price offered for the shops and found a new valuation which was closer to the amount required. Then at the last minute, we found that Covid-19 had triggered a crisis of confidence in lenders, who were concerned that they were being asked to fund a business acquisition which had no clear prospect of being allowed to open. We found a lender who was hungry for business and able to make the required funds available when the first choice lender pulled out at the last minute. The funding Rangewell arranged £1,900,000 at 3.75% above base rate currently 0.5% with a term of 15 years Getting the right deal for your business plans Finding the most appropriate lender for your business acquisition plans project can be crucial to their success and profitability. That’s why it is important to speak to the Rangewell team without delay. At Rangewell, we work with all the lenders in the UK market and not only do we know which are most suitable for a particular type of deal or a particular sector, we know those that can offer the most cost-effective solution for any individual need. Our team is made up of sector specialists. Whatever your line of work and whatever pharmacy funding need, we have someone who understands the challenges you face - and the ways to answer them - at the most affordable rate. Our term includes experts in property finance and our service is personal. It means you can talk to a property funding expert who understands the specific challenges of your sector to find a solution that is planned around your business needs. We will discuss your plans and then call on our network of lenders, which includes virtually every name in the UK market to get the funds you need quickly. And when the solution requires going the extra mile and out of the box thinking - you can rely on us for that too. Plus, in most cases, our services are absolutely free. To find out more call the Rangewell property funding team for an informal discussion on 020 3318 2613 or email [email protected] Property finace costs less with help from Rangewell Individual arrangements tailored to your circumstances Adverse Credit - no problem Repayments geared to your revenue stream - including interest roll-up Understanding the funding challenges for your sector Personal service Talk to Rangewell – the business finance experts
Property Finance Success Story: Accidental landlords and Consumer BTL Mortgages
At Rangewell we recently helped a new client deal with the problem of turning his home into a buy to let venture. TL:DR - One client found they had become an 'accidental' landlord when they decided to rent out the property they live in rather than sell, when moving jobs for example. Because he had lived in the property, he was not eligible for a Buy to Let Mortgage, and due to his, understandable, lack of experience in the property finance market, he didn't know where to turn. We explained his options and found him a Consumer Buy to Let Mortgage which fit his needs perfectly, even getting the deal accepted during Covid, and negotiating the funding at 3% with 70% loan to value. Investing in Buy to Let properties have been on the increase for a number of years, but concern about BTL investors distorting the market and pricing out first-time buyers has led to tax changes which may make becoming a landlord much less rewarding. But it may still be possible to buy and rent out a home or homes and show a profit - if you have done the necessary calculations and have a mortgage with a really competitive rate. However, there's more to getting the right mortgage than simply comparing rates. Getting the right kind of property funding is essential - and there are several types to consider. A consumer mortgage is designed to let people buy the home they live in. It requires the borrower to have an income which is sufficient to make to repayments on the mortgage, and the lender and the product they offer will be regulated by the FCA. A standard (or business) Buy to Let mortgage is secured against a property investment where you rent out the property for profit. A Buy to Let mortgage is assessed differently in comparison to a residential mortgage. It is mostly based on the profitability of the property, i.e. how much rent can be generated from it, unlike a residential mortgage which depends on your own financial circumstances. You will need to provide a slightly higher deposit amount for a Buy to Let Mortgage which usually would be 20% of the value of the property. A minimum salary of around £20,000 also applies, depending on the mortgage lender. But there is another type of mortgage - a Consumer Buy to Let Mortgage. We recently helped a property owner solve his property problems by helping him arrange a Consumer Buy to Let Mortgage. For landowners who have experience renting and deliberately want to rent out a property, Business Buy to Let Mortgages are ideal. However, many individual homeowners fall into the trap of becoming an accidental landlord - where they want to let out a property that they have lived in themselves. What is an 'accidental' landlord? The term ‘accidental landlord’ is common in the lettings industry. It is someone who didn’t buy a property to let out but found that they needed to become a landlord because of unexpected circumstances. Those circumstances can also vary. One of the most common is when someone may own their home but get a job offer abroad and not want to sell. They also might not like the idea of leaving the property empty for an extended period of time. In such case, the best route is often to rent it out. Alternatively, someone might inherit a property and decide that letting it yields the best results financially. They might even wish to remortgage and borrow extra capital against it, so they have more funds in the bank. If you move away but keep the property you were living in to let out, you may be defined as an ‘accidental landlord’. The criteria for most Consumer Buy to Let mortgages are: The property was not purchased with intend to rent it out Renting property is not your main source of income You do not own other properties that are being rented You have lived in the property A Consumer Buy to Let provides a great deal more protection than the regular Buy to Let Mortgage, which is arranged for business purposes. However, the requirements, as well as the application, will be stricter - about the same as if you were trying to apply for a home mortgage. Are you struggling with a lack of property funding knowledge to know where to turn to with a complicated need? Have you aslso become an 'accidental' landlord? Contact our Property Funding team today for the solutions you need Solving our client’s problem Our client was in his late twenties and had bought a home in Bournemouth. However, when a career opportunity took him to London, he realised that the long commute was not going to be feasible. He wanted to let out the Bournemouth property while he looked at his position in London. He would initially rent but had plans to buy if the job went well. However, he was reluctant to sell his Bournemouth property and felt that the best solution would be to let it out for the short term while he decided what to do. He knew that his existing mortgage would prohibit letting out the property, but that it would be relatively simple to replace it with a standard Buy to Let Mortgage. However, when he started to look at the necessary arrangements, he soon found that things were not as simple as he had expected. Because he had lived in the property, most lenders that he spoke to would not consider him for a Buy to Let Mortgage. Their view was that as an owner-occupier, the existing homeowners' mortgage was appropriate. This was a regulated product, and lenders would be understandably wary of any conflict with the guidance provided by the FCA, the regulatory body for the lending industry. When large sums are involved, all lenders have to be cautious. Even those who are prepared to fund property may have a tight set of criteria that they will work to. Proposals that fall out of these restrictions may be rejected simply on principle. “I needed to find funding quickly - the cost of keeping up a house in Bournemouth and renting in central London was putting a strain on my finances. But I could see things would be very much better if the Bournemouth property started to generate an income. It might make it very much easier for me to buy in London. Plus there was always the possibility that I would want to move back in a few years' time. But I had three problems to deal with. The first that I was a first-time landlord. With no experience in Buy to Let, I didn’t know what was possible and what was not and lenders seemed to have little faith in me. The second was that I was still living in the Bournemouth property, according to the electoral register, even if I was never there. And thirdly, thanks to Covid, most lenders were simply not lending.” He had already spent weeks trying to secure the funding he needed to move forward and realised that he needed professional help to do so. Naturally, he turned to Rangewell. “I had heard that Rangewell have solutions when it comes to borrowing for property. Most lenders will only want to sell you what they have to offer but Rangewell work to find you the solutions you actually need.” We saw that this lack of experience would be a problem with many lenders, but we knew those who might be able to help. We also knew those who could act fast - despite the problems caused by Covid - and some ways to speed up the process. Finding a solution Consumer Buy to Let Mortgages are regulated as residential mortgages and are aimed at ‘accidental landlords’ and non-professional landlords. In 2016, The Mortgage Credit Directive introduced a legislative framework to regulate the mortgage market. Consumer Buy to Let Mortgages were part of this new change and offered consumer protection to individual landlords. Consumer Buy to Let Mortgages are regulated by the Financial Conduct Authority (FCA) in the same way as residential mortgages. The real reason for their existence is to offer protection to customers who find themselves running a property for income, by providing them with the same insurances all FCA regulated mortgages cover. We saw that a Consumer Buy to Let Mortgage would be the answer. “I had never heard of a Consumer Buy to Let Mortgage, so I had never asked lenders about the possibilities of arranging one. Rangewell’s expertise started paying dividends immediately.” We knew which property funders can offer this kind of mortgage, but we also knew that many had shut up shop until a post-Covid future became more clear - but we did know of one that might be interested and still prepared to lend. We approached them with full details and were able to get a positive decision. The funding we arranged We were able to negotiate funding at 3% with 70% loan to value. Our client already had built up sufficient equity in his home to cover the deposit, so arranging a remortgage was simple. “I never planned to be a landlord, but I was able to find a very nice family who were keen to have a home in the area and things went very smoothly. Now I am thinking about buying a flat in London, and having the extra income from the property I already own is going to make that very much easier.” Why we were able to help At Rangewell, our focus is on funding for businesses - but we understand that some people become accidental landlords and don’t realise that they are running a business. Naturally, we are pleased to help them. We work with all the lenders in the UK finance market, and not only do we know which are most suitable for a particular type of deal or a particular sector, we know those that can offer the most cost-effective solution for any individual need. Our team includes experts in Property Finance and our service is personal. It means you can talk to a BTL funding expert who understands your particular challenges to helps to find a clear solution that is planned around your business needs. The world of buy to let and property investment has grown tremendously over the last few years, but while this means that more mortgages may be available, the current circumstances have increased the challenges of securing the mortgage you need. As independent lending advisors, we can discuss all the available products and will scour the market to find you the most appropriate and, equally important, the most affordable deal for your needs. We will help you to decide which Buy to Let Mortgage product best suits your needs based on your individual circumstances and your long-term objective We discuss your plans then call on our network of lenders, which includes virtually every name in the UK market to get the funds you need quickly and simply. Just call us and one of our experts will be able to discuss your options in a clear and simple way, and work out the most cost-effective solutions to provide the funding you want - whatever the challenge your business plans present - and in most cases, our services are absolutely free. To find out more, call the Rangewell property funding team for an informal discussion on 020 3318 2613 or email [email protected] Property ownership costs less with help from Rangewell Individual arrangements tailored to your circumstances Adverse Credit – no problem Repayments geared to your revenue stream - including interest roll-up Understanding the funding challenges for your sector Personal service Talk to Rangewell – the business finance experts
Property Finance Success Story: Buying a bar during lockdown
Traditional pubs may have less appeal than they once had, but bars have grown in popularity. They thrive on individuality - and with the necessary funding, they can still be a lucrative business. At Rangewell, we can help you secure the necessary funding to acquire the property you need. TL:DR - When a business owner secured funding for his new hospitality venture, things looked good. Then Covid hit and the lender withdrew the offer. The client recognised the opportunity and turned to Rangewell to help with finance. We were able to secure a Bridging Loan at just 0.95% per month which enabled the client to go ahead with his business plans and refinance to a product with a lower rate in 12 months' time. A successful bar needs the right combination of location, ambience, decor, drinks and service for its market. It needs to be on-trend to get customers in. But a tired bar can also mean potential for you. A bar in the right location which has fallen out of favour could easily be refreshed and turned back into a profitable business by a new owner with the right combination of energy, industry awareness and understanding of the market. At Rangwell we recently helped an experienced bar manager to buy premises as the basis of a new business. Taking advantage of opportunities He had seen a property in his native Cardiff that he believed would be perfectly placed to take advantage of the regeneration of the area. It was a bar and restaurant with a flat upstairs, close to some major new housing developments. He negotiated with the seller and was able to agree on a price of £400,000. A loan with a 60% LTV would leave him with enough spare cash to renovate the tired interior and open for business. However, this was at the beginning of the Covid crisis and, not only were all bars and restaurants locked down, but there was also no date for them being allowed to reopen. Although lenders were initially positive, most withdrew offers as the crisis hit. Our client had been able to secure an offer of 60% LTV with a Commercial Mortgage. How Commercial Mortgages work Commercial Mortgages can be used to buy virtually any business premises or even an existing business. They work much like residential mortgages, although they are arranged on an individual basis. A lending manager will look at each application and will set the rate according to the risk. You may need a detailed business plan - the better your business proposition, the more likely you are to get a positive decision and the better the rates you are likely to be offered. It's also worth noting that all commercial property finance is arranged on an individual basis. A problem due to lockdown However, although he was given the offer he needed, the lender withdrew the offer as the depth of the Covid crisis became clear. “I was buying property to set up a business that was not allowed to open. I could see why the bank suddenly got cold feet about the deal.” The position had actually been made worse by the fact that the property was being sold for substantially less than the initial asking price. Buying undervalue property can mean securing a bargain, but lenders may think that it will be difficult to sell on and, therefore, presents a risk to them if they need to call it in if repayments are not kept up. But despite their bank being nervous, our client was determined to press ahead. He believed that the lockdown would be short-lived, and that he could open his new bar as soon as it was lifted - and derive some income by letting out the flat above it. “I had hoped that an income from the flat would make the banks see things more favourably - but the Covid crisis had made them refuse to touch anything to do with the hospitality trade.” He came to us at Rangewell for help. Had difficulties with funding due to lockdown? Or struggling to fund a difficult property deal? Find out how our Property Finance team can find the solutions when others cannot How we secured the funding he needed Our client had already talked to some of the key lenders for the licensed trade, and it looked as though a Commercial Mortgage would be difficult to secure at a reasonable rate. Commercial Mortgages are always the subject of individual assessments and although the value of the property is one of the factors considered, the performance of the business is also important. With the business not in operation - and not allowed to open - the figures that he provided were only projections. Lenders were not willing to take a chance of providing the funding required. Lending for the licensed trade has become difficult in recent years and the Covid crisis simply made things worse. However, we believed we could find a solution by finding a lender who could offer funding with a Bridging Loan. With a Bridging Loan, the security is provided by the property - not the credit record of the borrower, or by the prospects of the business that may be run from it. They are versatile, but have a high cost, reflecting the risk to the lender. They are, therefore, intended to be repaid quickly, either by the sale of the property or by another finance product designed for the long-term, such as a mortgage. We knew that many bridging funders had shut up shop altogether until the post-Covid future became more clear - but we did know of one specialist company that might be interested and still prepared to lend. We approached them with full details of the bar and the business our client was planning to run from it - and full details of the upturn in the local area. Bridging lenders are able to make rapid decisions and funding was agreed within hours, with the funds released in a matter of days. Costs for Bridging Loans can be high. Rates of 1.0% per month are not uncommon, and there would be arrangement and exit fees which will increase the costs. However, these fees and the growing interest could be rolled up into the loan and repaid with a new type of funding, such as a Commercial Mortgage, once the business had been running for a season and proved its profitability. Lending for property development can include a roll-up of interest and associated costs into the loan, which would be paid off once the development is sold. The deal we arranged We were able to negotiate funding at 0.95% per month and to arrange attractive terms by providing a carefully structured deal. We were able to persuade the lender to provide funding on the basis of the market value of the property, not the purchase price. With the property valued at £500,000, the lender would provide £350,000, allowing our client to have cash in reserve to equip his site. All interest for the 8-month term would be calculated on day 1 of the loan and repaid when the refinance was arranged. “The funding was exactly what I needed and, despite the lockdown, we were able to freshen up the bar and get ready for opening. As soon as we were allowed, we opened for business. As I had hoped, there were plenty of local people looking for a bar which could offer food, and even if the future is not as bright as it could be thanks to the ongoing Covid problems, I’m confident that the books will look good enough to switch to a standard Commercial Mortgage early next year.” Why we were able to help Finding the right lender for your property can be crucial to your success and your business’s profitability. That’s why it is important to speak to the Rangewell team without delay. Our team is made up of industry specialists, and our property team includes some of the leading specialists in the country. What’s more, at Rangewell, we have close relationships with all the lenders in the UK market. We know which are most suitable for a particular type of property - and those that can offer the most cost-effective solution for an individual need. We will work with you to discuss your plans and we can then call on our network of property lenders, which includes virtually every name in the UK market to get the funds you need at the most competitive rate. If you have a property project in need of funding, just call us and one of our experts will be able to discuss the options, and work out the most cost-effective ways to provide the loan you want - whatever the challenge your business plans present. - and in most cases, our services are absolutely free. To find out more call the Rangewell Property Funding team for an informal discussion on 020 3318 2613 or email [email protected] Property deals cost less with help from Rangewell Individual arrangements tailored to your circumstances Adverse Credit – no problem Repayments geared to your revenue stream - including interest roll-up Understanding the funding challenges for your sector Personal service Talk to Rangewell – the business finance experts