We were approached by a broker whose client, a self-employed retailer and landlord with a modest portfolio, wished to raise finance against one of his investment properties.
The property in question is a mid-terrace Victorian house, arranged on three floors, which had recently been converted into a block of five flats. After purchasing the property in 2016, the client had conducted an extensive re-fitting program, which he believed had doubled the property’s value to £370,000.
The purchase and renovation had been funded through a nine-month bridging loan, which was soon to mature. The client wished to borrow against the uplifted property value to repay his bridging facility and to raise a deposit for further investment.
Because of the perceived uplift in value, the client was asked to provide details of recent comparable property sales in support of the valuation. However, the surveyor remained unconvinced, valuing the property at just £215,000.
The surveyor also noted a number of other issues with the building:
On top of these issues, the surveyor also downgraded the client’s rental estimate, suggesting a total market rent of £1,667 pcm despite the fact that four of the five units were already let for a total of £1,617 pcm.
Despite the low valuation affecting the maximum achievable loan, the rental estimate still equated to a gross annual yield of 9.3%, which comfortably meets Keystone’s affordability requirements.
Keystone’s Classic Range is available both for multi-unit blocks of flats and HMOs, and the following terms were offered:
Property value: £370,000 (provided by client)
£215,000 (valuation report)
Loan amount: £161,250
Rate: 4.19% five year fixed
Term: 25 years Interest only
RTI calculation: 145% @ 4.19%
Mortgage payment: £969 pcm
Original monthly payment: £1,425 pcm (short term finance)
Lender arrangement fee: 2% = £3,225 added to loan
Rental income: £1,667 pcm (valuation)
£1,617 actual (with one unit currently unlet)
Gross yield: 9.3% pa (valued)
9.0% actual (with one unit currently unlet)
Broker proc fee: 0.6% (£967.50)