The last few weeks have been very difficult - with stock markets and the banking industry lurching from one disaster to the next.

There are some signs that we may have reached the worst, and its certainly not all doom and gloom!  A few things to consider are:

1. The effect of the Governments (for once robust) reaction - with its propping up of the banks and the liquidity package - should be to begin to increase confidence.  This will hopefully translate into LIBOR (the rate banks lend to each other) and in return see the return of better mortgage deals - particularly at 85% loan to value.
2. Interest rates are heading down - cut 0.5% recently - and many expect it to head towards 3% or even 2.5% within a year.  We are not expecting thi sot be passed on much in the beginning, but as rates edge lower and th government is forced to intervene, it will begin to have an effect.  It will be very beneficial to many of us who have properties on tracker rates.
3. New home building has been slowing down for a year, and has now ground to a halt.  This shows no signs of improvement.  Given that even at their height - developers were still not covering the annual housing shortage, this means that the demand will only ever increase.  The gap was getting larger and larger every year - but the current curnch and its effect on housbeuilding means this will grow into a yawning chasm.  Like in every market 'supply and demand' pressures have a massive impact.  This pressure may translate into a swifter recovery in house prices than many 'experts' expect, as the 'elastic band' of pent up demand forces a quick recover.  'When' is another matter - but if liquidity returns, there is a huge (and growing) demand for accommodation.
4. Stock market failings are pushing some into property investment as a 'safe bet'.  Likewise many are putting money into gold.  Both property and gold are something real and tangible - and the huge 1 day losses in stock values have made many people feel highly insecure about 'paper'.  The Times - see here

Most investors I speak to, and have listened to, all acknowledge that now is a terrific buyer's market, the likes of which we may never see again for a generation.  When things improve, its a given that: margins will be tighter, there will be more competition for deals, vendors will have more outlets for selling and so there will be less distressed vendors about, etc etc... but the big conundrum is, how to take advantage?

We have a few ideas you may be interested in when considering deals sent to you by us.  Please do let me know what you think of these ideas and let me know if you have any of your own!

As I write this, 25th October 2008, we are now limited to 75% loan to value mortgages.  In other words, investors suddenly have to find an extra 10% deposit.  This presents a lot of challenges - but means that sourcers like myself are forced to offer lower on properties, and pass on a much bigger discount to our end buyers.  So in effect, our own profit margins are squeezed and we must pass on a larger discount to the end buyer - you!

But it is normally very hard to offer 65% to 70% to a distressed seller.  Normally the deal will not work due to their borrowings, or because it is just too steep a drop for the vendor to contemplate.  Also, there are now many cash buyers returning to the market.  They are normally cash-rich investors, many of whom have large portfolios with a lot of equity to draw upon, and see now as the perfect time to add to thier portfolio.

So there are many deals we can give to investors with 22-24%.  This requires 3% - 1% from the investor to make up the 25% deposit required, and the investor will also require purchase costs (normally £3,500 ish).  But how to finance these deals, which were 'no money down' when 85% mortgages were available - but now require 3k - 8k cash input?

Below is a list of ideas and things to consider - please feel free to write with comments or suggestions so i can update this page.

• Equity partner - many deals offer good margins - 20-30% discounts - but just fail to be 'no money down' due to the lack of mortgages above 75% LTV, or because the 'rental stress' does not allow maximum borrowing.  They would be terrific deals if you were able to get a 75% (or lower) LTV mortgage, and could make up the difference (the extra deposit %, and the purchase costs).  If you had a partner who would be willing to put in 5k - 10k, you could get a terrific deal on a good rate.  At 75% LTV, you have a greater equity cushion, and the deal cashflows better - so there is a better monthly income.  The equity partner could secure their stake in the deal through a Deed of Trust (our solicitor is very good with this).  We have a few investors who have a business partner, a silent investor, or a family member, who provide buying support to the 'deal finder' - you.
• Early exchange then sit and wait -  Where the vendors circumstances allow it, it would be possible to exchange contracts early (with plenty of recission clauses as a get-out for you) - then basically sit on the deal for a month or so until better rates come back into the market.  Please enquire about this on a case by case basis.  We will however require a deal reservation fee for this service - only refundable if the buyer pulls out, mortgage rates do not come back to an agreed margin, or the property does not value up and we cannot maintain the same BMV discount for you.
• Greater BMV discount - our deals were nearly all 20% BMV in early September.  This was because rates were around 5.89% at 85%LTV.  Now rates are higher, and the loan to value is 75% max (at time of writing).  Because of this, we are giving investors a larger discount on the properties - typically 23% - 25% - to minimise the cash input required.  Where possible, we can give more - but that is not always possible (vendor borrowings, or unable to accept low bid).  So the net result of the worsening mortgage options - is that you, the investor, get a much better deal.  On a 75% LTV mortgage, you have a greater 'equity cushion' and better monthly cashflow.
  
• Cheaper properties - we are sourcing lower end properties - especially traditional 2-3 bed Victorian terraces, and areas with good LHA rates - so that they can stack up and still cashflow in this market.  We are now trying to target these areas and property types so more deals that work, are offered to you.  Watch this space!
• Drawdown mortgage etc - another idea some investors have had, is to draw down equity from their own home, or their portfolio.  This is then put in a high interest account to counter the interest payments.  This can then be used as a warchest to fund property purchases.  As you are getting larger equity on the BMV deal (25% equity as opposed to 15%, now the LTV has decreased) - this is essentially transferring some equity from your home to the BTL deal.  As you will be borrowing at residential rates - this can actually be make more sense from a financial point of view.  If you haven't got a drawdown facility - our brokers can look at this for you, or any decent broker for that matter.  Other similar ideas include a facility based on your overall portfolio, or a secured loan against your home or investments.
  
• 'Let to buy' mortgages - another idea is to purchase a property on a let to buy (LTB).  This is a mortgage where you are telling the lender that you are renting out your current residential home, and moving into the BMV property.  Essentially you get residential rates for the new purchase - so interest rates are lower, and loan-to-value is 80% (self cert) up to 90%.  If you can get a mortgage like this on one of our BMV deals - you will basicaly be able toget a large cashback after all costs, upon completion.  There are risks and other factors to consider, but it is an option which may be viable for some.

If you have any other ideas or suggestions, please do email me mat arlo@invest-bmv.com

Kind Regards
Arlo White