Sell and Rentback - Option disappearing

Save4ArainyDay

There has been a lot of discussions about Sell and Rentback on these boards.

As of yesterday (23rd April) the biggest Buy-to-let lender Mortgage Express pulled most of its best-selling products from the market because they are overwhelmed and cannot meet demand from Buy-to-Let landlords applying for mortgages.

Normally they lend 85% of the Market Value of a property and allow the person buying to remortgage to 100% within 24 hours. This has now ceased for the foreseeable future.

So how is this a problem?

Take a house £100,000 (as valued by a chartered Surveyor)

Cashbuyer offers £80,000

Gets mortgage for £85,000

Pays house owner £80,000
Mortgage fee £2,499
2 x Solicitors (buyers and sellers) about £1,500
Valuation Fee about £400
Land Registry Fees £100

Buyer ends with house worth £100,000 + £500 cash + £85,000 mortgage
Seller gets £80,000 and long term rentback if wanted

Now the remortage facility is gone. Buyer cannot remortgage overnight but has to wait 6 months!

So unless buyers have a pile of cash (and most don't) this will dry up except for the largest firms with good levels of cash.

THis means the sellers will be offered far less than 80% probably 60%-70% from now on.

THose with little equity in the property i.e. less than 30% will be unable to sell and rentback and will be repossessed.

All the repossessed houses will stand empty and the former owners will find it hard to rent anywhere as landlords will be short of property to let.

Not good news at all whatever you think of the sell and rentback brigade this wil lead to a further drop in house prices and an inevitable rise in rents.

PasturesNew

Especially as after 6 months the house value at less than the £100k of 6 months earlier.

Save4ArainyDay

The house would have to drop more than 15% for the investor to be out of pocket - not impossible by any means. Prices in some parts of the country are already down 20%

silvercar

Agree with all your post except the last 2 paragraphs.

MX were the last lender to allow immediate remortgages, so this option really has closed. (The pigs really are singing on the other side!)

All the repossessed houses will stand empty and the former owners will find it hard to rent anywhere as landlords will be short of property to let.

They won't stand empty for long, lenders will have to get realistic valuations and auction them off.

Not good news at all whatever you think of the sell and rentback brigade this wil lead to a further drop in house prices and an inevitable rise in rents.

The sale and rentback mob form such a small percentage of the market that I don't think they will have much effect on prices. In any case they weren't buying at market value, so their effect on market value is minimal.

Save4ArainyDay

With 45,000 repossessions expected duting 2008 and mortgage borrowing by the average housebuyer already down 50% on this time last year I really think this will have a bigger impact on the market than you believe.

Still time will tell.

It is the people losing their homes that are paying the highest price of all.

In my area I have seen repossessions on the market for several months, go to auction and still not reach the reserve price - right up to last Thursday.

m00m00

Save4ArainyDay wrote: »

The house would have to drop more than 15% for the investor to be out of pocket - not impossible by any means. Prices in some parts of the country are already down 20%

not quite actually

once you factor in finance costs, legal costs, selling costs etc

a drop of less than 15% could still leave an investor out of pocket

which is not even taking into account the opportunity cost of other investments available.

Save4ArainyDay

m00m00

The selling costs and legal costs come from the difference in the 80% paid for the property and the 85% borrowed against it

So the cashbuyer buying £100K house for £80k has £5k factored in for these costs and usually has about £500 left over.

The rent has to be 125% of the mortgage interest each month and this ensures the buyer has enough cashflow for insurances and gas/electrical safety costs.

At the moment all property buying is risky but buying below current market value is less risky (but not without risk)

silvercar

Bottom line is that anyone wanting to do sale and rent back will have to invest some of their own money in the property, at least for a few months.