The Gazundering Challenge

ukmarkwilson · 31 October 2008 at 12:47PM

Morning all - Long-term user, first-time poster.

Here's a puzzle for you: My missus and I bought a flat off-plan 18 months ago to let out. Before I get the earful for being mean and horrible people - imagine, pricing first-time buyers out of the market, the cheek! - we wanted to buy it, rent it for a few years and sell it for a small profit, we don't have a portfolio, a yacht or a Jag!

Situation was we paid 10% deposit (£27'500 on a £275'000 2-bed flat) with all legal fees paid for if we used the builder's solicitors. Now, 18 months later, we can't get a 90% BTL mortgage and the best option (for a new-build flat in East London) is Birmingham Midshires with 75%. Very good rate and, to be fair, they've reduced it twice since we applied.

The idea was remortgage our current flat, use our savings and make the difference in the deposit. The problem is Woolwich, who had quoted us £33k for a remortgage, now will only give us £25k, and the investments were FTSE linked... :doh:A good idea at the time but now my £10k is worth about £6k - so we need £41'250 and can only get £31k. AND all that is based on me being able to negotiate for the builder to pay the £8'250 stamp duty.

So - has anyone else experienced this problem? Is it possible to remortgage with another lender even though our fixed rate hasn't expired yet? Will shopping around help? Any ideas would be greatly appreciated!

Come on MSEers, can you rise to the challenge?

Mr_Matey · 31 October 2008 at 1:42PM

Hi ukmarkwilson,

I'm not exactly a MSE, having only posted a few times, but here are my thoughts.

Is it possible to take the 10% hit and walk away? You may have already lost that much if not more in 18 months anyway. It's worth finding out what the property is worth now before making any decisions.

Armed with that info, I would explain my situation with the developer, and either negotiate a lower price for the 90% owing, or decide whether you can walk away or need to get that extra money from somewhere.

If you go for extra money from somewhere try the up your income / money savers boards.

Richard_Webster · 31 October 2008 at 1:49PM

Situation was we paid 10% deposit (£27'500 on a £275'000 2-bed flat) with all legal fees paid for if we used the builder's solicitors.

I assume they weren't actually the "builder's solicitors" but another firm "recommended" by the builders. If the solicitors didn't advise about the risks involved in exchanging contracts without a mortgage offer that would still be valid by completion in place, then I reckon they were negligent and you should consider suing them.

Also, sorry but even if Birmingham Midshires lend you 75% LTV it will be loan to "value". So for starters, in assessing "value" they will disregard the "paid" SDLT and reduce the value by £8,250 less further the value of the legal fees.Their valuer will probably knock the value down further to reflect the price simuilar second hand flats are fetching. The they will lend you 75% of that much lower figure....

silvercar · 31 October 2008 at 2:07PM

Someone in a similar situation:

http://forums.moneysavingexpert.com/showthread.html?t=1241741

ukmarkwilson · 31 October 2008 at 2:57PM

Mr_Matey wrote: »

Is it possible to take the 10% hit and walk away? You may have already lost that much if not more in 18 months anyway. It's worth finding out what the property is worth now before making any decisions.

Armed with that info, I would explain my situation with the developer, and either negotiate a lower price for the 90% owing, or decide whether you can walk away or need to get that extra money from somewhere.

Thanks Matey.

The walking away from it has crossed our minds - an overall loss of £28k (deposit + mortgage valuation) would be horrible; the bulk of it was from my mum's will. A modest up side is that the £10k savings (the one's now worth £6k) will vest in May at a minimum return of the original investment, so I wouldn't lose £4k as well. My partner has been given an extra £5k lump sum from her employer to be paid in January, so our net loss would be £23k.

Again, not ideal, but the hope is that the property value would increase by, say, £10-15k in 5 years or so (after 18 months, despite market conditions, it has retained its original value), which would be a nice little nest egg for when we start thinking about having children. We're not aiming to make a monthly profit - just charge tennants the interest on the mortgage and the service charge.

I'm going to ring around now and try to play the hard-nosed investor / honest chap / begging peasant cards and see what happens. When I did the site inspection yesterday, the site manager said that all the flats had sold, nobody had trouble completing... and Israel and Palestine had signed a peace accord granting everyone free jelly and ice cream!! I'm going to cold call the developers to see if there are any flats for sale without revealing who I am to probe for the truth!

Premier_2 · 31 October 2008 at 3:12PM

ukmarkwilson wrote:

... A modest up side is that the £10k savings (the one's now worth £6k) will vest in May at a minimum return of the original investment, so I wouldn't lose £4k as well...

Whatever you do, try not to trade in this product before May!
You'd almost certainly be better off borrowing the money elsewhere, even on a credit card if really pushed, rather than losing 40% by trading it in early.

neverdespairgirl · 31 October 2008 at 3:27PM

Where in the UK is the flat?

BiggaThanBen · 31 October 2008 at 3:46PM

neverdespairgirl wrote: »

Where in the UK is the flat?

"a new-build flat in East London"

hethmar · 31 October 2008 at 3:53PM

Mark, how do you know its held it value for 18 months? It would be most unusual if this is so.

ukmarkwilson · 31 October 2008 at 4:52PM

hethmar wrote: »

Mark, how do you know its held it value for 18 months? It would be most unusual if this is so.

The valuation by Birmingham Midshires surveyors, Colleys, that was undertaken last month valued it at £275k - the same as the initial market price. I think this is predominantly because it's in London but also because it's conveniently located within 15 mins walk of Canary Wharf and the Olympics site.

To update anyone who is interested - been speaking to the parties involved;
1. Barclays/Woolwich, who had quoted our remortgage amount as £33k a month ago and £25k last week, have told me we can only have £8k! However, my missus also spoke to them this afternoon and they told her £35k! Will call the guy she spoke to later to get to the bottom of this confusion.
2. Birmingham Midshires have said their max BTL LTV (ugh - TLAs) is still 75% and, as the property hadn't gone up in value, they are offering us the maximum loan amount.
3. The Buy-to-Let Company (recommended, I must say) have told us that nobody is offering LTVs above 75%.
4. On a slightly more positive note, my investment has bounced back up a bit, so I'm a little happier than I was...

Will keep you updated if anything else happens - thank you all for your input, keep it comin'!

silvercar · 31 October 2008 at 5:46PM

If the site manager is claiming that no-one had problems completing, ask him where they sourced their mortgages.

The Gazundering Challenge

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