Short Term Techniques - Immediately on Completion

There are many short term techniques that can be used to structure and finance a NMD deal such as:

Market Lending

Deposit Bridging

Same Day Bridge and Refinance

Open Bridging

Asset Realisation

Joint Ventures

We will look at each one in more depth to give you an understanding of what they are and whether they fit your investment plans.

Market Value Lending

The simplest approach is to use a lender that is prepared to:

a) Lend against market value (NOT the lower of market value or purchase price)

b) Lend a high percentage of the value

c) Accept that you have achieved a discount and still allow the lending!

Whilst this is by far the easiest and the best way to achieve No Money Down deals until recently there wasn't ANY lender that would allow this to happen.

However, the situation has changed and Axis is now a Master Agent for a new Commercial lender that will:

Lend against market value
Is completely happy with disclosing a discount
Will lend up to 85% of market value
Is willing for the lending to be sufficient to cover all attributable fees and costs
Is willing to accept New Build property - both flats and houses
Will provide a portfolio facility of either £300,000 or £1,000,000 for qualifying investors!

This is frankly stunning. If you want to build a portfolio using Low and No Money Down techniques then this facility should be top of your list for consideration.

Want to Use Market Value Lending?

Download the full information pack from our website - No Money Down Finance.

Then call Axis on 01273 447 300 to discuss your situation and whether you qualify. Fees and costs reflect the enormous value of this facility.

Our recommendation is to use this facility for the purchase of all new-build property, and resale property where there are multiple units on the same site. In these situations other options for low and no money down finance are either difficult or not available.

Deposit Bridging

The use of bridging funds to cover the deposit is widespread. If you don't have the deposit available as ready cash it can be extremely valuable to be able to borrow it.

Later on in this section we discuss open bridging and asset realisation as two further techniques to find the cash for the deposit.

In this section 'Deposit Bridging' refers to closed bridging.

What's the distinction between open and closed bridging? With open bridging the money is borrowed over a longer period - say 6-12 months, and the lender can't be sure exactly when it will be repaid.

Closed bridging is normally offered as a secured short-term loan against your own residential property. With closed bridging the lender knows exactly how and when the funds will be repaid.

Deposit bridging requires Market Value lending. This is combined with the purchaser receiving incentives not from the vendor, who is selling at Market Value, but from a third party who has negotiated a deal with the vendor. These incentives are usually credited against the deposit you have paid.

Should the incentives be high enough this can result in a No Money Down investment deal.

Axis view is that most forms of deposit bridging fall at best into a 'grey area' and some are probably illegal. Our belief is that in many cases if the lenders understood what was happening they would disallow the loan application and possibly take legal action against the broker, solicitors and others.

As a result Axis does not offer closed bridging on transactions, with certain exceptions

Want to use Deposit Bridging Finance?

You may, for example, be in a situation where you have money coming to you in a reasonably short period but not fast enough to provide the deposit for your property purchase. In this case it would be entirely reasonable for you to take secured lending on a short term basis to enable a transaction to go ahead and not be lost.

If you fall into a special situation like this, talk to Axis and we will put you in touch with Deposit Bridging finance specialists that can offer competitive terms.

Call us on 01273 447 300 and ask for 'Finance', or email finance@axiscontact.com

Same Day Bridge and Refinance

There used to be a mortgage product from Mortgage Express that allowed investors to buy a property at a net price, using short term bridging finance (24 hours), and then immediately re-mortgage the property based on the market valuation (which was significantly higher).

Here's how it worked:

Assume you were buying a property with £100,000 market value for £70,000.

Step One - Apply for Re-Mortgage (not a 'mortgage') based on 75% LTV, i.e £75,000

Step Two - When re-mortgage approved, purchase for £70,000 using 100% bridging funds

Step Three - Your solicitor would, on the same day, call down the re-mortgage funds based on the market value - £75,000

Step Four - Pay off the £70,000 bridging loan leaving you £5,000 towards fees and costs

This was an excellent product and much used by property investors. The only challenge was that it was withdrawn some time ago and has not been replaced.

You can still use the bridge and re-mortgage system, but now have to allow 6-12 months to do the remortgage. For details, see the section on Medium Term Techniques.

We include it here for the sake of completeness and because a new product may arise in the future which does the same thing.

Open Bridging

This technique spans the Short and Medium Term Techniques for Low and No Money Down.

We have specialist bridging lenders that will provide short term finance up to 12 months.

Typically they will lend up to 70% of Open Market Value. So if you were buying, for example, at 25% below market value then they would require you to invest 5% plus fees and costs. This would be a Low Money Down deal.

Some bridging lenders will restrict the maximum borrowing to 85% of cost, no matter what the open market value and the purchase price, which would require a greater cash contribution.

However, some lenders will also consider extra security in return for increased borrowing, so if you have other property or valuable assets (shares etc) you could pledge those and borrow up to 100% of the purchase price including all costs. This would result in a true No Money Down purchase at the point of completion.

Bridging funds are costly, and it's not a good idea to stay with them for longer than necessary.

The exit strategy is to resell the property or remortgage within a 6-12 month timespan.

What is Open Bridging suitable for?

Investment property with large discounts
New build and resales
Auction property
Distressed sales where you have to move fast, then re-mortgage in 6-12 months
Buy - rent - remortgage in 6-12 months
Buy-refurbish -rent - remortgage in 6-12 months
Buy-refurbish-resell (in a strong market where you can be confident of selling)

At Axis it's quite rare for us to suggest open bridging. Perhaps surprisingly given the large number of situations in which it can be used. Why is this?

The costs of open bridging finance are extremely high - typically 1% to 1.5% a month, plus set up fees.
This means that very large discounts are needed which are difficult to obtain
The investor cannot get commitment on a mortgage 6-12 months ahead, so they have to trust that their circumstances will not have changed and that a suitable mortgage will be available. With the uncertainty of the last two years this was a considerable risk, but in our view the risk is reducing every month as the BTL mortgage market moves back to some semblance of normality!

Want to use Open Bridging Finance?

Talk to Axis and we will put you in touch with open bridging finance specialists that can offer competitive terms.

Call us on 01273 447 300 and ask for 'Finance', or email finance@axiscontact.com

In recent weeks we have the availability of a new finance product that combines open bridging with a guaranteed re-mortgage after three months. This is a perfect product for investors who need to do a light refurbishment or are buying distressed property and have to move quickly.

Asset Realisation

A standard investment purchase involves the payment of the deposit based on the net purchase price. At the time of publication, this could be anything from 20% to 35% of the net price.

Perhaps the biggest reason that most investors turn to other No Money Down techniques is that they don't have the required deposit available as cash in their bank account.

However, in many cases you can actually raise the deposit - perhaps you just haven't thought hard enough about it.

Assuming that you re-mortgage after 6 months based on Market Value, you could purchase two properties a year with just ONE deposit. This rate of purchase may well be enough for many investors.

So the big question is how can you raise enough to fund ONE deposit? Here's a few quick ideas...

If you have substantial equity in your existing residential property there are many ways to access it:

Secured Loan
Additional Mortgage Advance
Re-Mortgage
Mortgage with Drawdown Facility

If you don't have substantial equity in your current home, maybe you have other property that has equity?

Or if not, here's some more ideas...

Get advance access to part of your inheritance
Asset realisation - do you have underperforming shares / unit trusts / endowment policies / valuable antiques / fine wines / gold bullion / jewellery?
Property realisation - do you have other underperforming property assets that can be liquidated and the cash better used?
Redundancy payments
What else?

This is by no means a definitive list, but an attempt to get you thinking about how you could raise (say) £30,000 to £50,000 in cash. That would enable you to contribute one deposit in full, give you access to better cash flow and the lowest mortgage rates, and still be recycled every six months or so!

Note that some mortgage lenders now require proof of deposit and may ask how long you have had the money and where it has come from! Typically they don't like deposits paid with unsecured lending, credit cards and so on, and may require you to have had the money on deposit for at least three months before they will allow you to use it for a deposit.

We recommend that if you borrow money for deposit purposes you:

a) Have it placed into your normal bank account.

b) Open a new bank "savings"account and transfer the money from your current account into this new account.

Clearly, if you have raised the cash for a deposit, then you can purchase ANY investment property without restriction, using any available mortgages from the whole of the market. This is a great advantage and will get you the very best available finance deal with the lowest costs.

Joint Ventures

The reality is that however much cash you have access to, most investors will run out sooner or later. Even low money down deals may become impossible. Additional capital may be needed depending on your goals for portfolio building.

Help is at hand, however, through the current economic and financial situation which can bring you money from other people!

People who have savings in a wide range of bank or building society accounts are facing incredibly poor returns. The typical 0.5% to 3% pa savers receive is probably not keeping pace with inflation, leading to a genuine failure to maintain value, let alone increase it.

Most people also know that the property cycle is hovering around the bottom, and that further falls in property prices are unlikely.

This has created the best environment for a generation to raise cash for investment from other people.

In general this will be from family, friends, business colleagues or investors that you meet through networking.

Here's an example

Suppose you agree to purchase a property with a market value of £100,000 for a BMV price of £70,000, with a gross rental of £600 pm.

Further assume that you can borrow 75% of the net purchase price.

Mortgage value £52,500, Cash deposit required £17,500. Add (say) £5,000 for fees and costs, meaning a total of £22,500 is needed for a full No Money Down deal.

Income Calculations

Gross rental income £7,200 pa
Mortgage Payment £2,420 pa (at 4.6% interest rate)
Management & costs £1,440
Net income £3,340

Now suppose that you do a deal with a friend to lend you £22,500 over 5 years at an interest rate of (say) 8%pa. This would typically be about 300% more than they currently achieve.

The interest payable to them would be £1,800 pa, leaving you with net income of £3,340-£1,800 = £1,540!

Your friend is very happy -they have tripled their income.

The five year term should be more than enough for you to re-mortgage at the appropriate time and return your friend's money to them, replacing it with mortgage funds at a lower interest rate.

You are happy - you have a NMD deal with equity of £30,000 and a positive cashflow of £1,540pa. Pretty good - huh!

Now, you might have to sweeten the deal for your friend. It's all a matter of negotiation. You could offer them 10% of the increased value in the property payable when you sell, or in 10 years time if you don't sell. Or something like that. Nothing is fixed in stone - the key is to negotiate a win-win deal for both of you.

An extension of this is to Joint Venture the deal - buy the property together. You find the deal, negotiate terms and manage the investment, your friend puts up the deposit. How you split the income/profits is up to your negotiation.

There is no limit to the amount of friends you can Joint Venture with and no limit to the No Money Down deals you can tap into once you understand the power of this technique!