6 month rule – pointless and arbitrary

I am fuming! We are in this situation because lenders got greedy and surveyors got blazé. In a protracted “knee-jerk” reaction lenders, led by the giant Lloyds-HBOS  “we are the only lender around” have systematically increased the arbitrary time that one owner/investor must have owned a property before they can sell it without falling foul of the sub-selling clause.

In the, some say, good old days of Mortgage Express and same day remortgaging, investors could buy property at one price in the morning and then remortgaging in the afternoon for a higher price effectively getting a 100% investment mortgage by default. The lenders knew this was happening and in fact condoned the practice. It was fine when the market was climbing as the risk to the lender was low. If the investor did in fact default then the increase in value meant that the lender could repossess with little risk of losing their investment.

As the bubble burst and the market ground to a halt, values faltered and then started to fall, lenders found themselves the “proud” owners of properties no longer worth the debt (mortgage) outstanding against them.

So speed forward to the present day, mortgage funds are challenging and professional investors are getting more entrepreneurial as they look for ways to use other people’s money to buy property for profit. One classic method to make a profit in any market is to buy cheap – increase the value some how and then sell for a profit. This is classic entrepreneurialism – in a sense take a raw product and refine it. Or take a run down house and refurbish it.

Why is this a good thing? There are so many reasons…..

  1. the slow down in the housing market means that property is in short supply, taking uninhabited, derelict or even old fashioned property – refurbishing it and creating a desirable place to live – helps tenants and eases the pressure – it can even help reduce the social housing lists.
  2. renovating a derelict or run down property improves a neighbourhood, enhances local values and makes neighbourhoods nicer places to live – reducing fear and perception of crime
  3. to renovate or refurbish property – we have to circulate money and with that pay interest so in a sense creating money. The initial loan and the cost of the works all require funding – so boosting the economy
  4. renovation and refurbishments create employment for skilled workers such as builders, electricians, plumbers etc – all trades hit hard in the current property market through no fault of their own – so potentially reducing unemployment and again boosting the economy as tax is paid on the wages earnt
  5. materials are bought from trade supplies again business hit by the recession, more profits again mean more tax and more business means sustained employment
  6. Mortgage companies (or bridging lenders) benefit as funds are borrowed and the inevitable fees are incurred to first buy the rundown property and then fund the final refurbished and resold property.
  7. and lastly although I am sure we could think of more ideas – there is the benefit to the tax man and treasury, profit in the form of capital gains is paid back into the treasury’ coffers.

In fact one experienced investors, buying and renovating property could single handedly repair our damaged economy and repay the national debt that this government has got us into!!!. Okay so I am exaggerating, but only slightly :)

So what is the problem? Well in my opinion the knee jerk reaction of the CML to make the selling of property within a 6 month window. Any investor operating a refurbish and flip strategy as a mechanism to use other people’s money (ie the lenders) to buy property and make a living in the process – needs to turn the projects around quickly. Waiting six months not only incurs crippling bridging costs  – it also limits growth, profit and success.

For me this is made even more poignant as I travel around Liverpool, and even closer to home – seeing boarded properties falling into disrepair. See families living in cramped and appalling conditions, hear of waiting list of people wanting to buy houses, rent houses, and need social housing. Why can’t this government or any government tell the banks to stop punishing the very people that can stimulate the economy.

And you know the real irony of all this – we own more than half of the bank – if it was not for our money in the form of bail outs they would not even be in business to refuse to lend to us !!!!

Not many smilies in this post – but I certainly feel better for venting and getting it off my chest :)
To our perserverance and determination to succeed – to our growing wealth and beyond ….

 

To our mutual success, wealth and happiness
Vicki – The Property Mermaid

 

1. Ways to Wealth – Make Money from Property – http://www.waystowealth.co.uk/wtw-events/

2. Reading and resources – http://Bit.ly/OPM

3. Where you can find me next    http://thepropertymermaid.com/blog/events

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