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  • Property-a-holics

    Could pensioners be the new banks for landlords?

    Two observations I have made, 50 years apart.

    When my parents emigrated to Oz around 50 years ago, they could not get a mortgage because they had not been in the country for long enough, and did not have enough deposit. They bought a house on a 20 year mortgage. The owner owned the property unencumbered, and wanted an income for the next 20 years. So they granted a repayment mortgage to my parents.
    Two years ago, a friend of mine retired and joined her (working) husband in Abu Dhabi. They bought a house at auction in Gorton for cash, and she signed a five year management agreement with a local landlord who paid them market rent, and agreed to pay for all refurbishment and maintenance. Her gross income from that £60K property is 10% per year. So far, the deal has done what it said on the tin. The local landlord accommodates LHA tenants on a room by room basis, and has a long list of tenants sent by the council.

    These two observations present two potential opportunities for working landlords. The first (if the yield is high enough) is to be able to buy a property from sellers who are unencumbered, providing the seller with a stable income in retirement. The second offers a working landlord the risk and potential reward of subletting with owner's permission, neither of which requires to jump through hoops of lending criteria from major banks. Of course, there are risks on both sides, but established landlords in a particular area who have time but lack capital to consider this alternative source of lending on property.

    I would be interested to hear from any landlord who has put either opportunity into practice, and their experience of managing such a venture
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    Hi Gerry

    If you're effectively talking about offering someone a private mortgage then I'm afraid this is a no go in the UK. This is a very heavily regulated area and to offer someone a residential mortgage requires you to be a regulated lender. Not even a CCL licence would cut it on this one.
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    Lisa All comments are for education and information purposes only and do not construe as advice or a financial promotion. No liability is accepted for comments made. If you wish to receive information in an advisory capacity then please contact me about becoming a client. www.keys-mortgages.com


    (18-12-2015 11:13 PM)Lisa Orme Wrote:  Hi Gerry

    If you're effectively talking about offering someone a private mortgage then I'm afraid this is a no go in the UK. This is a very heavily regulated area and to offer someone a residential mortgage requires you to be a regulated lender. Not even a CCL licence would cut it on this one.

    Lisa,
    This is very interesting. I can imagine the scenario. A 60 year old couple have rented their BTL to a younger couple for a few years. The younger couple are now settled in the area and their kids are at the local school. The younger couple ask if the landlord is willing to sell them the property at market value, but they are ineligible for a conventional mortgage. The landlord proposes to extend them a 20 year repayment loan at 5% interest. The younger couple agrees. They go to a lawyer and sign up a contract. So what's the "heavily regulating government department" going to do about that? Declare the contract null and void? Send the 60 year old couple to jail?

    No doubt you are right in stating that anyone offering a residential mortgage needs to be a regulated lender, but I find it hard to believe that anyone would be prosecuted for entering into such a private contract. Lets say I am willing to lend somebody a sum (say, over £25K) but require to put a charge on their residential property until such time as the loan is repaid in full. I can't really see the difference between this and the residential mortgage scenario where the lender is the property owner.
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    The second option that you mention Gerry seems very similar to what Northwood does. The difference is that the managing landlord pays to the owner landlord market rent, but of course makes a profit by subletting the rooms. And if they are only 2, no need for HMO license!

    I love this idea!
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    We have several landord properties unencumbered which we sublet on a room by room basis no problems as no mortgage we pay a fixed monthly rent guaranteed we pay all repair bills and maintenance there are lots of landlords happy to do this we don't compete with Northwood as they offer around 60% of market rent where as we are happy to pay market rent or above our minimum target net profit is £500 per month some we make over £1000 per month .
    Kim Stones
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    Hi Kim,

    With respect, I don't think you can compare your model to Northwood's.

    Northwood's Guaranteed Rent Service is based on a single occupancy tenancy, not sub-letting rooms on an individual basis.

    Northwood have over 80 offices around the U.K. and have been in business for 20 years, so their guarantee has a long track record and their product has thousands of independent 5 star reviews on such sites as AllAgents and RaterAgent.

    They are members of NALS, ARLA, and a founding member of SAFEagent and all their offices are members of the Property Ombudsman, giving landlords great peace of mind in their proposition.

    A general observation - I see lots of people making all sorts of guarantees, but mostly these guarantees are worthless because the company is not financially robust or they are not able to evidence substantial funds within their business to make such guarantees.
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    Locally I rent properties on a rent guarantee basis I don't compare little old me to Northwood they are huge I have guaranteed all my rg properties personally and never defaulted I have definitely had landlords come to me after being offered very low by Northwood and I could offer more and yes all my landlords know what I do I met the owner of northwood in Doncaster and figured I only needed 20 as opposed to their model bit silly comparing me directly with a huge company like Northwood I in Doncaster and Lincoln happy with that I don't teach seminars I am not trying to promote just advising as I have said before rent to rent isn't for everyone as I have Said on pt if doing rent to rent target the existing hmos with hmo mortgages or no mortgage at all we have lots of those.
    Kim
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    You can't do that either Gerry!!!

    Anything secured on an individual's main residence is regulated.

    Even second charges now which hadn't used to be.

    Also there used to be a rule that they had to occupy more than 40% of the property so you can see the creative cogs whirring! But that 40% has now been removed - if it's their main residence no matter how little of it they occupy then regulated contract rules apply.
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    Lisa All comments are for education and information purposes only and do not construe as advice or a financial promotion. No liability is accepted for comments made. If you wish to receive information in an advisory capacity then please contact me about becoming a client. www.keys-mortgages.com

    (19-12-2015 03:57 PM)Lisa Orme Wrote:  You can't do that either Gerry!!!

    Anything secured on an individual's main residence is regulated.

    Even second charges now which hadn't used to be.

    Also there used to be a rule that they had to occupy more than 40% of the property so you can see the creative cogs whirring! But that 40% has now been removed - if it's their main residence no matter how little of it they occupy then regulated contract rules apply.

    Lisa,
    Thanks for the information. Can you direct me to any link that provides detail about the regulatory framework? It's 3 years ago now, but I bought a property outright with a loan from my sister. I insisted a charge was put on the Land Registry in my sister's name. The conveyancing solicitor effected this charge, and never mentioned any regulatory issues with this. The property was subsequently sold about a year later, and the charge was removed from LR. I am not questioning what you have said, it's just that I find it hard to believe that regulation can interfere so much with a transaction between two adults in our democratic country.
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    Hi Kim,

    For clarification, I didn't compare your business to Northwood, but you compared yourself to them by saying that you offered more rent.

    I was highlighting the models by saying that Northwood is single occupancy whereas you're renting individual rooms - so actually there is no comparison.

    Sorry, but it is also incorrect to say the NW only offer 60% of the market rent. My understanding is that they give a Guaranteed Rent for each individual property where they devise the GR they can offer. It's certainly not a blanket 60% of the rent as far as I am aware.

    Each property will achieve a different GR based on it's own area and circumstances.

    Hope that explains my post a bit better and apologies for any misunderstanding. Smile
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    I just repeat what I was told by the local owner of a Northwood who told me they offered 60% of market rent if they offered more then rented out as single lets then with voids and repairs not much profit . If a landlord has the opportunity to make more from me then that's what I meant and yes they have decided between me and Northwood although like I said the numbers they do are way above me I currently have 29 rent to renters they have well over 500 in Doncaster he Said that over 70% were on rg which if you think about it is amazing we only need 20 @ £500 per month profit just shows how many landlords will accept low rent for rent guarantee and hands free although their rent guarantee has limits upto a low amount for repairs we include all repair costs .
    Here's a question V do Northwood get permission of the mortgage company to do their rent guarantee? I don't know their contracts but just out of interest
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