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At Property Tribes, we are of the opinion, that since April 2008, there are now no LEGITIMATE ways to construct no money down deals with the present mortgage products.Why? It's very simple and clear: If the discount or incentive is NOT disclosed to the lender, it is MORTGAGE FRAUD - plain and simple.In any property transaction, there must be total transparency so that all parties know how the deal is being constructed. Additionally, if you are not disclosing discounts (i.e. having the gross price put on the contract and having the property valued at the gross price), then you are also defrauding the Land Registry and the Inland Revenue and opening yourself up to some SEVERE problems, should you ever be audited. Make no mistake, these are criminal offences.With one in six property investors set to be audited in the future, it is only a matter of time before these fraudulent deal structures are exposed. I like to sleep at night so I personally will not entertain doing this type of deal, until I research one that is legitimate.I hope those people claiming big cash backs through "commissions" realise that they will be TAXED on that money as it is technically income. If you are audited by the Inland Revenue I hope you are confident that the money trail will stand up to scrutiny? If a company is offering you a "no money down" scheme, please ask to have it in writing so that you can have it independently approved and verified by the Council of Mortgage Lenders and/or the Law Society. You could also run it past your lender for their approval. If it is a legitimate scheme, the company offering it to you will have no problem with providing this information. However, I think you will find that they are unwilling to provide you with this information. That should tell you all you need to know.A further nail in the coffin of no money down is the news that, from the 1st September, all developers have to complete a form provided by the CML that states any incentives or discounts offered in the deal. This form has to be copied to the lender and both solicitors involved in the transaction. Whilst this is only applicable to new builds, I am sure it will not be long before this becomes the case with second-hand property.Can we also please be clear that BMV and NMD are not the same? Buying below market value is obvious. I buy everything BMV - cars, holidays, houses etc. I'd be daft not to!NMD is a separate issue. Yes, you need to buy BMV to achieve it, but the two should not be automatically linked.It is, of course, your choice whether you structure a deal in a No Money Down format, but at least understand the legal, financial and tax implications of what you are attempting to do.Another nail in the coffin of "no money down" deals and schemes, as the government launches a new agency to fight mortgage fraud ...Details from a recent press release:The National Fraud Strategic Authority (NFSA) has been established to co-ordinate the fight against mortgage fraud - with measures in place to capture the true value of new-build properties, to verify the true income of borrowers, and for lenders to report suspicious mortgage brokers.However, Sandra Quinn, NFSA interim Chief Executive, said that the UK is boom town for mortgage fraud.Ms Quinn explained much of the problem has stemmed from the UK not treating fraud as a serious crime."Fraud is not a priority in the UK. It is often not reported. That is what we have got to change."Some lenders report cases to the police, but for law enforcers it is not a priority and police say they will not pursue the criminals.This does create an incentive for lenders not to report fraud. And the fraudsters know this."UK fraud is now booming. We have to make the UK hostile to fraudsters"She explained the fall in house prices has now brought more mortgage fraud to light, but the credit crunch will not make mortgage fraud disappear."These people are career criminals and as new mortgages dry up fraudsters have not gone away."Ms Quinn explained in the US, fraudsters are now targeting households facing repossession, and offering people free accommodation in exchange for using their identities to make fraudulent loans.She added mortgage fraud is not a victimless crime and it does hurt people on the streets."Mortgage fraud can bring down the value of property."Where fraudsters have pushed up the value of new-build properties, when they disappear prices can then go through the floor. It can also leave people living in empty blocks."She added, "Where someone's ID is stolen, the fraudster can get false loans and then people find out they owe £150,000 they did not know about."Ms Quinn also explained one form of mortgage fraud, 'conveyancing take-over', can mean potential buyers lose out on a property as fraudsters take over divert mortgage cash from lenders, leaving buyers unaware until the check up to see why there is a delay.There is currently no agreement on the scale of mortgage fraud. The Association of Chief Police Officers (ACPO) estimate mortgage fraud costs £700 million annually, while others say it can be as much as £1 billion.The NFSA has already highlighted a number of weak links in the property chain that can lead to mortgage fraud, such as corrupt brokers, valuers, solicitors and bank insiders, false conveyancers, mortgage mules and new build buy-to-let fraudsters.Baroness Scotland, the Attorney General, said, "Government has committed £29 million to reduce the harm caused by fraud across the UK economy."There is now a far stronger, more cohesive response to fraudsters' actions."As well as the creation of the NFSA, the City of London police is also leading a number of strategies to take mortgage fraud more seriously and become a UK centre for uncovering the criminals.A new National Fraud Reporting Centre (NFRC) is also planned to start operating in late 2009.
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
I host the London Real Estate Meet on the 2nd Tuesday of every month since 2005. If you have never been before, email me for the 'new visitor' link.
Also happy to chat on the phone. Pay It Forward; my way of giving back through sharing. Click on the link: PropertyFortress.com/Ask-John to book a time. I will call you at the time you selected. Nothing to buy. Just be prepared with your questions so we can use the 20 minutes wisely.
Venessa, Not sure whether I fully agree with you.I have done a nmd deal this year with a small amount of cash out and it was perfectly legal.I found a motivated seller through a leaflet I put out. Borrowed a private investor at 1.2% per month interest. Then 6 months later (after doing some minor works and renting it out), I remortgaged it with BM at 75% LTV. After all costs ended up with a NMD deal and £1400 cash out.
You are pointing out that mortgage fraud is illegal, no money down deals are not.
Are they a good idea?
That depends on the circumstances.
Bit off the pace Richard this thread is from 2009. Since then its become even more clear that NMD deals constitute mortgage fraud. There are much more recent and definitive threads on here about NMD. This is of course, assuming you are talking about how 99% of them (sold / structured, via mainstream BTL lenders).
But claiming that "NMD deals are not mortgage fraud", you are just begging to be asked to back up that sweeping statement.
There are so many ways to set them up, are you suggesting all NMD deals aren't fraud? or is there a particular way of doing them you believe to be legal? What are your experiences with NMD, how was it set up, who did it for you?
Fraud or not, make your own mind up.
I decided to speak to the principal 'High Street' buy to let lenders and this is what they said
'What the lenders say'
RobCommercial Management & Property Consultant, Wakefield, West YorkshirePlease visit my website, read the property blog & leave a comment; https://www.walkerfox.co.uk/blogE: email@example.com M: 07960 753550 T: @walkerfox S: Walkerfox
Bit off the pace Richard this thread is from 2009. Since then its become even more clear that NMD deals constitute mortgage fraud. There are much more recent and definitive threads on here about NMD. This is of course, assuming you are talking about how 99% of them (sold / structured, via mainstream BTL lenders). But claiming that "NMD deals are not mortgage fraud", you are just begging to be asked to back up that sweeping statement. There are so many ways to set them up, are you suggesting all NMD deals aren't fraud? or is there a particular way of doing them you believe to be legal? What are your experiences with NMD, how was it set up, who did it for you? To be frank Arlo I made no sweeping statement, infact Vanessa did by saying ALL were fraud. I am just pointing out that some may not be. I understand that there is dodgy practice, however the term NO MONEY DOWN is misleading in it self but, if I managed to borrow 100% of the costs to buy a house perhaps through a combination fo personal loan or JV funds and a mortgage then where is the problem. My main issue is that through trying to understand how these things work you naturally search out other advice. Vanessa's statement is sweeping and definitive. I object to that stance. Richard
To be frank Arlo I made no sweeping statement, infact Vanessa did by saying ALL were fraud. I am just pointing out that some may not be.
I understand that there is dodgy practice, however the term NO MONEY DOWN is misleading in it self but, if I managed to borrow 100% of the costs to buy a house perhaps through a combination fo personal loan or JV funds and a mortgage then where is the problem.
My main issue is that through trying to understand how these things work you naturally search out other advice. Vanessa's statement is sweeping and definitive. I object to that stance.
I am coming in here with an effort to understand...this is my view of how it is done legally, please let me know if this is not the case (I have not done this as I think the costs are too high).
Property market value £100K
Bridging loan £75K (scary interest rates puts me off)
six months later revalue and remotgage at £100K (more if the market is kind)
Apparently No money down deal. However the fees and risk of bridging finance puts me off.
In your scenario, are you assuming 100% bridging based on purchase price? because normally you will need to put down a deposit too.
You normally find they will lend based on the purchase price not value, and you will still have to put down a deposit. NMD means generally speaking that on completion of the sale yo will get all your costs and deposit back. So by definition you are waiting for 6 mths to pull back money, so it is very much 'money down'.
You will have your acquisition costs, refurb costs, finance costs, etc - and probably deposit too - tied up waiting on the outcome of a remortgage valuation. Which is far from certain you will get the value you need.
If you are getting 25% off, and on a bridge of say 1.5% to 2% per month, then you will be spending 6k to 9k on bridging costs, without factoring in application and exit fees. You will also have an arrangement fee for the remortgage and another valuation fee. So you 25% BMV deal will end up being around 18% due to the costs.
This is just traditional 'slow money down' investing, only the example you gave shows that a seemingly goodd deal looks a bit naff with fees etc.
Far better to get a lower value prop on a bridge, then refurb it to add capital value, then refinance in 6 months. By buying 25%+ BMV, and getting a serious uplift from refurbing, you can often make such a risky plan work. There is still the big question mark about exiting onto remortgage: its not certain you will get the value or be approved for the finance.