15:10 PM, 1st November 2010, About 11 years ago 1
By Mike Woodfine, Co-founder of The Money Centre.
Interest margins are extortionate – you need an unsecured loan to pay lenders arrangement fees – loan to values are just down right depressing. It really does look like lenders are cashing in on everybody’s misfortune and I bet you are thinking now is not the best time to borrow money – but are you right?
If you don’t want a lender to make a profit – you are right – now is not the time to borrow money. If you have enough cash to buy everything you need, now and in the future, you may choose to give lenders a wide berth.
If, however, you recognise that the property market is now perfect for buying cheap property to add to your portfolio, but you haven’t got the money you may well need to consider biting the bullet and begin looking for the best mortgages you can possibly find. Sorry but you will need to talk to a lender.
There is a small amount of comfort you can take – it’s not much and might not make you forgive the lenders for what appears to be cut throat tactics and profiteering, but it’s something.
Just imagine you were a lender and you wanted to avoid risk to ride out the recession – you might keep what you had, not lend anything, repossess wherever you could make a profit or at least recover your money, and wait for the market to improve to such an extent you could lend again at competitive rates, be safe and make a healthy return.
Funnily enough this is what a number of lenders have done to some degree or other.
However, and quite fortunately, not all adopted the same tactics. If there is no money to borrow us property investors can’t buy property and enjoy what will be tremendous returns in the years to come. We very easily forget that the future returns will more than compensate for paying higher rates in the short to medium term.
Obviously as the market improves we will remortgage for better rates thus minimising what we are paying the lender whilst maximising our profit/returns.
The thing is though, if you want to be in a position where you are maximising your profits and returns, you need to be adding to your portfolio right now. The only one way to do this, assuming you didn’t win this months Euro lottery – you need somebody to lend you the money.
Now think about the deal you are offering:
Dear Mr Banker – I would like to borrow some money please to buy a house. I fully understand it will be expensive and you will make a profit out of me. However, please note that if it all goes wrong I want you to sort out the mess I have left and if I am bankrupt will you also bear any losses, which could be quite considerable. I would also confirm that when interest rates are more attractive elsewhere I will be moving banks to save money. When I realise any gains in the property you obviously understand I will not be sharing these with you – even though you provided the majority of the money to buy in the first place and have probably shouldered most of the risk. Nearly forgot – I keep all the rent too. With love ……
Let’s be realistic – if we want to make money by using other people’s money we have to accept that the arrangement won’t always work completely in our favour. If this is the industry we have chosen then this is what we need to get used to because without the lenders we are dead in the water. We don’t have to like them but I would suggest we stop viewing them as the enemy and redirect focus on building our portfolio’s by embracing the lenders as short term best friends and use THEIR money to secure YOUR future.
Perhaps it’s time to re-think your strategy?
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