Does my Buy to Let lending criteria make sense?Make Text Bigger
While fully acknowledging that I am not a financial specialist I do know the residential property market. I have a proven track record of making money from letting property for 40 years. In my first book, which I released just a few months ago, I venture to give my opinion of the criteria I would apply if I were lending my money to a person who wanted to buy property to let.
- Does this person know the law and regulation related to the business, has he taken the trouble to become accredited through an education based scheme.
- Has this person got sufficient funds, borrowed or otherwise, to bring the property up to the Decent Homes Standard, or higher if the market demands, and to meet all the legal requirements before the property is let
- Has this person done the homework, is there a market for the property he is proposing to let in the area where he is proposing to buy.
- Is there any regulation in place that the landlord is not aware of, Article 4 Directions, Selective Licensing, planning controls, lease restrictions etc
- Will the property return a positive cash flow that will pay the loan, keep the property up to standard, pay Agency fees (if the property is going to be managed by an Agent), Pay on-going letting fees/marketing costs and leave a margin for rent arrears and the cost of removing a tenant if necessary
- Does this person know how to legally remove an undesirable tenant and the length of time this might take and has he got the financial safety net to cover the loss of income during this period
- Is this person a member of an organisation that will supply the correct documents and support to sustain the tenancy
- Has this person got a system in place to ensure that he remains legally complaint at all times thus avoiding expensive litigation which may result in large fines, rent repayment orders for up to one years’ rent or up to 4 times the tenants deposit etc.
- Has the person got Rent Guarantee Insurance, Public Liability Insurance, Landlord Property Insurance and (if the property is furnished) contents insurance
- Does this person intend to manage the property himself or does he intend to employ a Letting Agent. If he does intend to employ a Letting Agent how will he choose a good Agent, who has Client Money Protection, and is he aware that he cannot devolve his legal responsibilities to that Agent
- Has this person made provision to re-pay an interest only loan should the property value decrease
Are Banks aware of these important issues or are they making a risk assessment purely on FCA guidance and criteria without taking in to consideration the “real” risks of investing in property to let?
Do you agree with me or am I missing the point?
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My book, where I warn about the storm clouds that are gathering for landlords is here >>>http://www.amazon.co.uk/dp/1484855337
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