The issue of costs that are the responsibility of the tenant?16:06 PM, 30th July 2019
About 3 weeks ago 50
Green Deal Finance is likely to become a major discussion topic on forums, especially as it is now being reported by Green Deal Assessors going through training that it will cost between 7% and 8%.
At current interest rates that far more expensive than the cost of borrowing on a buy to let mortgage. Therefore, if a landlord is buying a property in need of replacement windows and a new boiler some may say that it is expensive form of funding. The counter argument of course is that borrowings funded via Green Deal Finance will in fact be paid for by tenants and subsidised by lower fuel prices .
The big question for me is whether tenants will accept that they really ought to pay the loan without asking for a reduction in rent or looking at an alternative property without a Green Deal Finance deal attached to it.
Having debated this topic with many in the industry I’m still very much on the fence.
Let me put this scenario to you:-
You are able to buy a property for £100,000 and you need to spend £30,000 on it to refurbish. Your lender will advance 75% of purchase price and allow you to draw down up to 75% of the property value when the refurbishments are completed. The estimated property value post refurbishment is say £180,000 which means that you could end up with a mortgage of £135,000, i.e. £5,000 more than you have spent. OK, this is an imaginary deal and I have not factored in whether the deal would be stack on on cashflow etc. but please run with me on this.
Now, let’s assume that £10,000 of the refurbishment is the cost of UPVC double glazing and a replacement boiler which is financeable under the green deal.
Should the landlord take the £10,000 Green Deal Finance and have £10,000 extra in his liquidity fund or an extra £10,000 of equity in the property, OR, should he NOT take the Green Deal Finance and with a view to making his property more attractive to potential tenants who will see that they are benefiting from lower energy bills and are not paying of the landlords Green Deal Finance?
It’s quite a conundrum isn’t it?
Where I can see Green Deal Finance being incredibly useful is finance of the last resort. Just suppose the example deal quoted above doesn’t quite stack up. If the value came back in at £160,000 the maximum buy to let funding would be £120,000. That’s a £10,000 shortfall on cost. If the landlord needs to recover that £10,000 then Green Deal Finance may be his only option.
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