26.01.2016 London ‘buy to flip’ investors given loan boost

26.01.2016 London ‘buy to flip’ investors given loan boost

“Buy to flip” investors in London’s property market may find it easier to sell on new-build flats bought while under construction, following the launch of a new mortgage product for would-be buyers.

A home loan has been launched, allowing secondary investors in property developments to borrow money to buy out the original purchasers, marking the re-emergence of a type of mortgage contract used in the run-up to the financial crisis.

Kent Reliance, a lender, and broker John Charcol have joined forces to offer loans on “assigned contracts”, which off-plan property buyers can use to “flip” their purchase to a secondary purchaser.

Is an off-plan contract, the original buyer might put down a deposit on an unbuilt home but want to sell before the building is complete, often to realise a gain in value or because they cannot obtain finance for the full amount. The secondary niche has been dominated in recent years by cash buyers, since most lenders dropped out of the market following the credit crunch.

“It’s a new foray into an area that’s been seen as high-risk by lenders”, said Alistair Hargreaves, executive mortgage and protection consultant at broker John Charcol. “It’s aimed at the more sophisticated investor who understands the sector”.

The product launch underlines the growth in high-rise developments across the capital, from Nine Elms in Battersea to King’s Cross and the Isle of Dogs, many designed as lateral apartments which appeal to overseas buyers and landlord investors. Boris Johnson, London mayor, has said new homes should be lived in or rented out, rather than left by their owners to appreciate in value as “block of bullion in the sky”.

Kent Reliance said it would take a “prudent” approach by putting a number of constraints on the product. It covers only the first reassignment of contract, blocking the multiple reassignments seen in the pre-crisis years.

It will also lend only on the basis of the original contract price at a maximum loan-to-value ratio of 75 per cent. So if someone who put down a deposit on an off-plan property valued 500,000 wanted to sell it on for 650,000 the buyer could raise at most 375,000 in borrowing- bringing the loan-to-value down to an effective 58 per cent on the final sale price. The loan is available only to UK-resident buyers and only on properties brought to completion.

Kent Reliance’s assigned contract loan is more expensive than the lender’s standard but-to-let rates, at 4.49 per cent on its variable loan or 4.79 per cent on a two-year fixed-rate deal, with a fee of 2 per cent of the amount borrowed.