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Category: Finance

Property Deal Completion: A Realistic Look At Timelines And Stages

Author: Nigel Bowers

In my last article, I introduced the way to approach pitching your property deal to lenders. So, in this issue, we’ll look at how long a typical property deal should take, from inception to completion. Obviously, this will vary greatly, but hopefully this will give you some food for thought.

  1. How Long Should a Deal Take to Complete?

The entire process from inception to completion, can typically take 6– 12 weeks, for a standard property deal. However, various factors can significantly impact the actual timeframe. For instance, the complexity of the project, such as a large-scale development or extensive renovations, may prolong certain stages and extend the overall timeline. Additionally, unforeseen issues like delays in obtaining the necessary approvals, unexpected findings during the valuation process or complications during the legal stage, can further extend the timeline.

2. What to Prepare in Order to Speed up the Process

Preparation is crucial in the pre-approval stage, as gathering and submitting comprehensive information (financial documents, property details, plans, costings, etc.,) can expedite the pre-approval process, which may take 1–5 business days. Conversely, incomplete or inaccurate information can lead to delays and a longer pre-approval stage.

3. What to Expect from a Decision in Principle

The decision in principle stage, where the lender provides preliminary approval subject to further checks, usually takes 1–2 business days. During this stage, the lender reviews the information provided in the pre-approval stage and makes an initial assessment of your eligibility for the loan amount requested. This preliminary approval is subject to additional verification and checks, but it provides an indication of the lender’s willingness to proceed with the loan process.

4. Property Valuations: What Are You Marked On?

The property valuation, conducted by the lender’s chosen valuer, is a critical step that can take 2–3 weeks. The scope of the valuation depends on the nature of the project, such as a refurbishment, new development or investment property. The valuer will assess various factors, including the property’s location, market conditions, potential income (if applicable) and the overall viability of the project. The valuation report is crucial for the lender to determine the property value and the associated risks, which will inform their final lending decision.

5. Loan Processing: Almost At the Final Hurdle

Loan processing, which involves reviewing and verifying the valuation report, requesting any other required reports, such as structural surveys or environmental assessments, depending on the findings or the complexity of the project and can take up to a week or longer. This process ensures that the lender has a comprehensive understanding of the property and any potential risks, before proceeding with the loan approval.

6. Underwriting: The Final Stage Before You Receive Your Offer

The underwriting stage, where the formal loan offer is issued after a thorough review, typically takes 1–3 days. At this point, an underwriter within the lender’s organisation conducts a final, in-depth review of the entire loan application, including all supporting documentation, valuation reports and any additional assessments. If the underwriter is satisfied that all criteria are met, they will issue a formal loan offer, outlining the terms and conditions of the proposed financing.

7. How Having the Right Team Can Speed Up the Process

The legal process, involving both parties engaging legal representatives, to review and facilitate the transfer of ownership, mortgages and other legal documentation, is a crucial but time-consuming stage. Selecting a solicitor with experience in the relevant property type (e.g., commercial, residential or development projects) can ensure a smoother and more efficient legal process, minimising potential delays or complications. This stage can reasonably take around four weeks.

8. Final Approval and Closing

After the legal process is finalised and all necessary documentation is signed, the lender will conduct a final review and issue their final approval. Once approved, the lender will release the funds, allowing the property transaction to be completed and ownership to be transferred. This should only take 1–2 days.

Of key importance is engaging a knowledgeable and proactive broker early in the process. They can be invaluable in pushing for completion as quickly as possible, by coordinating the various stages, ensuring timely submission of documents and addressing any issues that may arise, especially in urgent situations like auction purchases, ultimately helping to streamline the overall process and meet critical deadlines. 

Ask Oxygen

If you need a hand with any current or upcoming property deal, or you just want more information on how lenders and finance work, then get in touch using the details below. I’m always happy to grab a coffee with any reader of Blue Bricks Magazine to offer any help and support I can.

Email: nigel@oxygenfinance.co.uk

Website: askoxygen.co.uk

Tel: 01943 243159

Nailing Your Pitch: How to Wow Lenders for Property Loans

Ever wondered what lenders are really looking for when you’re pitching for a property loan? It’s not just about numbers and spreadsheets – it’s about presenting a compelling story that gives them confidence in you and your project. After years in the lending world, I’ve boiled it down to a simple mnemonic: PARSR. Get these five elements right, and you’re well on your way to that coveted, “Yes!”

At Oxygen Business Finance, we support developers of varying experience, including readers and past features of Blue Bricks Magazine. From straightforward buy-to-lets to large, complex ‘mega-deals’, we’ve seen it all. So, regardless of the size of your portfolio, experience in the industry or the purchase price of your deal, all of the following rules still apply.

Person

You’re the star of the show, so make a great first impression. Lenders want to back people they can trust and believe in. Highlight your relevant experience and if there are gaps, explain how your kick-ass team fills them. Honesty is key – if there are skeletons in your closet (like a less-than-perfect credit report) put them out there early. Lenders hate surprises and being upfront shows integrity. Most issues can be addressed if you’re transparent.

Amount

Be specific about how much you need and why. Lenders like to ‘follow their money’, so give them a clear breakdown of costs. If it’s a refurb or development project, provide a detailed cost schedule – lenders are seasoned pros and will spot any fuzzy maths. Always include a contingency (at least 10%, but more for complex projects) – it’s better to come in under budget than go cap-in-hand for more funds.

Repayment Ability

This is the biggie – how will the lender get their money back and when? Lay out a clear exit strategy, like selling the property (back it up with solid comparables and realistic timelines) or refinancing (allow ample time and show evidence that it’s viable). And, have a ‘Plan B’ if your primary exit falls through – reducing the price, refinancing elsewhere, etc., Lenders want to see you’ve thought through all scenarios.

Security

While not the top priority (that’s you!) lenders still need to know their investment is properly secured. Use their preferred valuer to avoid delays and factor in legal fees (plus VAT and disbursements) for both parties. If you’re borrowing through a company, most lenders will want personal guarantees from directors or major shareholders – take this seriously, as you’re on the hook if things go south. Personal guarantee insurance can mitigate this risk.

Remuneration

Lenders are businesses too, so show you understand their need for a solid return on investment (ROI). The higher the perceived risk, the higher their charges – it’s just economics. Look at the whole package: interest (fixed or variable, simple or compound); fees (arrangement, admin, exit, etc.,) and any project-specific costs, like monitoring surveyor fees, drawdown fees, revaluations and non-utilisation fees. Getting this right, upfront, avoids nasty surprises later.
With a pitch that nails the PARSR elements, you’ll have lenders excited to back your next property venture. If you need help prepping, lean on your broker – they’ve got your back and can ensure you put your best foot forward. Now go get that money!

Seeing From Both Sides

We understand both a lender’s and an investor’s perspectives, which puts us in the perfect position to help you secure better finance products for your deals.
If you have an opportunity in the pipeline that you’d like an experienced set of eyes to look at, or if you want to chat with me or my team in advance of a deal, to see how we can help you, then get in touch using the details below:

Email: nigel@askoxygen.co.uk
Website: https://askoxygen.co.uk/
Tel: 01943 243159

Mortgage Rates Increase as Property Prices Fall – Again

Mortgage rates are set to rise further after the announcement by the Bank of England that interest rates would increase by a half a percentage point.

The rise, from 3.5 per cent to four per cent, makes the base rate the highest it’s been for 15 years – at the start of the 2008 recession. It means the average residential tracker mortgage will increase by around £50 month, or £588 a year. 

Around 715,000 households in the UK have tracker mortgages. Another 1.4 million face renewing their fixed-rate mortgage at a higher rate this year, according to the Office for National Statistics (ONS).

Inflation starting to fall as mortgages go up

Economists considered the jump in the bank’s base rate ‘inevitable’ as the Bank struggles to contain inflation here in the UK. The good news is that their strategy finally appears to be working, with October’s inflation figure of 11.1 per cent having fallen to 10.5 per cent today. The Bank’s governor says he now expected the figure to come down rapidly, not that ‘a corner had been turned.’

But inflation isn’t the only thing that’s coming down. Only yesterday, Nationwide’s figures showed that the value of the average property in the UK fell for the fifth time in a row. It dropped to £258,297 in January – 0.6 per cent lower than the previous month. 

Not surprisingly, the number of properties being sold has also dropped. Recessionary pressures and higher mortgage interest rates are the main culprits here. The fall of 9,000 approvals between November and December (46,000 and 35,000 respectively) is the lowest number of approvals recorded since 2009. The approvals figure is in line with a fall in the number of mortgage applications since the mini-budget introduced by the Liz Truss when she was PM.

Landlords to increase rents with another base rate hike

Meanwhile, a survey shows that landlords are intent on increasing rents if the Bank’s base rate gets to 4.5 per cent later this year. 

Bournemouth-based lenders Finbri canvassed 1001 landlords for their research. More than half of those interviewed – 52.7 of landlords – said they would put their rent up to match increasing mortgage costs. A further 44 per cent of landlords said an increased base rate would prompt them to consider putting their properties back on the market. They would instead, look for other sectors to invest in, such as stocks & shares, hedge funds or even cryptocurrency. 

The base rate could indeed rise to 4.5 per cent by summer this year as many analysts predict. At this moment in time though, it remains speculative.

But it’s not only higher interest rates that landlords are wrestling with – inflation is putting up prices overall, meaning maintenance costs are higher than ever before. Then there is the possibility of rent arrears and ultimately void properties as tenants fall behind with rents.

Get in touch 

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Property Prices to Fall – but Analysts Argue Over Just How Much

House prices are now just over nine times the average salary, according to the latest ONS figures. 

That’s worse than back in 1997 when the typical mortgage was 3.5 times average take home pay. Pre-pandemic the ratio was 7.9 times earnings. That was a sum that many property analysts already believed was becoming unsustainable. 

And its why house prices are predicted to fall next year – especially considering the rise in mortgage interest rates and the general cost of living means householders having to dig deeper into their pockets. 

Predicted falls range from five to 20 per cent

The question is though – just how much will property prices fall by? Predictions vary from five to 20 per cent. Estate Agents Savills expect a 10 per cent drop in house prices, while the government’s Office for Budget Responsibility predicts prices will go down by nine per cent. That’s just one per cent more than the Halifax, who predict an eight per cent fall. The lender’s House Price Index puts the average property at £285,579.

Analysts at Nationwide are slightly more optimistic, believing that, at just five per cent, the fall in house prices won’t be anywhere near as drastic. But they warn that once prices start levelling out, the market won’t pick up again for some time. The reason for this being the shrinking economy and an expected higher unemployment figure as we go further into 2023. Currently unemployment is sitting at 3.7 per cent but the lender predicts it will rise five per cent in 2023.

Estate Agents Knight Frank agree with Nationwide, by also predicting a five per cent drop in property prices. They blame higher mortgage interest rates discouraging buyers from going ahead.

Homeowners already cutting costs by four per cent

Towards the end of this year property portal Zoopla said it was common for sellers to reduce house prices by four per cent in order to secure a sale. This is reflected in a slowing of demand, with property sales on the portal down 28 per cent compared to the same time last year. 

For next year rival portal Rightmove says it expects asking prices to fall by just two per cent. And, unlike the previous fall in house prices at the start of the 2007/8 recession it doesn’t expect many repossessions. It does, however, expect property to take longer to sell – up to 60 days, instead of just over two weeks, as in the buoyant property market of 2021.

Recently moved home owners may find it galling to see the price of their new property fall by as much as 10 per cent. But the good news is that property prices remain up to 20 per cent higher than pre-lockdown back in 2020. That means people will have enough equity in their property to withstand the plummeting values. 

Private rental costs escalating

Private rental costs meanwhile, are on a completely different trajectory. These are rising at quite an alarming rate for tenants in the sector. In November the average rent went up by four per cent, for instance – that’s a record figure and one that is causing economists to warn renting is becoming unsustainable for many individuals and families.

What 2023 will bring in terms of the property market we can only wait and see. 

To stay updated with the latest news in the property world, subscribe to a free trial of Blue Bricks Magazine by clicking here. You can cancel after the trial and it costs nothing, or it’s just £9.99 if you like it and want to continue (which we’re sure you will).

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