Dear Lady Lea - Property Investor News - April / May 2003

1) Can you take out a residential mortgage on a property and then let it out soon afterwards if circumstances change?

Yes, mostly.

Before you take out a mortgage, you should receive information about the lender. Usually they will supply you with a list of fees and charges. On this list there will normally be a fee for permission to let. This is a good indication that the lender will allow you to let out your property when you have purchased it, if you have a change in circumstances.

Not all lenders are happy with this. But very few will actually refuse. Most of my own mortgages up until late last year were residential, and I never had a problem getting permission to let.

You don't actually need to convert the mortgage to a "buy to let" mortgage, all you need is a letter of permission to let, and it is automatically converted. Once you have your "permission to let" you can then apply for another residential mortgage, showing proof that you have had permission to let on the last one.

2) I have seen many properties for sale at auctions where there is a "regulated tenancy" in place". What does this mean and are these worth bidding for?

Regulated tenancy is a protected tenancy, where it is very difficult to increase the rent on the property to the market value, as laws protect the tenant. It is also near impossible to remove the tenant. The rent of properties on regulated tenancies cannot be increased, other than by an application to and a decision by the Government Rent Officer. The landlord can apply to have the registered rent increased every two years. Many registered rents are settled at between 60% and 80% of OMV of rent (open market rental value). You can appeal to a Rent Assessment Committee to have this increased.

When you are buying a property that has this type of tenant, you should really be looking to achieve a purchase price well below vacant market value, as it could be some time before you get vacant possession, or can get the rent up to market levels.

On the positive side, you can buy these properties below market value, and they may need refurbishing, that could make large increases in value. You may be lucky enough to find a tenant who is prepared to be bought out of his tenancy. i.e. if you intend to buy it, do it up and sell it on, they may be happy to take a share of the profits and leave, leaving you in a win - win situation.

3) I am interested in doing house conversions into flats for selling on at profit and have a good builder team in place in my local area. I have approximately £100k cash to invest, but can I obtain a borrowing facility to allow me to convert more than one property at the same time?

Everyone is unique, and there is not one straight answer to this query. You can approach high street banks for lending on developing, and subject to your business plan, and credit checks they may offer you funding. Most of the developers I have spoken to in the last few weeks seem to use NatWest, and Bank Of Scotland for funding of this type.

4) I have received a mail shot telling me to invest in reversionary property. What is reversionary property?

Reversionary investing is where an investor buys the reversionary interest in someone else's property, usually their home. This means they are buying the rights to own the property when the owner dies or leaves.

All property has some value. By unlocking the value in their home in this way, they convert from owner to tenant. The tenant can stay in the property, possibly gaining a monthly income or cash lump sum. The current owner is granted a lease that lasts the rest of their life.

When an investor buys a property in this way, they are usually getting it at a discount of around 50% or more. This discount is in effect a single lump sum payment for the whole time it is anticipated the tenant will live in the property.

The tenants continue to live in the home as if it was their own. It is the responsibility of the tenant to maintain it. One of the advantages of being an investor in this way is that the tenants are totally liable for all outgoings, maintenance and insurance. With buy to let property the landlord has lots more responsibility. As soon as the property is vacated possession reverts to the investor.

5) What is a "back to back deal?" I have seen this mentioned quite a lot in articles in PIN.

You buy an Off-Plan deal and sell on after exchange but before your purchase completion, without taking out a mortgage on the property. However you ideally should have an assignable contract with your developer to allow the selling on by you. This way you legally avoid paying stamp duty and hopefully make a good profit on the deal! You must have a good solicitor who is used to these deals and as an 'insurance' you should have a mortgage arranged, just incase the B2B falls apart and you have to complete.

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