WHAT IS VALUE FOR MONEY? COLIN SANDERS, CEO - THE INTERMEDIARY MAGAZINE
15.03.23
WHAT IS VALUE FOR MONEY?
By Colin Sanders, Chief Executive Officer, Tuscan Capital Limited.
If I had a pound coin for every time a borrower thought they had a bargain and that they were buying a property at significantly below its market value, I’m sure my bank would report me on suspicion of raiding the local casino’s slot machines.
It’s a conversation which frequently ends with a valuation being provided by an ARICS surveyor, only to result in the valuation disappointing the buyer and the broker as it more often than not comes in at the agreed purchase price. After all, a professional chartered valuer with their professional indemnity at stake is going to take some convincing that they should ignore the old adage “a property is only worth what someone is prepared to pay for it”.
Opportunistic
That said, there are real and credible situations where buyers do negotiate and agree deals to purchase property at prices sometimes significantly under market value. In my experience, these examples normally come about as a result of the seller being in a distressed situation and often where time is of the essence. It’s these opportunistic situations where credible buyers, who have experienced lawyers on board and a ready source of funding available, can take advantage and close out a deal where it truly represents a purchase at under market value.
I have regularly experienced opportunistic buyers secure deals with LPA receivers, where they are charged with the disposal of blocks of flats with multiple units remaining or even the whole block available. In addition, an LPA receiver is often appointed as a result of building projects being incomplete and needing investment to complete. Again, this represents an opportunity for the property professional who can manage these issues quickly and fund the works, as they are sure to get a significant discount against the value.
Meanwhile, recent base rate rises are hitting those who have relied on high levels of mortgage debt and or where their fixed mortgage rate has or is about to expire. In many cases, they’re looking for an exit and can be negotiated down.
Interest rate rises have also squeezed the yield for HMOs, but just to exacerbate the problem the all-inclusive costs involved in running HMOs such as utility costs and staff have all somewhat negatively impacted the trend and popularity of investors wanting to be in the HMO market. Again, that’s where the opportunity lies. For a well set-up and professional landlord with the resources to manage HMOs and with lower gearing, there will be bargains at under market value to be had.
Clever property consultancies buy property at under market value where they have shrewdly negotiated an option to buy. This is often at a price the vendor is comfortable with at the time, only to go on (within the option agreement period) and achieve a planning approval for a development scheme. The property with the benefit of planning being worth significantly more to a developer.
Under market value
There are other situations where opportunity knocks and buyers genuinely do find themselves in the fortuitous position of being able to buy at under market value and over the years I have seen it all. The siblings arguing over the division of the proceeds from the parent’s property in a probate sale, where one of the mourning children sees the opportunity to do a quick deal to buy the brothers and sisters out at under value. Or the long-term tenant who has agreed to buy the property from the landlord at the end of their tenancy, but at the market value when they moved in.
So, where the borrower thinks that they have ‘the deal of a lifetime’ and they claim to be buying at under market value, I do remain skeptical, but it’s always worth getting the full story as there are some situations where the borrower has been opportunistic or fortunate (or both) and they could just need funding for their property purchase at under market value.
At Tuscan Capital, we recognise these opportunities and see them as transactions we like to support with funding. We understand that speed is often the key ingredient and can aid the process with our Fast Track proposition. We also provide market-leading leverage for deals where the buyer has negotiated a deal at under its market value, as professional applicants can borrow against the market value even if this is significantly higher than the agreed purchase price. We have on occasion lent 100% of the purchase price too where the borrower wanted the acquisition fully funded. In these cases, they provided additional security to support the deal in order for us to fully fund the purchase at under value.
Read the March edition of The Intermediary Magazine here.
For more information or to get in touch with the team, please contact us:
Call Us: 020 7846 9030
Email info@tuscancapital.co.uk
View our Regional Offices:
London Office
Birmingham Office
Manchester Office
A range of case studies demonstrating examples of previously completed loans can be found here.