As we said before, if you’re just starting off, then I think one of the first things that a lot of people ask me is equity release doesn’t apply to me, but technically it does because you may have a friend, a business colleague, or family that want to support you in your journey. And if they can release equity or finance property with you, you’ve gotten trusted relationship you can set up contracts.
For agreements with them, which allow you to potentially grow your portfolio or start your portfolio, at least by having access to people with good credit. That said, you got bad credit and you can’t access any funds because you’ve got no assets. So, you could work with somebody who’s got access to funds and clean credit. So, you could actually do joint ventures where you bring the assets and they put the money in and you make a margin. That’s quite a good way of starting off and using refinancing as a tool to allow them to profit and for you to make a margin and every time they profit.
We have worked on projects where somebody sourced a very good deal. The investors put the money in, so the investor would either do the funding on an investment and return basis, or they would do the best they would invest, and then they could do a 50 split on profits after all costs. So, a lot of that just comes down to the detail. Second type situation is where you’ve got somebody who’s got five or ten properties.
What if you have some properties in negative equity?
Now they may find that some of the properties they got one or two, maybe in negative equity, so they may want to consolidate so they could actually refinance out one or two the other properties with equity in them to pay down the negative equity properties and restructure the whole portfolio. And the other critical point that comes to mind now is that you may want to consider putting your property portfolio into a two-year, three year or five-year fixed rate, because if interest rates do go up, then you don’t want to be in a situation where you can’t determine how much money is going to be going in and out every month.
And if the payments going out are at a very high interest rate, because you’re in a variable rate, then that could be very dangerous for you. So, you have to be extremely, extremely cautious, I would say, and just making sure that you are in a position where you can actually think about really what it’s worth, you’re going on a fixed rate. Obviously, if you’ve gotten incumbent properties, one property that’s on a variable rate, it may not be such a big deal.
But whereas if you’re quite highly geared 75% loan to value on a million-pound portfolio, if interest rates went up even a couple of percent, if you could be a break even or negative cash flow. So, I think you’ve got to consider all these potential scenarios and assess the risk very carefully. So be careful!
Now going forward, especially in the next four or five years, because the property market is very volatile and you do have to think about all the scenarios out there in terms of what could happen. So that’s scenario number two. Scenario number three, is you’ve got somebody who’s got quite a large portfolio? It’s quite lowly geared. So, I think this is a good time to start thinking about how to put some funding lines in place, especially if you’ve got portfolio with very little debt on it.
So, there will be lots of buying opportunities out there to buy land with planning to buy assets which can be refurbished. Not only that, you could also buy assets which have got good yield like an HMO or service accommodation and actually up the yield on some of these assets. So, all those formulas land to get enhanced planning, getting a block and refurbishing and then getting assets which could be that you can own and operate and get a higher yield on through rent to rent to service accommodation.
So, all these options available for you, and if you’re finding that there’s lots of buying opportunities out there the next six months to year because the market is going to tighten, then it’s a very good time now to put a lot of your properties again. This goes back to somebody who’s in the mid-tier position has got a few properties also applies to somebody who’s got a lot of properties.
If you’ve got certain properties which are slightly highly geared, is to probably bring them into control by putting them on the fixed rates, at least you know what your payments are and whether they’re affordable and that might be more viable, a better solution for you than to be in any other position. So, there we have it. I think that’s quite comprehensive and the type of things you should be doing or considering going forward in those two or three scenarios. Now a lot of people ask me, should I be in a fixed rate or should I not be in a fixed rate?
And it all comes down to really the level of risk that you’re going to be putting yourself under and on the whole, I would advise not to take too much risk or at least the risk down to zero if you can, because whatever happens in the market volatile as it may be, then you’ve covered all the angles and you can sleep easy. Why would you want to create this extra stress when it’s unnecessary?
Those are the two or three scenarios based upon what you could be doing to be able to get funds or lease funds. Now a lot of people do come to us and they come up with more complex situations.
So, these situations require more of a detailed analysis by our Immediate Bank Claims Department. Immediate Bank Claims is an organization that specializes in stopping repossession in 24 hours. So, it basically has access to expertise to 200 solicitors that can attend court anywhere in the country, normally within 24 to 48 hours to stop repossession. So, we have those skills to be able to assess your whole situation.
Now, in this negative equity shortfall scenario, we would require number one, all the paperwork leading up to the shortfall. Also, the shortfall paperwork. Also, the details of the bank and what you would also need to know is what your current state of affairs is with your current property portfolio, or if you do actually have any assets at the moment.