Singing Pig

Hi there,

So far I have been buying properties the conventional way by putting a deposit down. However, the whole BMV with effectively NMD idea is very tempting.

My question is (and I hope is not a stupid one ): 

If I would buy a property worths 100k for 75k with NMD isn't it quite possible that I would find myself in a situation, let's say in 2 years time, where the properties value has really dropped to 75k and I have to remortgage. In this scenario I would then have to find a 18.75k = 25% deposit, given lenders would still require that level of deposits.

Am I too pessimistic or is the solution simply to take out a 5 year mortgage in the hope markets have recovered by then and the appriciation will cover the deposit nicely?

Angela

Hi

 Not at all you are thinking correctly and not jumping in, NMD has it's draw backs and can be risky in this market but still can be done.  If you have always put in a full deposit you can combine both and put a little into the deal, this will lower your gearing and as you state aim for a long term fixed to give you added cover.

Hope that helps but make sure you plan what you want to do and stick to it, be careful and don't rush and best of luck.

BMV and NMD are not synonyms ... it is possible to buy a prop cheaply (BMV) while still putting in a deposit.

there are 2 questions to consider here:

1.  are you comfortable that the various NMD "schemes" that are available are genuinely legal.  no UK residential property lender lends 100% of the purchase price of  a BTL property, so there is something underhand about these schemes ... for example, " deposit funding" schemes, where a 3rd party provides the deposit for 6 months until you remortgage it back .... lenders do not accept this approach ... are yuo prepared to be flexible with the truth .... and take your chances?  remember, its not the broker or deposit-provider who signs the mortgage application ... it is YOU!

2.  do you feel that prices are likely to fall 25% inside 2 years? if so, why bother buying to hold in the first place?  once the initial term expires, you will (most likely) drop onto the SVR ... can you afford that?  is the prop yield sufficient?  if not, can you stand a rental shortfall?  could you afford to pay down teh mortgage further?

"getting your head around BMV" ... don't complicate this.  it's just buying props cheaply from motivated sellers.  as with any business, you need to decide if the fundamentals of teh deal are sound, before you consider financing ... good finance won;t turn a poor deal into a good one. 

good luck.

Angela, its possible to over analise anything..and this industry is a good example. that s why in my experience most people talk themselves out of it in the end - which is good for existing players I guess

However, Pod talks lots of sense

Essentially i think that unless you feel that property will rise in the medium to long term, then you should not be thinking of buying it.

For example, where i am ..prices are 'slipping slowly' not crashing!,,yes VOLUME sales are down...but thats a different story. I look at it more analytically than sellers who are fed on Daily Mail reports and Trevor McDonald stuff on TV 

This is just good old fashioned horse trading, You have to take your own view - then act,

Example 

Ive just bought a house for 101k...7 year old immaculate 3 bed semi

it was on the market at 149,950

it had 3 offers in 4 months

140k/143k/148k

seller took 148k bid

sale collapsed 2 days before exchange..mort issues (surprise)

they were committed to buy a house in Scotland and couldn't/didn't want to pull out 

Took my offer of 101k (32% less than a sale that was proceeding on it - sellers dint change mind..couldn't get mortgage)...it sold for 94k seven years ago when new!!

Now....my thinking is..'thats a bloody good deal'...no sophisticated analysis needed from me on this one

It will rent at 595 easily..needs no work either

My subconcious thinking here is....

do i think it will ever be worth less than 101k?...answer - NO

do i think i will ever had it empty for ages?..answer NO 

do i think in say 10 years time this house will be worth over 200k? answer yes

Now. time will tell if im right...but my point is..i went for it rather than frighten myself by concocting some negativity

The secret is every time...buy extemely (embarrassingly) low..and stick to your guns....

Now is the time to not just make low low offers..but not have to justify them much either. everyone knows courtesy of our lovable tabloid press that the world is going to end soon..so lets thank them for their over reactions and use that hype (yes there are problems..but not as big as you would believe) as a massive lever when we are explaining to people about our caution and the fact hat we dont have to buy at a ll..unles the price is attractive enough for us to do so.

My point, if ive not made it....start to collect properties at massive discounts, that stack up and will rent out..as long as you believe that property will rise long term. 

Not as easy as it is simple...but certainly not impossible either!

Thank you all for your replies. Makes all perfect sense. I seemed to have had a bit of a "moo-moment".

Buying in a situation where the market has bottomed out (or at least when you believe it has) or so far below the value that a bit of a loss in value isn't an issue, because the figures stack up is all good.

And no, I don't believe the houseprices come down 25% but I do think they will come down a bit more.

I am well aware of the fact that BMV and NMD are not the same things, however I have not looked into the various schemes of NMD yet. I would research it in depth before going down that route.

With regards to sticking to my strategy, I find it a little difficult sometimes as the student lets in the areas I am interesting in rarely seem to be sold by "motivated sellers". I can easily achieve 8-10% yield, but not much of BMV in the prime areas. Am I asking for too much or do I have to try harder. I suspect it's the later.

Thank you all again.

Angela

PS: Please forgive me for any spelling or grammatical mistakes. I am German, but I don't throw towels on sun loungers or were socks and sandles, but I do like my *** (cabbage).

pod: 'BMV and NMD are not synonyms'

no, they aren't. they are acronyms.

Wizhard

I think you've totally missed the point in 'correcting ' pod

He was using synonyms in the correct context - in his reply to Angela

Synonyms are different words with identical or at least similar meanings...hence his point...BMV and NMD are totally different concepts...so aren't synonyms!

He was pointing out that the two are not synonymous - as many people think they are!

In other words...NMD and BMV (whilst being acronyms),  are terms banded about by many in property, however, they are not synonymous.

They are like Apples and Bananas..both fruits...but totally different.

Are you a school teacher? If so - apologies for my grammatical errors also.

Next week in the Singing Pig Grammar section ..determiners, prepositions..and adverbs...

thanks for that rialto. I did understand pod's post, as did most people on here I expect, and I do know what a synonym is. and I don't think agreeing with somebody can possibly be construed as 'correcting' them. my post was a actually little bit tongue-in-cheek: sorry you missed it.

and no, I am not a schoolteacher, so your grammar is quite safe :-]. mind you, if you think that teachers and good grammar go together these days, you obviously havren't been in a school lately!