RBS Retracts Finance 24 Hours Before Exchange

Fellow blogger and investor Lyndon Forshaw has kindly agreed to be my guest blogger today. This blog is important.

It follows a real investor, who does property developing for a living, trying in vain to comply with the ever changing banking landscape, just exactly how poorly clients are being treated by the banks right now.

RBS Restrictions

Earlier this year, the Guardian newspaper asked its readers to nominate words and phrases which should be erased from the English language. One of the most popular suggestions was the word gobsmacked. One reader, Anna Newton, wrote that “the sheer ugliness and implied violence of the word makes me shudder with revulsion”. I couldn’t agree more.

However, when I found out last week about a little known mortgage restriction which some of the major lenders are imposing, I’m glad the word was still at my disposal. Otherwise I’d have absolutely no idea how to describe my reaction. I was absolutely gobsmacked!

A Real Developers Story

We’ve all become accustomed to the funding restrictions imposed as a result of the credit squeeze… the restrictions on loan-to-value ratios, limits on the number of properties you can own, higher interest rates, increased arrangement fees, longer tie-in periods, stricter credit checks. I can appreciate the reasons behind the measures and I’ve found ways to work around the various hurdles so I can continue to invest in property despite the squeeze. Recently there have been signs that the worst may be over and that some of the rules were slowly being relaxed. But the events of last week prove that we’ve still got a very long way to go before we can hope for a return to ‘normal’ lending.

I’ve been helping a friend of mine who’s taking his first tentative steps into the world of property investment. We sourced a property in need of substantial refurbishment. We did our research, estimated the cost of the renovation work, confirmed the potential sale value, calculated the maximum amount we should pay at auction and obtained approval for a bridging loan. The big day arrived and when the hammer came down we’d successfully bought the house for substantially less than our self-imposed maximum, bagging ourselves a bargain well below market value.

The purchase went smoothly and the finance came through as agreed. The builders were on site for several weeks, transforming the house into a bright, modern, welcoming home. Soon after wards we received an offer from a first time buyer who was already pre-approved for a Royal Bank of Scotland mortgage. Perfect. We snapped his hand off!

Solicitors were instructed. The RBS appointed surveyor approved the valuation exactly as requested with no retentions. A completion date was agreed and everything was going swimmingly. Or so we thought.

RBS – Retracted Contracted Offer

Just 24 hours before exchange we got a call from our solicitor. The RBS had just retracted their mortgage offer because – prepare to be gobsmacked! – we’d only owned the property for three months. Now it was obvious to all that we’d bought the house to refurbish and sell. The bank had appointed an independent surveyor who had valued the property to their satisfaction. Yet the bank refused to lend against the property, insisting that we’d have to retain ownership of the property for a further three months before they would approve the funding!

I’ve grown to accept the reasoning behind the ’six month rule’ when remortgaging a property but never dreamed the same criteria would be imposed for the sale of a property. I’ve been involved in property for many years and come across some strange funding requirements but I’ve never come across anything so ridiculous.

Our buyer has appealed against the decision and we’re awaiting the bank’s response. In the current market buyers don’t grow on trees so fingers crossed they have a change of heart otherwise we may have to mothball the property for three months, absorb the additional bridging loan payments and delay our next investment project.

I’ve spoken to a number of my contacts and it seems that some lenders have been implementing this six month rule for a while now. So I’m appealing for your help. I’m trying to find out which lenders impose the rule and how widespread the problem is. Have you sold a refurbished property recently? Did your buyer experience any problems obtaining finance? Which lenders were involved?

Hopefully by comparing notes we can help prevent more gobs from being smacked!

Our Comment

Would you have believed this if it had not come directly from the person involved? It’s a developers worst nightmare. With a little more digging we found that most lenders refer the matter to an underwriter. So if there has been a genuine refurbishment or renovation, rather than a flip, you would think the lender would be more likely to proceed. Obviously not. Remember, we reported before that RBS manangers are being paid bonuses to NOT lend and to get funds which have been previously allocated returned to the banks own coffers.

As I have said previously, if you have not looked further than the current mortgages and finance available via our own UK banks, then, now is the time to look elsewhere if you wish to continue developing or investing in property. We will shortly be launching our new service aimed at real investors who have proven track records in property investing and developing, so that we can introduce them to further funding possibilities via our team of private equity professionals.

The banks in this country are in a mess. If you want to continue doing something you love-you must find the best way to do it. We can help. Send us an enquiry and we WILL get back to you.

Please post your comments below and I will forward them to Lyndon.

You can read Lyndons Blogs here on his web site

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