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 property developer, 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 ( Subsequently NRAM) 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.  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, strict 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.

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. Then 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 24 hours before completion

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.

It seems that some lenders have been implementing this six month rule for a while now. Let us know if you have had similar problems. Hopefully by comparing notes we can help prevent more gobs from being smacked!

Editor Comment *UPDATE* 2012

We found that most lenders refer the matter to an underwriter. Regardless of the desired end result, banks don’t care about the developer any more.They only care about getting the loans off their books as we reported in our recent Banks Calling In Commercial Loans blog.

The banks in this country are in a mess. Since this article was submitted we have been working closely with corporate write down specialists to help rescue investors by writing down and refinancing loans. If you are in trouble with commercial or property loans, contact us, we probably can help.

You can read Lyndons Blogs here on his web site

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