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I have to say guys, I am VERY excited about this new Buy to Let (BTL) product emerging from the private lending company Cadogan St Helens.

POSITIVES

Their product is very interesting for a number of reasons:

1. They offer 85% LTV lending (high street lenders are at 75%)
2. They allow you to buy the property at gross price (or value) rather than net price (or actual purchase price)
3. There is complete transparency, and CDH knows that you are buying at Gross price. There is no mortgage fraud being committed here, which is a particular bone of contention for me!
4. All purchase costs (sourcing fees, solicitors, minor renovations and broker fees) can be rolled up and added to the loan amount as long as it doesn’t exceed 85% of the value of the property
5. You can use any surveyor you choose, as long as they are RICS qualified
6. You can use their solicitors or your own
7. There is no requirement for bridging finance
8. Property is bought in a limited company or SPV rather than in an individuals name. The is obviously a huge advantage if things go tits up (not ideal but its worth noting!)
9. They will allow a £1m credit line to start with, and if you spend it fast there is an opportunity for much more where that came from
10. 3 and 5 year fixed mortgage rates – At 6.49% I think its very reasonable.
11. Rental multiplier of 100% – Again thats a fantastic and market leading deal. Basically this means if the rental covers the mortgage they will lend

NEGATIVES

But there is also many negatives which concern me, and are currently being researched and picked to bits thoroughly:

1. Up front costs – huge at £20K + VAT. Can Cadogan Saint Helens guarantee that once you hand this over there will still be funding available?
2. Fees, fees and more fees. There is £20K upfront (2%), then £1195 + VAT per deal packaging fee, then there is a 3% arrangement fee before the deal even gets done! So on a £100K deal you are looking at 7% before you even add costs. So if you costs come in at 3% you will have to get at least a 25% discount off RICS to buy a property using NMD principles! Thats a very rough calculation by the way, but not too far off!
3. Redemption penalties – A massive 5% if you sell in the first year, and then it drops 1% per year after that. I suppose thats fairly standard, but if you get in a pickle and actually have to sell in the first year, the fees are above 15% when you take into account the up front costs! OUCH!
4. As you are buying in a SPV structure, the high street lenders will not lend to you when you come to refinance in 3 or 5 years time. You will have to get commercial finance, and have track records of how your business has been run. At the moment they will only lend at 70% LTV, which may be the norm for many years to come! So if you use my example above and buy a property at 25% off RICS, you will end up with only 15% equity after all the fees are added. In three or five years time, the market may have not rebounded by 15%! Think about that one for a sec!
5. And in addition to point 4, you will also be pretty scared to know that I have not seen anything in writing about what the standard variable rate will be after the 3 or 5 year period is up. I have had verbal confirmation that it will be 6.49% above the BOE base rate. Again, OUCH! If base rates are at 5% you will be losing alot of money each month if you cant refinance with a commercial lender
6. Their website isnt even developed yet! WTF?

And I could expand a little bit further as well on how a few more negatives, but I don’t want to push the boundary too far just yet! I will be updating.

But in summary I am still pretty psyched about the Cadogan St. Helens investment vehicle. I am not too worried about the fees, as I know that if a deal stacks, a deal stacks. Its as simple as that!

So, I am meeting with the director and MD today (Thursday 29^th of April) to discuss the finer details. I have met with their salesy type brokers already over a few beers but not all my questions were answered. I am hoping that I may even be able to ‘mould’ the product to my liking. These guys have only been up and running since November 2009, which means they may even be up for a few amendments! You don’t ask, you don’t get!

If you want to find out the results of my meeting tomorrow then email me at netmarketingmadness@gmail.com, I will be more than happy to pass on my findings.

Signing off for now…

D-dubbs
Information from Cadogan St Helens- Is it true 85% ltv?