Affirmative speaks to B&C about an application for finance it received in connection with two auction contracts for the same customer:
On the face of it the purchase of both properties looked to be great investments for the customer. The total price for both properties was in the sum of £360,000.
The properties were on the same road and in fact only separated by one other property. As the properties were being purchased under auction contracts there was little time available however a short timeframe does not mean cutting corners. Full due diligence is always required.
The seller had purchased the properties in a rundown condition and applied for planning permission to convert each of them into flats. One property was to be converted into 12 flats and the other property to be converted into six flats. Whilst planning was obtained for the conversion into 12 flats it was not obtained for the conversion into six flats.
Nevertheless, the seller went ahead with what he wanted and carried out a conversion of 12 and six flats respectively, let the flats and placed both properties in an auction looking for purchase prices based on rental yield. The rental yield in the particular area is one of the highest in the country and therefore had a significant effect on the capitalised value.
Now, property auctions can be places where bargains can be obtained. On the other hand property auctions can sometimes be a trap for the unwary. Glossy brochures, sight of the competition in the actual room and the speed of the hammer.
When we were presented with the application for finance we set about our normal due diligence (notwithstanding the time pressures) which involves detailed consideration of planning permission and associated plans. It soon became clear that unfortunately the seller had been far from transparent and that two flats that had not been approved by the local council. The seller had decided to create four studio flats as opposed to two one-bedroomed flats. The more than double rental return on these flats, of course, increased the capitalised value of the actual property, which in reality was not there given the potential for an enforcement notice to be served at any time.
With the assistance of the customer’s intermediary we worked with our customer and our customer’s legal advisers whereby the customer was able to complete on the one auction contract only (with the correct rental yield and capital value). It was a real team effort and one where not only we were able to provide the requisite funding but also add value in the process.
Alison Sturgess of Property Link commented: “Affirmative have restored my faith in the bridging and short-term industry. Affirmative carried out detailed due diligence at speed and throughout my discussions with the team at Affirmative it was very clear that there was a common goal in that the customer’s interests were paramount. Thank you also to PMS for having Affirmative on it panel”.
Commenting on the transaction, Director of Affirmative Finance, Gary Lederberg, said: “For many years Affirmative has not just been about providing finance. A successful transaction for Affirmative means our customer achieving what they set out to do, which often means making a good and correct return. If we believe that there are aspects of a transaction that will negate that return we will make the customer’s intermediary and legal advisers aware of the issue, and where possible assist. We want to provided that added value.”
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