Are property sourcers bad news?

THE QUESTION

Are there any issues with lenders granting standard BTL mortgages on properties bought via sourcing agents? It’s been rumoured that some lenders would not lend in this situation or, at least, not at their most attractive rates. Is this true?

THE ANSWER

A bit of a history lesson will help you to understand mortgage lenders aversion to sourcers and, yes, a lot of lenders do have one.

Remember this about mortgage lenders - they trust the normal and distrust the abnormal. What is normal about the sale of a property is that it is marketed through an estate agent. Anything that is not, immediately puts the lender on their guard.
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Much like an elephant, lenders have very long memories and they certainly haven’t forgotten getting royally stung in the pre-credit crunch era.

This was a time when 'property clubs' abounded, often linked to a training company, the most dubious of which was Inside Track. These guys offered an armchair investor option that sourced properties for investors. Typically, but not exclusively, these were new-build, city centre blocks of flats. Inside Track was far from the only property club operating at that time.

Over-inflated valuations followed by a property price crash meant these properties routinely lost 50% of their value. The negative equity situation that caused led investors in their thousands to let themselves be repossessed. So low were the values that lenders couldn’t recoup what they had lent.

Even though today’s sourcers don’t operate like property clubs did back then, lenders just think 'property club!!!' when they see a sourcer and not an estate agent.

So, you can definitely expect there to be a bias against lending on a property not being sold through an estate agent.

That doesn’t mean you shouldn’t purchase properties via a property sourcer, it just means you need to use smart financing to overcome the issue.