Buying non-standard construction properties

Your question:

A friend of mine has just been offered an HMO in need of some work. There’s probably about £20k in the deal, so it’s probably worth looking at from that point of view. Could be flipped or end up as NMLI.

But…

It’s a Wimpey no-fines house, ie poured concrete construction. I have heard that BM lend on these, but thinking of an exit strategy (immediate or in future) is it wise to go down this route.

If a flip, will buyers be put off by the fact there’s only one potential lender. If buy and hold, is it possible that one lender could re-assess their exposure and pull that product, making it a cash only deal?

What should I tell him?

The answer

I see this regularly… non-standard construction properties where the reduction in price comparable to similar standard construction properties in the area due to its non-standard construction results in a highly attractive yield attracts investors like moths to a flame.

There are several varieties of this type, mostly properties built for councils in the aftermath of WW2 by the prominent builders of the day. Concrete construction was a cheap, easy and quick way of building the housing required in the post war years. Wimpey No-fines is one of these, Laings Easiform is another.

Most mortgage lenders decline to lend on them, sometimes due to concerns about the long term destabilisation of the concrete but mostly because of the perceived reduced marketability of such properties due to both the type of construction and their less desirable locations within a town.

It maybe that your friend may find a lender who will be happy to lend, he may even have a choice of perhaps more than one and if that is so he will have a very good yield on it, as they are often easy to let.

BUT…

At some point in the future and very quickly if he intends to flip it, he will become the seller rather than the buyer and any potential buyer of his will have exactly the same degree of difficulty getting a mortgage as he will have experienced when he bought it.

If that sale is some point in the future, there is a very real risk that lenders who used to lend could have changed their criteria and lend no longer. Thus he is stuck with a property that can only be sold to cash buyers. That is a massively reduced buyer market and when did you ever see cash buyers pay top dollar for an unmortgageable property, regardless of the yield.

If he flips it in the short term and there is only one, possibly two lenders available who will lend, inevitably a proportion of would be buyers will indeed be put off by its potential future unmortgageabilty.

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