Top ten reasons why you will never bring a No Money Down deal to completion ....

[Vanessa]

Still think you can do a No Money Down deal? It might be time to think again:

1. Lenders have such little appetite to lend that they are cherry-picking who they lend to.: According to my personal research only one in 20 mortgage applications where the person applying has the 25% deposit are going through to completion. What does that mean for the NMD borrower?

2. Credit rating: Credit reports are now scrutinised more than ever before by lenders. Any missed payments and they will think twice about giving you a mortgage offer.

3. Source of deposit: Most lenders now ask for the source and proof of deposit. They are suspicious of where this is coming from and now check in more detail.

3. Demise of the deal packager: Many NMD deals used to be pushed through by packagers who oversaw the whole process and used a "friendly" valuer who they could "influence". There are no deal packagers left as far as I am aware.

4. Brokers no longer allowed to choose which valuer goes out: Brokers used to be able to select a valuer from a "panel" of approved valuers. This meant they could work with a "friendly" valuer. This practice has now largely stoppped and many lenders are using an in-house valuer who cannot be "influenced".

5. Property Valuation: RICS valuers have been briefed how to spot signs that someone is trying to get a false valuation. If in doubt, they will down-value. By law, they have to value the property at the purchase price, or market value, whichever is the lower. By lying to the valuer about the price, or not disclosing the net price or how the deal is being structured, you are committing mortgage fraud!

6. Rental Valuation: Rents are dropping, making it harder to get a deal to stack. A down-valuation on the rent will stop any deal in its tracks.

7. Contesting a down valuation: Until recently, you used to be able to contest a down valuation by supplying comparables. These are now no longer accepted. The decision of the valuer generally stands.

8. Solicitors and lenders require full disclosure to all parties. If there is any evidence of non-disclosure, or the lender gets wind of anything fishy, they will withdraw the mortgage offer. This happened to one person I know the day before completion, and that person has been left on a bridging loan of £2K per month. It is extremely risky to buy anything on a bridging loan for the above reason.

9. Seasoning of title: Lenders now require you to have proof of ownership of the property for a minimum of six months before remortgaging or re-financing. This means bridging loans are no longer a vehicle for purchasing NMD.

10. Education: The internet has now provided education and transparency to allow people to understand the truth about NMD deals. This can only be a positive thing for the property industry as NMD was simply not sustainable and was largely a factor in causing the first credit crunch.

Conclusion: No matter how positive a mental attitude, how many courses you go on, how many NMD mentoring programmes you join, how many times you pay for a valuation, if you don't have the 25% deposit, it is very unlikely that you will be able to buy a property. Sorry for the cold hard truth. Yes, sometimes life it tough and it hurts, but better find out now than waste your money and time on something that is defunct. Strangely enough, I am in the same boat as you as no lender will lend to me anymore because I have too many mortgages, so I understand the frustration. My advice is to keep on educating yourself, get to grips with social media, try and set up some JV's, and maybe source deals for others too time-poor to do it themselves, allowing you to build up your own deposit.

Do other tribe members agree that there is a definitive decrease in activity on the NMD deal front. Is the message that there are no legitimate ways of doing NMD deals finally sinking in? Are the reports of more and more people being jailed for mortgage fraud putting people off talking openly about how they are doing it? With the transparency of the web, only the most foolish person would post on a forum advertising their NMD scheme!

We also know that the CML and the FSA are using forsensic accountants to see which brokers are doing a lot of business in these challenging times, and doing audits on people buying a lot of property to establish the legitimacy of the money trail.

Are the purveyors of NMD schemes changing their business model or have they just gone underground? Will they all start talking about lease options as the "new NMD"?

I personally believe that the legitimate NMD deal was dead and buried in April 2008, when Mortgage Express withdrew their bridge/same day remortgage product. Is this finally having an impact on the NMD industry?

Maybe you disagree with the above? This forum provides an open, supportive, and transparent way of discussing issues which affect the property investor, so please feel free to post an alternative view point.

Thoughts appreciated ....

[Marcus]

An excellent thought out piece that contains all the important points, thanks for sharing.

Spoke about this the other day with a friend, both of us agreed that the NMD 'noise' has abated significantly over the last couple of months. We thought one of two things might be happening, the message has filtered down to the masses at last or the NMD exponants have gone underground. What's the odds on all the NMD purveyors signing up to an Otten boot-camp, pretty high I expect.

One point I would like to add from personal experience, delayed acceptence. Sounds stupid, and is probably more a personal trait than anything else, but I didn't fully pull away from two - in the pipeline - NMD deals until about six weeks after I understood about 5 different systems. I suppose it would be better described as a 'sinking in' period. The process I went through was, "no chance, too many varibles," "that's an acceptable risk," "no it's not, that's better," "hmm, maybe not," and then finally, "bugger, none of them work!"

Please, no judgemental 'peacocking'. I thought the mental process I went through might be of interest to the community.

Marcus

PS: I'm using peacocking as a verb.

[Vanessa]

Thanks for that Marcus.

When you say "delayed acceptance" does that mean that you wanted to believe that it would work and it took a while for you to reach acceptance in your own mind that it didn't? I am sure a lot of people can relate to that!

I spent 6 months doing research of how to find a legitimate NMD deal structure after the MX route was withdrawn - I was so desperate to keep doing NMD's!

I spoke to virtually every scheme provider in GREAT detail, spoke to the CML, checked out the Law Society guidelines, spoke to mortgage brokers, solicitors etc ... and finally came to the conclusion that there were no longer any legitimate ways of doing NMD.

Most scheme providers admitted that it was "nudge, nudge, wink, wink" which is not the way to build a sustainable property business so it is my personal choice to steer well clear. Other people might be willing to take the risk, and that is completely up to them. As long as they understand the potential pitfalls then live and let live is what I say!

It's up to each of us to set our own standards of how we run our property business.

[Boutique: Tanya and Angela]

I like this post. I particularly liked your sharing of personal experience and can identify with this well-described delayed acceptance process and I am positive that I'm not the only person who does. Thanks for sharing

Angela

[Wasim]

Hi Vanessa

Your article captures alot of the reasons why NMD will not work in the current climate and that those pursuing them and paying for expensive courses will find it difficult to do NMD.

From a brokers perspective, ALL NMD schemes require you to withold information from the lender. If you know you are buying the property for £75k then how can you approach a lender and tell them you are buying it for £100k. As soon as you withold information from a lender then you are committing mortgage fraud. It really is as Black and White as that.

People do say their schemes have been checked and they are legal. Nothing could be further from the Truth. If you tell a lender that you are applying for a mortgage against the value of the property (£100k) rather than the purchase price (£75k) they will refuse to lend....Period!!!

Over the years, mainly due to amount of Private Vals i have had done, i have made friends with a number of valuers. All of them tell me that their company have told them that their PI cover must be Protected at all times. If need be Undervalue a property.

Colleys for example will value Newbuilds at second hand Prices...this is so if the prop gets repo'd then the lender is safe in the knowledge that the loan will be repaid. Who uses Colleys...HBOS Group...They are part of the Group. With the Merger with LloydsTSB there is a good chance that the new Group will also use Colleys.

Expanding on your listing:

1. Lenders are still cherry picking apps
2. Credit Reports and Scores - Not always relied upon..even if Excellent...I had a client who was declined because the lender had no more funds to lend that month.
3. Lenders will no longer accept re-typed valuation reports and will instruct their own valuations - hence the Demise of the packager
4. As above
5. Valuers do go the extra mile. Even if you rip off the For Sale board a day or so before they are due to visit, there still is a footprint on the internet that the valuer will use...Just google any address and see what comes up. You will be surprised
6. Along with Prop Val, rental Val is Key. Both are used to determine how much you can borrow. If a prop is worth £1Million and you are getting it for £500k then you would think you could borrow 75% of £500k. You could but if it will only rent at £450PCM then the max loan you could get is about £65k.
7. No longer possible as Valuers want to protect themselves from Claims from Lenders (PI Cover)
8. Solicitors could be held responsible if the deal goes through and then the prop gets repossessed. They could have the law society breathing down their necks...especially as more and more lenders are asking for Files when recent prop transactions go bad.
9. Agreed....most lenders will check with Land Reg themselves to ensure all ok.
10. Agreed, yet still more and more people want to buy this way. Unfortunately when i advise people that this is no longer possible they always say well so and so can do it or has done it...In that case..Good Luck.

Having been prop investors now for a good number of years, we know that these schemes do not work anymore and anyone still unsure needs to visit a Prop Investment meet and ask how many people are getting NMDs to work...Or go through the process and see that it doesnt work anymore. I still see people prepared to throw away money to learn how to do NMD in theory but in practice its not as easy anymore. If it was Vanessa would be first in the Queue and me probably just behind her somewhere.

Best regards

Wasim

[Marcus]

When you say "delayed acceptance" does that mean that you wanted to believe that it would work and it took a while for you to reach acceptance in your own mind that it didn't?

Spot on Vanessa. Rather than wanted to believe, I think a better description may well have been desperate to believe. It's an obvious 'mental tangle' people find themselves going through when they are financially constrained. They're thinking, 'how bloody easy would it be if all I had to do was find BMV property.'

The thing I've had to accept is, the market's changed so I need to change.

Will people using these schemes ever be held accountable? On the whole, probably not. What I do think will happen is an increased tightening of the loopholes and a few high profile cases. It's up to the individual whether or not they are happy with the risks. It's their decision alone and if they like, and understand, the odds then good luck to them. Personally, if the odds changed I would be interested, problem is the odds are going the other way.

Best wishes.

[Mark Tolley]

Hi

Have to stick my bit in here – I have been banging on about the problems with NMD for longer than most.

NMD legally is dead – Vanessa covers this quite clearly and the only point I would add is with regards the source of deposit check, its now getting more common to request 6 months statements so a flow of funds can be established. I am just arranging a mortgage myself with The Mortgage Works and although I already have mortgages with them, I was asked for 6 months personal statements and 3 months business statements – and I have a credit score of 999!

Also of interest is the following – This is an extract from one of the BM Solutions Head of underwriting with regards one of the biggest NMD scheme providers offering – BM are quite clear on the subject. This particular NMD provider still advertises and promotes their services and declined a recorded interview on the matter of this and other subjects with us.

Funny that!

Extract from April 09 enquiries from BM Solutions on NMD Providers Scheme

• This transaction removes the risk element from the borrower and places it with the lender.
• Effectively a loan of 100%.
• There is no financial commitment to the security (i.e. deposit).
• BM do not accept deposits raised by way of further borrowing.
• It is a requirement for the introducer to divulge the true source of the deposit.
• As our solicitor would be informed of the true transaction he would be required to report this to us.
• Does "quick sale" equal distressed sale? - We do not consider this type of business.
• The borrower can relinquish the security without risk to their own capital.
• Equity can easily be eroded in a possession situation leaving the lender with the whole risk.
• Additional borrowing will reduce the lenders security.
• Potentially borrowing in excess of 100%.

Overall we consider this to be a high risk loan for the lender and a no risk opportunity for the borrower. In these circumstances we will not consider any applications.

[Vanessa]

Thanks Mark and Wasim - great contributions! Yes Wasim, get in the queue behind me!!!

Mark - great to hear it in black and white from the lender's point of view.

Saw on another forum not so long ago someone saying that BMS accept a 25% "gifted deposit" or "gifted equity". LOL!

I do not know of any lender that even accepts 5% gifted deposit/equity. They want to see cold hard cash - all 25% of it!

[Mary Waring]

I’m glad that all the noise about NMD is getting quieter.

There is no way you can do NMD which is legal regardless of what those who promote the schemes may tell you. They will often tell you the scheme is “compliant” but then don’t explain what that means. At a property networking event I had someone trying to get me to support his scheme on the basis it was “compliant”. But when I asked if all the details were fully disclosed the answer was “of course not, because if that was the case it wouldn't work!” Enough said.

At the end of the day the only way it works it to make sure that not all the details are disclosed. And in that case it’s fraud. As Wasim said- very black & white.

Mary Waring
www.marywaring.co.uk

[Wasim]

Hi Vanessa

Thanks for the comments on my post and also Great to here it from Mark Tolley as he is an expert this field as well as Taxes.

25% gifted deposit...Last i heard the Max incentive you could use on a Resi was about 5%..if you were lucky...but that was sometime ago.

Regards

Wasim

[Marcus]

On the subject of those who provide NMD systems:

A while back I spoke to a provider and questioned him about his business in general. On top of the NMD scheme he also supplied BMV deals to other investors in his local area. He was bubbling over with excitement as he told me about the huge discounts he was achieving for those in his network. I then asked him how he personally dealt with lenders, "That's not an issue for me." "Why's that?" I said "Cos I haven't bought anything for 18 months!"

Speaks volumes.

[Stephen Fay ACA]

All the above points are valid. Lenders simply do not accept BTL mortgage business without a 25% cash deposit from the investor's own resources.

What many people don't realise is that the lender can investigate any current mortgage loan, at any time. So, once you have completed on a deal, the lender can still come back to you or your solicitor to enquire about any aspect of the application.

Many lenders use 'data mining' techniques to search for tell-tale signs of 'dodgy dealings'. If an application triggers a flag, that application goes on the list. Depending on the lender, their risk profile, their aversion to NMD, their resources, their financial position (etc), the case may be re-opened.

As lenders' finances have taken a battering, lenders are looking for any excuse to call in a loan. Most lenders in the past few years that have lent at 85% LTV are now stuck with loans approaching 100% LTV, and, crucially, those mortgage contracts are on "pre-credit crunch" terms that they would love to be able to wriggle out of.

Some lenders are considering offering some investors a reduction in their mortgage balance to entice them to remortgage elsewhere ... but if the lender can launch a sweeping review of a loan book and call in the dodgy loans, that is a far cheaper option.

BTL investment is by definition a capital-intensive game ... but if you buy undervalue, put in your cash deposit, and wait for 6 months, most lenders will allow a further advance. For me, I think that's a pretty fair deal.

The other angle here is that the investors who can only buy using NMD techniques (because they have no "M" of their now!) are now out of the game ... leaving more deals to go at for the investors who can finance a deal
;-)

[Roberta Ward]

NMD- RIP

Ive said it many times, Marcus you are so right about the belief factor-nobody wanted to believe they were dead so consequently it took a long while for it to really sink in.
However, it is ironic that banks can choose to call in a loan at any time when they were the ones responsible - or should I say-irresponsible in allowing these types of loans to be issued in the first place. Especially, as they have already made countless millions in the process. In some cases they offered even more than 100% of the loan, yet suddenly they are short of cash an playing hard ball. Inevitably that whole house of cards had to crash.

I know 'investors' whose whole portfolios have been set up this way who must be waiting for the knock on the door any day now from one official body or another.

Personally speaking Im glad the whole NMD fiasco is over and, as Ive said before, we will probably find those guys who promoted it so heavily going into options now. god 'elp us, that'll be the next thing we have to fend off.
Now perhaps, some of the get rich quick dodo's will die a death laving the serious investors / developers to get on with the job they have been doing for some time.

Roberta