Private Finance Warning! These BIG Mistakes Could Kill Your Refinance with Ellie Broadhurst Artwork

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Private Finance Warning! These BIG Mistakes Could Kill Your Refinance with Ellie Broadhurst

March 12, 2025 • Andy Graham • Episode 299

Are you using private finance to grow your HMO property business? And are you combining that with high street or bank finance? If so, that's great! In principle, there's nothing wrong with this approach. However, if it's not set up or managed correctly, it can lead to some serious issues, especially when it comes to refinancing or trying to repay your private investors.

In this episode, Ellie Broadhurst, our specialist mortgage broker will discuss the potential consequences of getting this wrong. And trust me, it’s easy to overlook or mismanage certain aspects. In fact, a lot of what we'll cover today may be things you’re not even aware of—yet they can be major red flags for a bank when it comes to refinancing. If you make these mistakes, you could find yourself in a difficult situation, unable to pay back investors or refinance your property. If you're using private finance, this episode is crucial for you.

Topics covered in this episode:

04:57 - Understanding the Risks of Private Finance in Property Investment
10:03 - Mitigating Risks and Ensuring Due Diligence
14:57 - The Importance of Source of Funds and Investor Background Checks
24:10 - Realistic Cost Assessments in Refurbishments
31:35 - Managing Timelines and Expectations
36:13 - Market Predictions and Future Trends

Contact Ellie here, if you’re interested in discussing your HMO mortgage and finance needs.

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Andy Graham (00:02.67) Hey, I'm Andy and you're listening to the HMO Podcast. Over 10 years ago, I set myself the challenge of building my own property portfolio. And what began as a short-term investment plan soon became a long-term commitment to change the way young people live together. I've now built several successful businesses. I've raised millions of pounds of investment and I've managed thousands of tenants. Join me and some very special guests to discover the tips, tricks and hacks, the ups and the downs, the best practice and everything else you need to know to start, scale and systemise your very own HMO portfolio now.

Andy Graham (00:40.674) Let me ask you a question. Are you using private finance to build your HMO property business? And are you combining that private finance with high street finance with bank finance? Well, if you are, great. In principle, there's nothing wrong with that at all. But if you don't do it in the right way, if you don't set it up in the right way, if you don't manage it in the right way, there can be some pretty catastrophic consequences when it comes to refinancing, to actually trying to get your private investment out and back to an investor.

In today's episode, Ellie and I are going to explore exactly what those consequences can be if you don't do this stuff right. And trust me, as you're about to find out, it's actually very easy to overlook this stuff. It's very easy to get this stuff wrong. In fact, I can almost guarantee that a lot of what we're about to cover in today's episode, you just won't be aware, is a major issue for a bank. When it comes to refinancing, if you get this stuff wrong, you could be completely stuck, unable to pay an investor back and unable to refinance a property. This is happening, so pay attention. I think this is a really, really important episode for anybody using private finance. So without further ado, please sit back, relax and enjoy today's episode of the HMO podcast.

Hey guys, it’s Andy here and we're going be getting back to the podcast in just a moment. But before we do, I want to tell you very quickly about the HMO roadmap. Now, if you're serious about replacing your income, or perhaps you've already got a HMO portfolio that you want to scale up, then the HMO roadmap really is your one-stop shop. Inside the roadmap, you'll find a full 60-lesson course delivered by me, teaching you how to find more deals, how to fund more deals and raise private finance, how to refurbish great properties, how to fill them with great tenants that stay for longer, and how to manage your properties and tenants for the future.

We've also got guest workshops added every single month. We've got new videos added every single week about all sorts of topics. We've got downloadable resources, cheat sheets and swipe files to help you. We've got case studies from guests and community members who are doing incredible projects that you can learn from. And we've also built an application just for you that allows you to appraise and evaluate your deals, stack them side by side and track the key metrics that are most important to you.

Andy Graham (02:49.486)

To find out more, head to theHMOroadmap.co.uk now and come and join our incredible community of HMO property investors.

Andy Graham (03:04.098) Hi Ellie, great to have you back on the show.

Ellie Broadhurst (03:06.098) Hi Andy, it's been a while, it's nice to be back

Andy Graham (03:08.098) It has been a little while. I can't remember quite how long it's been, but it was certainly before I took my time off on paternity leave. So it was 2024. Christmas. Obviously rates sort of came down and have continued to drop a little bit. But before we get into today's episode, which I'm looking forward to, because we're going to talk about something that I know has been an issue for a few people in our community about deposits and some of the issues borrowing private finance can cause in deals. And you're going to give us some of your firsthand experience on the other side of the fence to that. But before we get into that today, it's been a bit of a sort of a non-eventful sort of start to the year, it feels like. It just feel like there's actually a huge amount of interesting news that's been sort of happening in the property market.

Ellie Broadhurst (03:51.098) No, not really. I mean, it's still busy. We've got the stamp duty change, haven't we? End of March. It's been a good beginning of the year, people trying to get purchases through to save a little bit of money before the end of March. But yeah, other than that, quite non-eventful. Nothing's really happened.

Andy Graham (04:07.15)

We're really busy at the minute. We've got loads of completions happening today, in fact. And again, just like you said, rushing to get a couple of things through before some stamp duty stuff kicks in as well. Gemma and I buying our own home. But yeah, it feels like it's busy. Things are just sort of fine at the minute. Nothing's really scary on the horizon. There's obviously the renter's rights bill coming through later in the year, but we know about this now. I think pricing everything in. But maybe a bit of stability at the minute, which is quite a nice, actually quite a nice thing to have, isn't it?

Ellie Broadhurst (04:39.932) Yeah, it is a nice thing to have. I know there's still a lot of chaoticness going on around the rest of the world, but it does seem like the property market is fairly stable. End values and purchase prices are generally coming in as expected on valuations, which is always good. Yeah, relatively non-eventful.

Andy Graham (04:57.15) Well, before we wrap up today, I'll come back in and get your opinions on where you think the next three months might end up. But let's talk about deposits and issues that investors can have with deposits if they're not careful. Explain this sort of problem that can happen, Ellie. And it's quite a serious problem, isn't it? This can be really difficult if people get this wrong. They can end up being in a position where they potentially can't lend, and are stuck with an ability to refinance deals. Tell us a little bit about this.

Ellie Broadhurst (05:23.36) So I suppose there's a few things and I've seen it on the purchase and I've seen it on the refinance as well, but we are now in a world where investor funds has become quite normalised. Most lenders are quite happy with that in the specialist space, definitely not on the high street, but as long as you go to the right places, they're happy with that. It's definitely becoming something that is more acceptable and it's a really great way of allowing people to purchase more property, to grow more quickly, all those sorts of things. So a great tool. However,

Ellie Broadhurst (05:50.626)

The sort of flip side of that, I suppose, is with the growing use of investor funds, lenders are becoming a bit more cautious, I suppose, in terms of making sure that the whole deal fits. And we used to say things like, you know, lenders want you to have some skin in the game, i.e. they want you to put some money in, they want you to keep some of your own money in when you come to refinance. They're not so bothered about that. That's not so much of an issue, really. But what they do want is for the deal to make sense and for you to be able to do all the things that you say that you're going to do at the beginning.

So if you're borrowing money from an investor for your deposit or your refurb money, that money needs to be able to be paid back as per the terms of your loan. So that's the challenge. And I think I do speak to a number of people in your community as well as outside of that who have seen all these amazing ways that you can purchase property really quickly, purchase property, don't use any of your own money, all those kind of taglines that we see all over the place from mentors, not you. Thanks, Ellie.

But we see many mentors and property education companies saying these things. And I think it's all well and good when you're in that situation. I can see how it happens. You think, great, you know, this is a brilliant idea. I haven't got any money myself. Let's use other people's money. But don't really think through those steps in terms of how much money will you need to put down for the bridge to purchase a property.

How much money are you going to get on your refinance? How much cash will you actually end up back in your pocket? And out of that pot of cash, where's that going? And who do you need to repay? And have you got enough to repay everybody that you've borrowed money from?

Andy Graham (07:29.15) And I guess the problem is if for whatever reason at the end of that deal there isn't quite enough on the refinance coming back in to completely redeem your private investor or investors, that's an issue for the bank. That's basically what you're telling us.

Ellie Broadhurst (07:45.932)

Yeah, well, that's an affordability. I've got the issue where we haven't done the bridge. So we're now just doing the refinance. They've borrowed money. They're getting about 40 grand less than they thought they were going to get on the refinance because the valuation is coming a bit lower. And there will be an outstanding debt with the investor. So the question then is like, how does that work? We obviously need a new loan agreement. And is there then affordability issue? So if you are repaying that, say, I don't know, 500 pound a month over a period of time, is there enough room? because the property's got to stand on its own two feet and it's got to repay all the debts associated with that. So is there enough room in that deal to pay your mortgage as well as your loan agreement with the 500 pounds, for example, and still make that profitable and make that fit? In this scenario, it does. It's an HMO, so it's fine, but it's just another layer to think about.

Additional complexity and of course, I imagine if that was a scenario that might happen at the end of a deal for somebody, I imagine that not every lender would necessarily have the stomach for it. Some lenders might be willing to take a position on it and like you say, look at the affordability, but perhaps some lenders wouldn't do. And if you've gone down the line of lending with somebody who actually doesn't have the appetite for that sort of thing, that could be a decline at the end of the day. It could be. And then you're back to square one and have to...

Ellie Broadhurst (09:03.932) Yeah, and it's also things like talking to your investor, like is that what your investor wants? Because if they've signed a loan agreement to say that they have their money back within 12 months, and now you're then saying, I can't do that, does that mean that you then need to find another investor to pay off this investor to then move on? And then it just makes the whole thing more complicated. So I think it's, I would suggest mitigating that risk. know, obviously things do happen that are outside of our control, but I think doing some work at the beginning to make sure that that's not going to happen is probably the way forward.

Andy Graham: Okay, well, I think this is a great issue to highlight because I agree with you. I think that at the front end of the deal, when you're looking at the numbers and getting the cost for the refurb and you've got your investor signed up and things like that, that's the exciting phase, isn't it? And actually it's easy to overlook the nuance of sort of issues that you can actually have at the back end. And this is one of those things that we probably think about at a high level, but maybe don't quite give just enough thought to.

Andy Graham (10:03.926)

And we might think, for example, well, maybe I'd just sort of pay my investor any balance left over a period of time. But actually it may not be as simple as that, especially from the bank's perspective. So let's talk about these mitigating factors. Cause I think that's obviously the problem that mitigating this is obviously the solution. So talk us through some of the ways that we could do this. And I suppose perhaps one of the first ones when we're just talking about source of deposits and invests and things like this could just be due diligence. mean, there could, I suppose, also be the issue of a lender not liking an investor or that source of funds, right?

Ellie Broadhurst (10:40.932) Totally. Yeah. I mean, we had an example a while ago where a client wanted to borrow some money from, was a family member, but they lived in Panama. So that was a no. Funds were coming from Panama. Yeah, that was a big no. I think, yeah, big thing is to speak to your investor. They may be in the UK and you may make the assumption that this money has come from earned income or an inheritance or sale of a business or whatever, but it may equally have come from something like cryptocurrency, could have come from money, there's money family members from abroad, or there are lots of different places that this could have come from, which are unacceptable.

And the other thing is that we are now needing to prove more and more around that source of funds. So we don't just need a source of wealth statement, which is what we used to do. It is a big anti-money laundering potential problem. I mean, why would you take money from someone that you've got no idea where it's coming from and offer to clean that up from someone. It doesn't really make sense why we've never asked for this. I don't think, but anyway, we do need to know where that money's coming from.

So we've had a situation recently, it was a gift actually from a parent, which had come from an inheritance and we needed the probate letter. We needed to see the bank statement with the money coming in from the solicitor into the bank account so we can match that up and know where it's come from. We will need to know a bit more about where this money's come from and you need to make sure that your investor is happy to share that information.

Andy Graham (12:03.534)

And are you finding that this is every bank? Are some banks more exercising their diligence more than others? Are some banks more bothered about this than others?

Ellie Broadhurst (12:12.932) Totally, yeah totally. I think there is a real mix for the purchase. It depends on how it's set up. You've got some lenders who do far more underwriting within the bank and so the underwriter needs to check that and make sure they're comfortable with it. There are some, many, many bridging companies who leave the source of deposit totally to their solicitor. So then it would be up to the solicitor to decide what evidence they need and then there's a bit more of a broad range of information that they may need. So you might get away with it in some instances if it's left to a solicitor. But yeah, it's down to the lender, then we're seeing that there's more questions.

Andy Graham: Very quickly, again, I think that that's one of the reasons why anybody looking to lend with specialist products for the types of HMO deals that we're talking really needs to be talking to somebody like you or you, Ellie, because having these conversations and trying to get ahead of the sorts of issues that you might have with this sort of stuff is so easy, isn't it, to go down the rabbit hole chase. What looks like the best rate on paper. Actually it gets all the way through the underwriting queue. The loans are about to be offered and all of sudden it's declined because they have just, the senior underwriters just found this issue that none of the juniors picked up on and the whole deal falls over which.

Ellie Broadhurst (13:27.214)

Or even worse, it has been offered, it goes to solicitors, you've paid your legal undertaking and at that point somebody picks something up and says, actually this is unacceptable. you've paid so much. I mean, it's a similar sort of issue to planning. Planning is one of the first questions that I always ask people if there's any hint that it might be needed. But there are so many brokers that just leave that question to somebody else. And it's generally something that comes up far later on down the line once you've spent money and time and effort on the property.

Andy Graham: I think we all feel like we're a long way away from issues like money laundering. And the reality is, it is still the best way to clean money up.

Ellie Broadhurst: 100% Yeah.

Andy Graham: And it could only be one or two degrees of separation, but actually, I think there is a lot of money coming in from overseas as well. get contacted regularly by people based in the UAE and other countries outside of Europe as well, in part of my network, and know that a lot of lenders just will absolutely not touch anything that involves an international investor whatsoever.

Ellie Broadhurst: The issue really, there's two things I suppose. One is, have you got enough information to be able to support where it has come from? And often if it's coming from other countries, if it's money that's been put into that bank account, those countries don't have the same AML rules as we do. If you take cash into a UK bank of more than 5,000 pounds, they will ask you where it's come from, they might ask you for some proof. Whereas if you're putting that money into a bank in a different country, we don't know what rules they have and what checks they've done. So it's very easy to clean up that money by putting it into a bank account over there, bring it here, refinancing it. And then the other side of things is where the money's going at the end. So if you're refinancing a property and repaying a foreign investor, the bank generally doesn't want that money going abroad. They want it staying in the UK.

Andy Graham: So this due diligence that we should be doing on investors, how far should we be going on this? Obviously we can ask for disclosures, but is it enough? Do we need to be asking for more? Are there certain things that we should be getting that lenders, we should expect lenders are actually going to want to see?

Ellie Broadhurst: I would say at a minimum, I would ask for a bank statement showing the proof of funds. So it's a difficult one because it depends on where the money is coming from. If it's come from like a sale of a property or whatever is that lump sum payment into a bank account, it's very easy to prove. You can see where the lump sum payments come in and then there may well be a letter, so completion statement or inheritance or letter from someone or something just to match that up. That's a really nice, easy, win. If it's a buildup of funds over time, like savings from earned income, that is a bit more tricky. So you might want to ask for, I don't know, a number of months of bank statements. We wouldn't generally need more than sort of six to 12 months bank statements. So I would say that's what you need to ask for to show it.

Andy Graham: Okay. And is there anything else that banks are doing with these investors? They're investors, they're not necessarily owners of the property, but are they doing their own risk checks on these investors or not?

Ellie Broadhurst: No, they won't be. If they've got nothing to do with the limited company, they won't be. They're not allowed to be to do those because they're not applicants. It's around the source of funds and making sure that that is a legal source of funds. That's the key.

Andy Graham: If this was a JV and someone was actually investing with an investor, maybe doing a deal for the first time, going to do the first project together, maybe the investor's going to bring the money, they're going to own the property together, and maybe our listener's going to be the executioner, deliver the project. That would be different, right? The bank is going to do a much greater degree of due diligence on that investor.

Ellie Broadhurst: Yeah, so anybody who is a director and or more than 20 or 25% shareholder depending on the lender will need to go on the application. So if you're going on the application, then you'll need to provide your ID and bank statements and they'll do a credit check and all that sort of stuff. If you're going to JV with somebody, then I would personally be doing a huge amount more due diligence on that person because you are jointly applying for finance. So you will be linked to that person.

Ellie Broadhurst (17:34.05)

For me, I'd be wanting ID, proof of address, a credit search, proof of their income, bank statements. I would want the whole shebang, but I mean, I'm a bank manager, but I've got that. And also I see it from the other point of view. I see where people haven't done due diligence with JVs and so many times that it's really frustrating because we'll put an application into a lender and one of the applicants has got a CCJ, a missed mortgage payment, something like that, which means that not only are they un-mortgageable, but then we've given the lender that package of applicants for that property, that limited company, and that's then a no.

Because I can't then take that person off or whatever it might be and then resubmit it. You're not allowed to do that. So knowing all that information up front, I mean, personally, I wouldn't want to be getting into business with somebody who had some credit issues. Yes, some things are understandable. So, you know, small CCJ for utility bills as a landlord is not that unusual. But I'd want to know the full picture before I did anything.

Andy Graham: And the banks dig pretty deep on this sort of stuff, don't they? They're not just sort of doing just credit checks. They're searching. The banks have systems that they speak to with one another. They will look at connected parties, the companies that we all own. They'll kind of go down any sort of rabbit hole that they feel they need to.

Ellie Broadhurst: So they do a full business search. So any limited company that you are linked to will come up on that and they'll see all of that. So if you've got a CBL on another company, for the way, anything like anything, tax bills or anything relating to a separate limited company will come up. Like you say, linked addresses, linked people, there's everything on there that they will look at.

Andy Graham (19:14.606)

I imagine for a lot of people this part of today's conversation is probably quite eye opening because I think most people do think due diligence is about just making sure that somebody does live in the UK, they've had a job and they've maybe done a good credit check. But actually I think there is a lot more to it and if you get it wrong, that black mark could be with you and them for a long time. You know, if you link yourselves, it might be tricky to unlink yourself.

Ellie Broadhurst: Totally. Yeah. Yeah. I mean, I had one recently where a guy has got a very similar name to his brother who lives next door to him and a CCJ, a brother had a CCJ and that's come up and we've got to prove that it's not him. So they are looking at a worst case scenario and leaving it up to you to prove otherwise really rather than the other way around.

Andy Graham: Can I just point out as well, Ellie, that we're talking primarily here about refinancing. Sometimes we might be going to buy a property and get financing on day one. But I know people are working with investors buying in cash and then refinancing. because they're not jumping through all of these hoops for lenders on day one, because they're buying cash, maybe their solicitors are doing an AML check, they're not doing this due diligence or anywhere near the same due diligence that's being done on the refinance by the banks. And that's often where I've seen a huge discrepancy and people really struggle. Absolutely.

Ellie Broadhurst (20:33.326)

Absolutely. If you're buying a property, if you come to me and say, look, Ellie, this is my scenario, what do you think? And I could say to you at that point, do know what? That part of this transaction is not going to work. We need to find a way around that. There will be a way around it, I'm sure. And then we can go in and do that. But if you, for example, had bought a property with a load of money from someone in Panama, using that example, you've then created an un-mortgageable property. Unless you sit on that for a long period of time so that no one then cares. But it's not even like this six month rule of checking the source of deposit. It's not there anymore. Whenever you come to refinance it, those questions are being asked.

Andy Graham: Okay, so investor due diligence, obviously an important one and a lot to think about. Let's move on and talk about the deal itself. So I think the example you gave earlier was a good deal. Everything with the investor was fine. But the issue was that at the end of the deal, the refinance didn't allow enough funds to be relieved to completely pay off the investor. And that can be a challenge. So how do we mitigate that, you know, in your opinion,

Ellie Broadhurst: Yeah. So the important part is to do your due diligence at the beginning and really have a good understanding around how much money you will be getting out of the refinance when you come to refinance it and how much you've got owing and making sure that there's enough there. So I spoke to somebody this morning actually, and he didn't really understand the fact that he wanted to borrow 65% of the GDV on his refurbishment loan to purchase the property. And then when you come to refinance, he'd be refinancing at 75%. So the difference is only 10%. So if his GDV was 510, so he will be releasing 51,000 minus costs on that refinance. So if you're borrowing any more than 51,000, I know there's costs involved, but to keep it simple, from an investor, you're not going to be able to repay that investor on the refinance. And that, I speak to so many people that don't get that part, which seems

Ellie Broadhurst (22:35.384)

quite straightforward, but I think that it can, when you're putting things into your deal analyser, I don't think it's so obvious. It's not quite as obvious as that. So I think that's the key piece of information really is making sure, I know that if you're working every deal off a worst case scenario, you're never going to buy a property. I understand that. So you've got to be realistic with your figures, but don't rely on something only working on a best case scenario situation. And I think it's just about understanding that yes, your GDV hopefully will be 550, but it might be 500. So what if it is 500? What's the implication of that? What does your investor think about, you know, what you can have 90% of your money back or 75 % of your money back and then the remainder will be paid over a period of time. Just have those conversations so that it's not letting people down at the end or it's not like when we have the valuation done for the bridge and the GDV figure is not quite what you're expecting. That doesn't kill the whole deal. You've got to have some contingencies in there. And that's where the flip side is don't spend every penny that you have on a project because there's nothing left.

Andy Graham: Yeah. For me, I think there's a big difference between not buying and doing deals based on worst case, because like you said, we'd probably never do any deals, but there's a big difference between doing that and buying deals on a best case. It's got to be realistic. And that means you've got to do a huge amount of due diligence on the deal and actually be realistic with all of the costs. One of the things that I often see people conveniently glossing over is actually what it costs in refinancing and in and out fees and solicitors and legal costs and valuations and before you know it, 10, 12,000 quid is just stripped out of the deal. That can be quite problematic. And of course, we're talking about being realistic. Some people are a little bit unrealistic about the refurb budgets. I think that that is one of the places, particularly for new investors that they do really struggle with. Contingencies are an essential part of every refurbishment and we should expect that they are going to get used.

Ellie Broadhurst: Nothing ever goes to plan perfectly, it? Like have you ever done a refurbishment where things have been bang on to the penny? Like it just doesn't work, does it?

Andy Graham: I was talking to somebody recently and they've got some money in a SaaS and they want to use that money in a SaaS to purchase commercial property, to then get planning permission on to convert it to residential. And they want to create an uplift in that value. Working from very round numbers from a relatively small SaaS part and thinking that that sort of increase in value through the planning would be enough to kind of just make this whole thing work. And before I pointed out, actually, I got all your planning costs. Yeah. There's so many different consultants that you might need to approach and you don't actually know on day one exactly who you'll need to approach. No. Until you get into that planning application, the council might turn around and say, we want a daylight and sunlight impact assessment.

Well, that might be two and a half thousand. All of the fees, solicitors, sometimes you've got three, sometimes four legal parties working because of various things going on. I think it's incredibly important that every nuance of the deal is being stacked and kind of fact it into that and figure otherwise there's a good chance you are ultimately going to come up short on the numbers that you need to make any redemptions to investors.

Ellie Broadhurst (25:53.848)

Totally, totally agree.

Andy Graham: For all of our listeners who are not members of the roadmap, we've got a lot of content and videos on deal analysis, including an advanced deal analysis masterclass that I have done that covers this and a whole whole lot more. So anyone who is a little bit concerned that they might not be capturing everything, maybe go and check that masterclass out.

Ellie Broadhurst: So just to add to that, I am more than happy to, if you've got this sort of example scenario or something that you're looking at, it doesn't need to be a particular property. But if you just know what your general plan is, I'm more than happy to have a conversation to run through what your rough costs are going to be, how much you can borrow, interest rates, fees, and all that sort of thing. And then you can put that correct information into your spreadsheet and you'll have a much better idea of what you're looking at. So then when you do find a property, hopefully it works.

Andy Graham: Yeah, I know a lot of my mentees and our community members really value working with you Ellie and often do reach out just to get that really honest opinion from you. And sometimes, you know, the deal needs tweaking and sometimes it's all good. The phone's going to start ringing now, so.

Ellie Broadhurst: I think some people are afraid to call, because they're like, I haven't got a property yet and I don't really know what I'm doing yet. But you can't reach out too early in that scenario, in my opinion, I think, because otherwise you're ending up going down a route which may just not work. So it's wasting everyone's time, isn't it?

Andy Graham (27:14.158)

Let's talk about these contingencies then and the things that we can actually do. We've talked about contingencies, well, not contingencies, we talked about being realistic. So let's talk about the sorts of contingencies that we should be factoring in. I think one of them that you touched on is that arrangement with your investor and what that loan agreement actually says and how that might then be interpreted by a lender at the end of, well, when you come in to refinance it, there is a shortfall.

Ellie Broadhurst: That is a tricky one because I would always suggest doing a really simple loan agreement for say 12 months interest rolled up, we pay within that 12 month period because that keeps it simple and it keeps it clean. And if we can do that, lenders will always ideally want the loan to be repaid with the free finance. So when we move on to the term, there's no outstanding debt. That's an ideal scenario. But I suppose what I would say is just talk to your investor about the possibility that that may not happen and be prepared to then have an amended loan agreement to say 75% of it is paid off at the end of the 12 months and then you've got a new loan agreement for the additional 25%. Obviously, you be able to have a charge on the property. You could offer them a PG, but yeah. I mean, I am all about communication and under-promising, over-delivering is my whole mantra in life.

I do not want to be able to say to someone, yeah, I can do something when I'm not really sure that I can. So I think some people say, are you sure? Do you think we should do this? I'm thinking, well, we can do it, but I'm just telling you about what the things that could go wrong and the things that may mean that this doesn't happen. And I think you've got to have that same relationship with your investor. Under-promise, over-deliver. So have those conversations, put those conversations in writing, just be really clear. But in an ideal world, I wouldn't change those loan agreements away from a 12-month initially.

Andy Graham (28:57.196)

Okay, would you and do you think the loan agreement itself should have terms to extend or would you suggest that if at the end of the yeah, you could.

Ellie Broadhurst: You could put that on there, yeah, you could put something to caveat it, yeah, to say, I don't know how you word that exactly, but yeah, to put something on there to caveat it.

Andy Graham: Completely agree. I think full disclosure and complete transparency is so important. And I also think that it's unrealistic for either party, lender and borrower, to kind of overlook the fact that there is a very real possibility, given how the money is going to be used, that there may be a delay. That's why there are various mechanisms in loan agreements for that. But anybody who, for example, if an investor is relying on that money coming in on the day that your loan agreement ends, to do something that's incredibly important, like maybe buy their own house and they've exchanged and their completion day is like the same day. That is kind of suicidal. I mean, totally. Everybody has to be aware that there's a really reasonable chance that the loan could be delayed. It doesn't mean it won't get paid. It doesn't mean that it's outside of the kind of the remit of the loan agreement. There are mechanisms in place to deal with what happens in that scenario. But I think a lot of people, again, inexperienced investors and inexperienced borrowers particularly I've seen this on people making arrangements on smaller loans, maybe 50 and 100,000 pounds, which even though it's a smaller amount can mean a lot more to one party because it might be a big part of their savings. Put too much pressure on themselves to redeem the full balance on the day and it caused them a series of issues, bit of a domino effect after that.

Ellie Broadhurst (30:32.942)

Absolutely, I think that's a really important conversation to be had and it's about building relationships with people, isn't it? I mean, it's unlikely that you're going to have an investment through somebody that you have nothing to do with and don't know. If that's just by the nature of the game. But with any investor money, it's precarious in every way, isn't it? It's a personal decision. Somebody's circumstances could change and they may need that money back, but equally,

Yeah, that you may not ever get it in the first place because some things change. But I think it's just being really open and honest about the scenario, about how the money's being repaid, when it's likely to be repaid. And then just be really honest with them as soon as you know that there's a potential problem to be upfront. Don't just wait until the 12 month deadline and then say, no, I actually can't pay that back to you today. You need to be upfront and honest.

Andy Graham: On contingencies, I think there are a couple more things that come to mind for me. One is on timelines. And I'm sure you see this a lot, but how often do people think that the refinance might happen in four weeks as opposed to four months?

Ellie Broadhurst: I had a broker tell a client the other day that he could get, I've had two things yesterday, one said that they would get a refurbished through in four weeks, which won't happen. And the other one said that, he could get a refinance through in two weeks. I'm thinking the legals will take four weeks and the valuation takes two weeks from the date of inspection to the date that we get that back. So physically that's impossible. Yeah, absolutely.

Andy Graham: Just from recent experience depending on the lender you can be sat in a queue waiting for underwriting Definitely the underwriting and take ages then you can pass the underwriting and you might be in the queue just for the offer to be released and then the Legals and the legal team might be busy and then it might be bank holidays or it might be half term and there's so much stuff

Ellie Broadhurst (32:15.246)

There is so much. Yeah. But then I see so many people that take out bridges for six months when they've got a refurb timeline of three to four months and they think, yes, it's fine. It's plenty of time. It's absolutely not. And the problem then is that you end up, you go over the terms of your bridge. Most bridging lenders will have some sort of penalty, whether that's an increase in interest rate or a fee or whatever it might be. Apart from Shorebrooke, you want low rates on extensions. Shorebrooke are the way to go. And then you're eating into your profits. All that money that you've made is just being eroded by unnecessary fees. So being realistic with your timescales will save you money long term.

Andy Graham: Refurb as well. Yeah. Biggie. Yeah. We touched on it already, but being realistic about the total cost of refurbishments and being realistic about the contingency that you'll need. And just so everybody's aware, this is the way that we do it. This is the way I do it. I always leave four months from completion of a deal to get to refinance. So whatever facility I've agreed with either the lender or usually the development lenders kind of insist on that from us anyway, but private investors will always make sure we've got a comfortable run of performance because we know that lending can absolutely, that refinancing can absolutely take time. I think also having a builder's contingency, so a contingency of let's say 10% on your refurbishment costs. You think it's going to cost a hundred thousand, have 10% in there at least. It's also a very prudent idea to have building an employer's contingency, your own contingency that you don't necessarily need to disclose to your builder or anybody else.

But you just have above and beyond the whole kind of refurbishment package. And that's very normal when you're doing larger developments and it's just a good practice to have. So it does mean you might need to take a slightly bigger lending facility. It might mean that you need to borrow a little bit more for an investor that you may not need, but trust me, it's better to have it than not have it.

Ellie Broadhurst (34:08.59)

Absolutely. Totally agree. Totally agree. I think where I see things going wrong is where people have really stretched themselves and lenders, they don't like it. I've had a couple when people have got a few outstanding bridges, things are taking a little bit longer than they thought. Trying to refinance is taking a little bit longer than everyone thinks because it always does. And then you start to have a cashflow problem. And that's the time when there is a chance that you'll miss a mortgage payment or a CCJ will appear for some utility bill or something and the longer term implications for financing become a problem.

Andy Graham: It's also when you then start moving large sums of money around to try and fix a problem. Yeah. And the banks don't like that. They're going to see everything because they're going to ask for all of your bank accounts. When I'm doing my refinances now, the lenders ask for every bank account that I own property in, not just the bank account that this deal concerns, every bank account that I own property in. They can see everything.

Ellie Broadhurst: They can and any large transaction needs an explanation to it. Absolutely. yeah, try and keep it simple but like you say when it's becoming a problem that's when all the things start becoming unstuck.

Andy Graham: You know what, I think that piece of advice just there, Ellie, keep it simple. When it comes to lending is so undervalued. I think it is so incredibly important to keep it simple. Structures, bank accounts, income, expenses, moving large sums of money around, great piece of advice, keep it simple. It's very hard to explain. Lots of money moving around.

Ellie Broadhurst (35:41.55)

You just created more work for everyone involved.

Andy Graham: Ellie, I think this has been a great episode and I'm sure for a lot of people it has been really useful. I'm sure make them think a little bit harder about stacking the deals and making sure that they get it all set up in the right way so that they can get into the deal and also out of the deal safely. Before we wrap up, we're recording a sort of end of February, early March. What do you think is in store for us for the next few months? Just from a lender's perspective, values, interest rates, what do you think we might be looking at over the next few months?

Ellie Broadhurst: I think it'd be an interesting one to see what happens after stamp duty deadline. I cover it's four weeks away now, isn't it? Give or take. So there may be a slight dip perhaps in purchase numbers. We might see a slight reduction on, I mean, it's not a huge amount of stamp duty difference, but we might see a slight drop in purchase prices to kind of balance that out. We're expecting another sort of half a percent reduction in the base rate over the next, I don't know, six to nine months. So there'd probably be one production and then another one later on in year, I imagine.

That is having a big effect on residential mortgages, which is brilliant. It's not having the same effect on specialist lending in the same way because specialist lenders are looking at swap rates rather than base rate. And swaps are more of a prediction over a longer period of time. We've still got quite a lot of uncertainty going on in the rest of the world, which has a big impact on our inflation rates, our GDP. But yeah, I mean, I'm feeling a little bit more positive now. And hopefully things will start to settle and come down over the next three to six months.

Andy Graham (37:17.038)

Well, I think I'd probably share the same sentiment, Ellie. I can't see anything particularly exciting happening in either direction. So I think for the time being, hopefully a stable market, a good environment to buy, a good environment to kind of plan and predict. And I think it'll be interesting to see now as changes loom with the renter's rights bill, what happens with stock on the market. I think that that might be the one thing this year that we could see change a bit more significantly than anything else.

New stock, investment stock coming to the market because landlords who've been in the game for a long time have made their money, at retirement age, don't really want to be dealing with all this stuff. Maybe it's time that they're going to be bringing their stuff to the market.

We saw that with all the tax changes, didn't we? How many years ago it was now? Quite some number of years, but we saw that. And I think it's a fantastic opportunity for people trying to get into this. You've got old stock, you've probably got a load of HMOs in Article 4 areas that are coming in really poor condition and need some work doing to it. So that's another amazing opportunity to get into HMOs in more tricky areas than usual. Yeah, with change comes opportunity as long as you come at it from the right angle.

Andy Graham: Absolutely. Well, anybody listening today who is looking at buying a property, is going through the process and especially with HMOs and potentially needing a development finance, speak to Ellie. Ellie is the expert. She's got great relationship with the lenders. She helps so many of our community members pull their deals together and she knows this stuff inside out, which is very clear. As always, it's been a huge pleasure catching up with you. Thanks for your time today. I look forward to our next catch up in the next few months.

Ellie Broadhurst: Perfect, thanks Andy.

Andy Graham (39:04.686)

That is it for today's episode guys, thank you so much for tuning in. Hope you enjoyed that conversation with myself and Ellie. Hope you found it useful. I'm sure you did, especially as an investor who's possibly using private finance. Lots of really important stuff in there. Lots of stuff we all need to pay attention to. And remember, Ellie sits on the other side of the fence every single day. Ellie is talking to the banks, she's talking to underwriters, she knows exactly what these guys need. So just make sure you get this stuff right because it is incredibly important.

Now, if you are scaling up a HMO property business, then make sure you check out theHMOroadmap.co.uk. That is, course, where you'll find everything you need to start, scale and systemise, including over 70, maybe 80 case studies, incredible case studies from our community members with photos. We've got floor plans, 3D videos, all the financials, huge amounts of detail on huge numbers of projects up and down the country from small to big HMOs, from student to professional and everything in between.

Of course, we've got dozens of master classes, over 70 videos walking you step by step through the process of how to actually buy, refurbish, refinance, fill your properties with tenants and manage them and a whole lot more, including, of course, the Deal Stacker powered by AI, a really intuitive tool to help you stack deals quickly and accurately. Plus, you can get your hands on all of my downloadable resources and templates. And of course, if you're just looking for a bit more support and guidance, check out the HMO community. That's our free group on Facebook with over 10,000 members. Now it really is an incredible resource, great place to find all of the advice and support that you need from people doing exactly what you want to be doing. That's it guys. Thank you again for tuning in and don't forget that I'll be right back here in the very same place next week. So please join me then for another installment of the HMO podcast.