What is a buy to sell mortgage?
A buy to sell mortgage – is actually a bridging loan – which is a short-term finance arrangement for purchasing a property. With a ‘buy to sell mortgage’ the purchaser has the intention to renovate and sell it, rather than buying to live in as a main residence, use as a second home or as a BTL (buy to let).
A traditional mortgage often has longer contract terms and ‘tie ins’ than what is necessary for a buy to sell property. In comparison, buy to sell mortgage loans are typically paid back within 12 months rather than years as with a traditional mortgage.
Buy to sell mortgages
If you’re looking to buy a house to refurbish and sell, then a buy to sell mortgage might be the right option for you. These types of mortgages are used by property investors to build or grow a property portfolio.
- Up to 75% Loan To Value (up to 100% with additional security, i.e. another property)
- Up to 85% is possible for refurbishment projects only
- Terms from 1 month to 24 months (longer on buy-to-let)
- First, Second and Third charge finance
Who might require a buy to sell mortgage?
There are many investors who have experience building capital from buying and selling houses. Usually, they will be monitoring the marketplace to find houses that are BMV (below market value) with good potential to renovate and sell for a higher price. Generally, sellers of these types of properties will want a quick sale. This is regularly the case when a person has inherited a property following a relative passing away or at Auction. In these instances, sellers can be more willing to sell below the market value.
As long as you plan well, do your research, have money for the deposit and have the additional funds to invest into the renovation, then buy to sell properties can be good investments.
Buy to sell mortgage (bridging loan) considerations
A buy to sell mortgage will require you to have more available cash than most other mortgage types.
You will usually need to be able to put down a larger deposit in comparison to other mortgage types. This is typically a minimum of 25%. Buy to sell mortgages also have higher rates of interest. This is because the house is likely to uninhabitable for a period of time while the renovation takes place and if you were to default on the mortgage, the lender could have a property, partially renovated that they can’t sell easily.
In addition to this, renovation costs will typically cost more than you initially anticipate. With this in mind, when setting your budget, it’s advisable to build a contingency of at least 15% for the cost of work.
Having said that, some lenders will consider lending 100% of the refurbishment costs. The first release of funds is based on a percentage to buy the property with the rest coming from your deposit. The second release of funds would be after the work is completed and a valuer has inspected the property. This means the actual total loan to value is based on the guaranteed value after works are completed.
In summary, you still need the funds to pay upfront for works but have the knowledge the lender will lend this back to you, thus increasing the mortgage balance.
Mainstream or specialist mortgages?
Knowing what mortgage product is best depends on your situation. More specifically, how quickly you want to buy and sell a property. If you’re looking for a turnaround within a matter of months, a more complex product may be required than mainstream lenders can provide. If you’re not looking to ‘flip’ a house as quickly or perhaps intend to live in the property or rent it out, a standard mortgage may work for you.
In addition, the level of work required to the property may dictate the type of mortgage product required. If a house is deemed inhabitable, or in need of extensive work, a specialist mortgage is more likely to be required.
High street or mainstream lenders tend to stick to simpler mortgage cases. This allows them to keep their products and fees more rigid and manageable but doesn’t cater for more complex cases. This is where specialist lenders can help. They may be less well known but are certainly no less reputable than more well-known lenders.
Fast bridging finance when it’s needed most to save a £21,000 fee!
Clever Lending can provide short-term finance for almost any scenario, especially when not meeting a deadline would have cost £21,000.
We helped one customer to secure a £420,000 bridging loan in just 9 days!
After working closely with the lender and solicitor, the customer was able to pay off his existing bridge and save having to pay a 5% default fee.
We also achieved a monthly interest rate of 0.65%
Bridging loans, residential mortgages or buy-to-let?
A bridging loan is perfect for when the purchase price of the property is significantly less than the potential value. Houses bought at auction, or that need extensive renovations are often considerably cheaper than usual residential purchases. Where a residential mortgage is based on the purchase price and can, therefore, restrict the rate, a bridging loan will consider the potential value of the property.
Bridging loans allow you to raise capital in weeks, rather than months, helping you snap up a property quickly.
A bridging loan is often only required for only a few months, typically 12 months or less. It’s repaid either on sale of the property, or by a residential or buy to let mortgage when the property becomes habitable.
Many users of bridging loans have an exit plan in place. They know how long their project will last and when they will be able to either sell or have a residential or buy to let mortgage on the property. Some bridging loans are closed, with a set time to end. Others offer more flexibility and are open-ended.
Due to their flexible nature, bridging loans typically carry higher interest rates than residential or BTL mortgages, albeit over a far lower period.
When looking to buy a property quickly, there are instances where residential mortgages may be a viable option. Provided the property is habitable and you will live there on completion, a residential mortgage could work. However, if the property isn’t habitable, a specialist mortgage or bridging loan is more likely to be relevant. If you aren’t to be moving in, you may need a buy to let mortgage (see below).
It depends on how quickly you wish to sell. Residential mortgages carry lower interest rates than bridging products but are far less flexible. Early repayment charges (ERCs) often make them unsuitable for getting out of quickly or cheaply, although there are some residential mortgage products with no ERCs, but these are likely to carry higher interest rates.
Buy to let mortgages
Buy to let (BTL) mortgages are suitable for investors looking to buy a property, without planning on living in the property themselves. Similar to a residential mortgage, the property needs to be habitable. The only difference is that it is not you living in the property upon completion. The same issues apply with regards to entry and exit fees or restrictions. These may bring into question how appropriate this type of mortgage is. It again depends on your intentions, and how quickly you intend on buying and selling.
6 Great reasons to choose Clever Mortgages
Multiple Lending Options
Every member of our team are experts in their field and know how to find the right solutions for customers whatever the circumstances.
Over 100 lenders
The number and quality of lenders we work with means we have access to a diverse spectrum of best-rate deals. The lenders we use means we have all areas covered – even for those in particularly niche circumstances.
Not every case is the same
As each customer’s situation is unique, we take the time to understand your situation, and we carefully assess your goals and how we’ll make sure the mortgage we get helps you to achieve them.
Access To Exclusive Rates
The relationship we have with our lenders means we have access to products and deals that simply aren’t available to customers going direct. This is true particularly for those in adverse credit situations.
Offering the best support
We know that the specialist market can be very stressful, so we do our upmost to make the process as hassle-free as possible. We’re there for you at every step, always keeping you in the loop.
We’re proud of our long-standing 5 Star Rating on Trustpilot, and love all the positive feedback we get from customers every day. We feel privileged to help people get a great deal with far less stress.
Why use a mortgage broker?
Mortgage brokers can help you find the best deals on the market – not just from one lender. With a broker you’ll get:
- Valuable knowledge, through years of experience helping customers to find mortgages and commercial deals
- An improved chance at finding a solutions – outside the box thinking.
- Help with the application process, as usually just one application can be used across various lenders
What should I do next?
- You can call us today on 0800 197 0504 complete the form
- One of our experts will give you a call to find out more about your situation
We have experts in commercial and residential lending, who focus solely on helping customers save money
- We do all the hard work for you
We search the market for the trusted lender that’s right for you
- Our expert will get back in touch
We can guide you every step of the way, and we’ll always keep you up-to-date with progress