A buy to sell mortgage is a flexible option if you're considering selling a property that you have bought recently. This guide looks at buy to sell mortgages, what they mean, and where you can apply for one!
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Buy to Sell Mortgages - What They Are
Buy to sell mortgages are shorter-term than a standard mortgage, and are designed for investors who are purchasing a property intending to sell it on.
There are lots of investors who purchase properties in this way, and reasons why this type of financing can provide the best solution. However, buy to sell mortgages are not a mainstream product, so the best lenders are specialists who have experience in the buy to sell market.
- High street mortgages are considering a medium-term investment - usually with a fixed term period that lasts between two and five years. If you are buying a property and do not intend to sell it within this fixed term, this is suitable and avoids any fees such as early repayment penalties.
- Buy to sell investments are shorter-term, and are used by investors who expect to repay the mortgages within a few months. Some buy to sell mortgages have a longer-term - for example if the mortgage is required to purchase a property requiring extensive renovations.
Buy to Sell Mortgage Options
There are three main ways to finance a property purchase for a quick turnaround.
1. Buy to Sell Financing
The first option is to use buy to sell financing. This is short-term lending for investors looking to turn around a property in less than 12 months. The deposit is usually around 20-25%, and the associated fees are typically somewhere around 2% of the loan. Interest is also higher, sitting at about 0.7-1.5%.
2. Flexible Buy-to-Let Mortgages
Some buy-to-let mortgages have no repayment charges, making them more flexible and a viable option for a short-term mortgage requirement. To qualify for this sort of mortgage, the property will usually have to be considered habitable, and so have essentials such as a bathroom and kitchen. The deposit on this type of lending is also around 20-25%, and the most competitive lending is available to experienced landlords.
3. Flexible Residential Mortgages
The third option is to find a flexible residential mortgage that will allow you to live in the property while it is renovated. The deposit value is lower and can be as little as 5-10% depending on your circumstances. To qualify, you'll need to be buying a habitable property, and will need to secure a mortgage which does not restrict you from selling the property on or charging early repayment fees once the refurbishment is completed.
Mortgaging a Fast Purchase Turnaround
If you are looking to by a repossessed property, or purchase a residence at auction, you will need a fast turnaround time on your mortgage application. Many property developers follow this business model and buy a low-value property, renovate it over a few months, and sell it on at a profit.
Finding fast financing is essential in this sort of deal. For example, if you purchase a property at auction, you will usually have to come up with the funds within 28 days.
The offer you have made is not considered final until contracts are exchanged, so there is a risk of losing out on the property if the financing is not available quickly enough.
Auction purchases usually carry a deposit of around 10% as an upfront payment, which can be lost if the sale falls through, which means having the funds available before you bid is much safer.
Residential Mortgages for Property Redevelopments
As residential mortgages evolve, it is less likely that this will be a viable option. Many lenders now include early repayment charges within their standard terms, meaning it would cost significantly more to use a residential mortgage to purchase a property you intend to resell.
Buy to sell is a specialist mortgage area. As loopholes in residential mortgages are closed, this type of funding is usually best suited to valid residential purchases, rather than for buy to sell properties.
However, there are still flexible mortgage options available. Choosing the right lender is essential to ensure you secure the most competitive rates and secure lending that can be repaid within the timeframe you have in mind for your resale.
One of the easiest ways to purchase at auction is to have an agreement in principle (AIP), which means that if your bid wins at auction, you are ready to proceed with the lending. This can also act as verification that your bid is authentic.
When purchasing a habitable residential property that needs renovation, using a standard mortgage is an option if you plan to live in the property yourself while the refurbishment is carried out. Usually, the deposits required and rates available on residential mortgages are lower than any other type of property financing, meaning it is attractive from a cost perspective.
If you do not intend to live in the property or the premises are not habitable, a residential mortgage is unlikely to be the best option.
Buy to Let Mortgages for Buy to Sell Properties
Another route to finance a buy to sell property is to use a buy to let product. Mortgage lenders may be willing to lend whether or not prospective tenants are ready to move in, and often a short-term financing option such as bridging finance can cover the cost in the interim.
If you plan to renovate the property and then let it out, then a buy to let mortgage is probably the best solution. This also depends on whether the property is habitable, in which case a buy to let mortgage may be the cheapest option.
Bear in mind that buy to let mortgage lenders may be reluctant to lend against an uninhabitable property needing extensive renovation before it can be let out.
In this scenario, there are specialist lenders who offer renovation financing, or short-term lending, which means that you can comfortably finance the property purchase and the works required. Once the property is ready to let, the financing can be replaced with a standard buy to let mortgage.
This often works well, provided the value of the property on completion, including the cost of the work, is higher than the original cost value. In this scenario, the remortgage will pay back the short-term finance, while also recognising the equity now held in the higher value refurbished premises.
Auction and Bridging Finance for Property Purchases
When you purchase a property and apply for a mortgage, the lender will always need to consider the value at which you are buying. This means that even if you are purchasing a property at auction for £80,000, knowing that in the marketplace the premises will increase in value to £100,000 with a little work, the lender won't be able to consider this anticipated value.
They will only be able to calculate against the £80,000 sale price, and won't be able to lend against the potential market value.
This means that it can be challenging to cover the cosy of a property purchase and renovation with any kind of standard mortgage product.
Specialist bridging and auction finance are targeted to this area of business, and as such, the lenders in the sector are more flexible in how they consider the amount of lending they can offer.
Both auction and bridging finance are short-term loans, usually with an interest rate far higher than you would expect to pay on a residential mortgage at around 1-3% per month.
As such, it is essential to know when the lending will be repaid, and how - whether by reselling the property at a profit, or remortgaging to retain as an investment property.
Most short-term financing applications can be completed within a few days, so are significantly faster than a typical mortgage application. This makes it ideal for auction purchases, where time is of the essence.
Closed bridging finance is where you agree with the lender when the loan will be repaid, and what your exit strategy is. Open bridging financing has a more flexible period, and is best suited to refurbishment projects where you cannot be sure when the property will be ready to sell or remortgage.
Finding a Mortgage for a Fast Property Sale
Buy to sell is a lucrative part of the market - although it does also carry significant risk. The crucial aspect of short-term financing is to control the costs to ensure these do not eat into your profits.
The best short-term financing with a quick turnaround depends on the exit fees since early repayment charges can strip a property project from making any profit at all. Standard mortgages with zero early repayment charges are one option, or short-term bridging or auction finance is another.
Standard Mortgages for Buy to Sell Properties
Mortgage fees are an essential factor when buying a property to resell, and exit fees are one of the most important considerations.
There are various other costs and fees included in mortgaging a property, including:
- Arrangement fees
- Valuations charges
- Legal costs
- Exit charges
- Early repayment fees
While standard residential or buy-to-let mortgages may come with lower interest rates, the exit fees can make this a much more expensive option than short-term finance. The best choice for your property investment depends on how much you need to borrow, and how long you need the funding for.
Renovation Mortgages for Investment Properties
Development finance is a specialist product and is relevant toy properties that you buy with the aim of refurbishing and selling them on ay a profit.
Any property deemed as 'uninhabitable' can be complicated to secure lending against through a mainstream lender.
The basic requirements for a property to be mortgaged as a habitable residence include windows and doors with locks, a kitchen and bathroom, and access to fully functioning utilities.
There are bridging finance products designed explicitly for renovation properties. This sort of lending looks at the anticipated value when the renovation is completed.
For example, if you purchase a property for £180,000 and expect to sell it in three months for £200,000, the lender will take £200,000 as the value to lend against - provided their valuer returns a similar estimate.
Self-build Property Mortgages
Self-builds can either consist of constructing a building on land you own already or purchasing land to build a property on. In this case, a self-build mortgage is usually the best-suited form of financing. Self-build mortgages release financing in stages throughout the build, often with a maximum value of 70% LTV.
A surveyor will assess the build at each stage, to confirm the valuation, and to allow the next batch of funding to be released.
As an example:
- You purchase land for £50,000 and want to build a property costing a total of £120,000
- The total financing cost required is £170,000
- A lender may fund up to 70% LTV, to a maximum of £119,000
- The land costs £50,000, and the lender will finance £35,000 of that cost
- Stage 2 involves the foundations costing £40,000, and the lender releases £28,000 towards it
- Step 3 consists of building the structure of the roof costing £40,000 and the lender releases the second payment of £28,000
- Stage 4 is the completion of the building at a final £40,000 cost alongside the last funding release of £28,000
In this example, the total financing is £119,000 against a total project cost of £170,000.
Self-build mortgages are a specialist product, and the most competitive deals can be found with lenders who understand the process and can offer flexible funding in line with the stages of your build.
For help securing a self-build mortgage, get in touch with Revolution Finance Brokers at firstname.lastname@example.org.
Mortgaging Land Purchases
Buying or selling land is a different proposition from buying or selling property, and we work with a network of niche lenders who specialise in this area of the property market.
Whether you are purchasing commercial land for a specific purpose, or residential land to resell or to build on, call Revolution Brokers for support in securing competitive lending to complete your investment.
As a whole of market brokers and experts in commercial investments, we scour the market for the most advantageous deals and negotiate with our lenders on your behalf to ensure you get the very best lending and terms.
Call our friendly team today on 0330 304 3040.