***Updated for 2016 | Preface by Alan. I have been helping property developers find finance for over 25 years now and was a property developer myself at one time. The turbulent times over the past few years have led to a number of interesting developments. Demand for short term finance is at an all time high and I have noticed a significant increase in enquiries from those buying to sell on.
I have created the guide below for those wanting to gain a better understanding of their options. If you’d like some no pressure advice, a free quote, or need immediate finance for a quick purchase then fill out the form below.
Whatever your property development finance needs, whether it’s a mortgage, a bridging loan, if you’re buying at auction or even if you’re purchasing land, the advisors Online Mortgage Advisor work with have wide ranging experience and will analyse all of the financial options available to you and help you to find the cheapest and most profitable finance going forward, that’s personalised in a way that’s fits best around your proposed project. Fill out the enquiry form below and an advisor will get back to you ASAP.
Buy to Sell Mortgage Guide
In this section of the site we cover specialist advice and information on mortgages for:
- Quick purchases
- Quick sales
- Properties that need serious renovation
- Self-build properties
- Buying and selling land
There are usually 3 options when you are looking to buy a property to sell on quickly.
- Buy to sell short term finance – If you are looking to flip a property by selling within 0-12 months, then the best option is usually a specific form of short term finance. For this you need a minimum 20-25% deposit and to be prepared to set aside extra cash for fees (approx 2% of loan amount) and higher rates of interest (approx 0.7-1.5% per month). Of course these fees and rates are every changing but it gives you a good ball park (at the time of writing). This type of finance is great for properties that are uninhabitable and in need of renovation before someone could live there, whereas mainstream mortgages require the property to be fit to live in. Examples of this may be properties that are not secure, don’t have suitable working facilities, no kitchen/ multiple kitchens, asbestos, etc.
- Flexible buy to let – If you have the intention to rent the property out, you may be eligible to purchase on a buy to let basis. Occasionally these mortgages come with low or no repayment charges should you choose to have the flexibility to sell it at any point. The caveat is that these mortgages are not designed to offer a short term solution to buy and sell and require you to actually have the intention to rent it out. For this reason the property is usually required to be deemed ‘habitable’ by the lender – meaning it needs to be secure, have a functional kitchen, bathroom, and utilities. Minimum deposit required 25-15% (any less than 25% likely to have higher repayment charges). For this option you will likely need to own your own property already, however if you are a first time buyer you can get buy to let mortgages with a handful of lenders, you will likely have repayment penalties if so.
- Flexible residential – The final option is to purchase the property with the intention to move into and reside in it, on a main residential mortgage. These are available up to 95% LTV (so long as you don’t own a residential property already). If you own a property already you will need to have minimum 10% deposit and be able to afford the new mortgage and any existing borrowing. The property must also be deemed habitable by the lender. The more deposit you have here the better, as usually the deals at higher LTV come with repayment penalties (which you will want to avoid if you plan to sell the property early on in the term), ideally 25% deposit will mean you have access to deals with little or no repayment penalties, but .
The term “buy to sell mortgage” is often used to describe the short term arrangement required to buy a property and sell it on as quickly as possible, but there’s a number of different reasons borrowers might want this type of finance. Typically, borrowers lean towards mortgage products from well-known high street lenders as opposed to smaller societies or institutions they’ve never heard of, but this is really not recommended for more complex situations, as most high street lenders don’t stray too far from the straight and narrow. As such their products can be quite restrictive in terms of rate, fees, and borrowing purpose, meaning you’d have to fit your plans around them rather than finding a deal to fit around you.
Mainstream mortgage products are for those looking for a more medium term investment, where being tied into a deal for 2 or 3 years isn’t an issue as you won’t be looking to sell and pay the mortgage off within a fixed period – avoiding any penalties.
Specialist mortgage products are for those that need to pay it off within a few months, or for medium term investments on properties that need serious renovation and aren’t habitable at the time of purchase. The lenders that offer these may have less of a high street presence but are no less secure or reliable.
Mortgages for quick purchases
Many investors house hunting at auction or scooping up a repossessed bargain often buy, renovate and sell within a few months to make their money, and more often than not these investors require some form of finance (those who don’t have the cash to hand!). Speed to completion is paramount in these deals as often the purchase must complete within a set time frame (usually 28 days on a repossession or auction property), and your offer is not secure until you exchange contracts, risking a gazumping if you’re not careful. Buying at auction means you must put in a large deposit (usually 10%) upfront and risk losing it from there on if the purchase falls through – so having the money already agreed before bidding is a safe option because you’re obliged to proceed once the hammer drops.
Using standard residential mortgages
A few years ago buying at auction with a standard mortgage was a doddle, as the competition for business between the lenders was fierce. The total number of mortgage products available pre-credit crunch was vastly bigger than now, and as such there were a whole range of fee free mortgages with no ERC’s, perfect for customers looking to buy and sell without penalty. Lenders would also pull out all the stops to bend over backwards and make sure money was released as quickly as possible. The service is still there with some lenders, but with others it has certainly declined, as has the number of products now available.
We had customers with flexible borrowing facilities on their current mortgages that allowed them an open tab, a pre-approved lump sum facility that they could withdraw same day whenever they liked, without having to make an application. These facilities were perfect for regular investors who needed instant cash when the right property came up. Nowadays these types of mortgage for new borrowers just don’t exist in the same capacity, and borrowers are forced to look for other specialist solutions. Having said that, it is still common practice amongst some of our customers to buy at auction using a standard residential mortgage, but we must choose the lender wisely based on best rates and best service, to find one that will stick to the time frame and ensure the mortgage is offered and money is ready in time to complete.
All lenders nowadays will give you an agreement in principle, which acts as a certificate to say you can borrow up to ‘x’ amount, based on the info given being correct and the property being suitable. When you’re buying quickly either at auction, a repossessed property, or another quick purchase this is helpful because it gives you the maximum amount you can afford to bid. If the property is structurally sound, habitable and you are moving into it yourself, then mainstream lenders that accept second homes on standard mortgage products would be a good option as they tend to be the most suitably priced. If you aren’t moving in at completion then many other mainstream lenders wouldn’t be comfortable financing it, so you’d need to find something more specialist.
If the property is uninhabitable in its current state and in need of renovation, then it’s unlikely a lender like this would consider the application, certainly not at any speed like you’d require. In these instances there are specialist lenders who are more than happy to approve lending on a ‘when done’ or ‘market value’ basis (lending based on the true property value, not the value you’re buying for).
Using buy to let mortgages
Often, investors come to us looking to buy and sell properties without moving into them themselves. For this they either need a buy to let lender willing to lend without tenants lined up, or a specialist short term option such as auction or bridging finance (especially if you are selling fast too). If you are planning on keeping the property and renting it out then a buy to let mortgage will be necessary. Again if the property is structurally sound and habitable then a standard buy to let product may be the most cost effective option. If, however, the property needs serious renovation before your tenants can move in, then a standard lender may decline the application.
In these instances you’d need a buy to let lender who specialises in properties bought as renovation projects, or you may need a short term arrangement such as auction or bridging finance to fund the purchase for you to do the work, and then remortgage onto a standard buy to let once completed. This can be a good option as the valuation of the property is likely to have increased once the work has been carried out, meaning you may be able to remortgage for more than you think, potentially covering the cost of some of the work.
Using auction mortgages/ bridging finance
The problem with using standard mortgages for quick purchases is that often you are buying at a bargain price that these lenders won’t recognise. Say for instance, the property is worth £100k and you’re buying for £80k knowing that a small spend to do the place up a bit would be easy money. Standard lenders will almost always lend based on the price you’re paying, £80k, not the true ‘market value’, £100k, which can limit the amount you can borrow and the rate you qualify for.
Some specialist bridging and auction finance companies will consider the market value and can lend based on this figure and look past the rigid purchase price. Auction finance and auction mortgages are a type of bridging loan, where the money is lent on a very short term basis at a much higher rate than a standard mortgage (typically 1-3% a month). Most borrowers have the plan in place to repay in full within a few months, either with a conventional mortgage or by selling the property on. This type of arrangement is ideal as it can be ready within days, rather than weeks, and can even be lent without the need for the lender to value the property – something that can often delay completion by a couple of weeks.
Bridging finance like this can either be ‘closed’, where the exit strategy and time-frame is clearly defined, or ‘open’, where the time to repayment can be flexible. Due to the uncertain nature of open bridging, this tends to be slightly more expensive than closed. Many borrowers buying quickly will take this as a short term measure, and then remortgage onto a standard mortgage at the earliest opportunity. If you’ve already paid your deposit and need access to quick finance then get in touch now.
Mortgages for quick sales
Buying to sell quickly can have huge benefits and also potentially huge risk, but whatever you’re plan is it’s important to make the most of your investment by minimising the cost. When you’re looking for a quick turnaround, finding short term finance without the exit fee’s can make a massive difference. This may be a standard mortgage with no Early Repayment Charges (ERC’s), or short term bridging or auction finance.
Using standard residential & buy to let mortgages
When you’re buying to sell quickly, minimising the fees and any exit or repayment costs is crucial. Most standard mortgages nowadays come with lender arrangement fees on the front end, along with the usual setup costs (valuation fee/ legal costs etc), and then ERC’s and exit fees if you want to change or pay off the mortgage within a certain timeframe. The cheapest rate is usually found with a standard mortgage, but often when you’re only borrowing short term this can make less of a difference than a large fixed arrangement or exit fee. It depends how much you want to borrow, and for how long.
As mentioned above, prior to the credit crunch the number of mortgage products on the market was far higher than today and, as a result, the range of flexible options is minimal in comparison. Most products with no ERC’s have larger arrangement costs and higher rates, but there are still some products that come and go from time to time that are perfect for short term borrowing – with no entry or exit fees. We will always consider these when searching the whole market for you.
Using auction / bridging finance
This is the ideal finance arrangement if you are repaying quickly, as they are designed for exactly that purpose. The only consideration is for the total cost of the borrowing and how quickly you think you can repay, as the interest costs are huge in comparison to a standard mortgage. Many developers and investors use bridging finance to buy and sell.
Mortgages for properties that need renovating
Property that needs renovating can be a tricky thing to find finance for. Whether you own it already, or your buying it to do up, most conventional mortgage lenders are likely to decline any application where the property is not currently habitable.
Habitable = The property may need some updating to be ‘nice’, but is deemed habitable if it meets the following criteria: Fully enclosed with all windows/doors etc. Lockable entrance. A kitchen and bathroom with core amenities (water, gas, electric) functioning properly.
Properties without a kitchen or bathroom would usually be declined for mortgage purposes. Specialist bridging finance companies can lend to those that want to buy to renovate and sell a property for a higher price, as they can calculate borrowing on a ‘when done’ basis. This means if you have a property currently worth £180k, and plan to renovate to sell in 3 months for £200k, the lender will consider the loan based on the £200k valuation (subject to their surveyor agreeing with your estimates of course) – potentially helping you with funding the work.
Mortgages for self build properties
If you want to build your own property on land you already own, or on land you are looking to buy – a self-build mortgage is usually the most appropriate solution. These mortgages work by releasing the funds in stages, usually at a set loan to value (LTV) (approx. 70% max) at each phase. Between each phase the surveyor will assess the property is being built to standard and then only after each phase has been signed off will the next phase begin and further money released.
So, let say you’re buying land for £50k, and the total build cost is approx. £120k, so in total buying and building the property will cost £170k. Lets also say that most your lender will lend is up to 70% LTV, with a maximum available borrowing therefore at £119k, and the rest coming from your deposit (whether that’s in savings, other unsecured borrowing, or some other vehicle). With the £50k land purchase being phase 1, your lender would initially approve you for £35k. Phase 2 might be for the foundations and lower level building, costing £40k, so the lender approves a further £28k for this. Then phase 3 might be the second level build and roofing, costing a further £40k, and the lender approves a further £28k. Phase 4 might be the final phase where the electrics and utilities are installed, along with finishing the property to completion, costing a final £40k, lending the remaining £28k.
For more on self-build mortgages please see our self build specific pages.
Mortgages for buying and selling land
If you’re buying and selling land, then as specialist whole of market brokers we can help. The process can be a little more complex than buying a standard property depending on the circumstances, but we have advisors arranging these types of mortgage regularly and are well experienced. We’ve helped people purchase land privately in a variety of different scenarios, including purchasing prime agricultural farmland, land purchased for logging as well as just land for property development. Get in touch and one of our experts will let you know the best way forward to fit your needs. As ever, any initial advice is no obligation and free.
If you’re ready to make an enquiry please fill out our quick form below and one of the self-employed mortgage experts we work with will be in touch ASAP. If you require immediate assistance please give us a call.