Getting a Buy-To-Sell Mortgage

How to get a buy-to-sell mortgage

First things first, get in touch with us, and we’ll match you with a specialist broker. A buy-to-sell mortgage application can be complex, but your broker will be on hand to guide you through each step.

Map out your exit strategy

Your business plan and exit strategy will be key to convincing lenders that you can repay the loan. Renovation schedules, costs, and projected profit are also important, and any previous experience you have as a property developer can also help them feel confident in your plans.

Secure your deposit

Your deposit could be the profits of a previous property renovation or, if you have a portfolio of properties, the release of equity. You’ll likely need a minimum 25% deposit, so it’s key that you’ve factored this in, as well as legal fees and mortgage arrangement fees.

Identify the right lender

Lenders offering buy-to-sell mortgages are not usually present on the high street and are not easy to find without expert help, so your broker will be invaluable here. They’ll be able to identify the right lenders, plus negotiate rates and terms on your behalf.

Costs involved with buy-to-sell mortgage transactions

Budgeting for a renovation with a buy-to-sell mortgage isn’t as simple as taking the mortgage cost and adding on the renovations; there are many other costs involved that will soon add up.

These include:

• Mortgage arrangement fees:  These are typically 1-2% of the loan amount, so £1,000 – £2,000, for example, on a £100,000 mortgage. Some lenders also charge an admin fee for setting up the loan.
• Exit fees: some lenders charge an additional exit fee when you pay off the loan. This could be 1-2%, so check in with your broker about whether or not you’re liable for this.
• Mortgage broker fees: These vary depending on the broker and the complexity of your mortgage. Many of the brokers we work with take their fees from the lender on completion, and those that charge an upfront fee will refund this if they fail to secure you a mortgage.
• Valuation fee: Depending on the condition of the property, this could be anywhere from £100 to £1,500. Some lenders may offer to waive valuation fees as an incentive.
• Legal fees: You’ll need a solicitor to process the purchase.
• Contingency fund: Renovations notoriously run over budget, so make sure to have an emergency fund for unexpected costs along the way. You never know what you might discover once you start knocking down walls.

What are the pros and cons of a buy-to-sell mortgage?

If you’re considering getting a buy-to-sell mortgage, consider the benefits and downsides before you make a decision. We’ve listed some of the most common pros and cons below for you to consider.

Pros

• It’s easier to access funds than for a traditional mortgage. This is important if you purchase a property at an auction, as typically, you’ll have 28 days to complete the deal.
• There’s the potential to make a significant profit if the purchase price is below the potential resale value.
• Typically, a buy-to-sell mortgage is repaid when the property is sold or transferred to a residential or buy-to-let mortgage once the property becomes habitable.

Cons

• You often need to put down a larger deposit to secure a buy-to-sell mortgage than you would for a residential mortgage.
• Most buy-to-sell mortgages tend to have higher interest rates and late repayment fees.
• You might not be able to find a lender on the high street offering a buy-to-sell mortgage, as most UK banks don’t provide this type of lending. So, you might need to use the services of a broker instead.

Which lenders offer buy-to-sell mortgages?

While it may be possible to get bridging finance through one of the main high street banks, this kind of finance is more commonly offered through specialist lenders, and these specialist lenders are likely to be your broker’s first port of call.

Lenders currently offering buy-to-sell mortgages include:

• Precise Mortgages
• Octopus Property
• Together

Rates and terms will vary between lenders, but our rates table below gives you an idea of what’s currently available.

Please note that the above rates were accurate at the time of writing but are always subject to change at the provider’s discretion. The initial interest rate refers to the rate per month. Speaking to a mortgage broker is the best way to find the most up-to-date deals.

What are the eligibility criteria?

As with any kind of mortgage, your lender will have key eligibility criteria that they will use to decide whether or not to accept your mortgage application. There are some variations, though, between a buy-to-sell mortgage and a standard residential or buy-to-let mortgage.

Deposit

LTV is normally capped at a lower maximum than a residential mortgage but roughly in line with average buy-to-let deposits at around 75%. It’s possible to get 80% or sometimes even higher with some lenders, depending on your other circumstances. So, you’ll likely need a deposit of at least 25% of the property’s purchase price.

It’s unlikely you’ll find a 100% LTV bridging loan, but your broker may be able to help if this is what you need and have other assets you can use as security.

Exit Strategy

Whereas a standard mortgage would depend on your income from employment or projected rental income, bridging finance places less importance on this and instead considers your exit strategy – how you intend to repay the loan at the end of the term.

When flipping a property for resale, your exit strategy will be the sale once renovations are complete.

Credit History

While this may have some bearing, it’s less important than with other types of borrowing as the capital will be repaid from the property sale.

Therefore, lenders will be less relevant to you if you have missed or late payments in the past as long as they are confident about your ability to sell the property and have enough money to pay back the loan.

Loan Term

Most buy-to-sell mortgages are for terms of up to a year, with some as long as 24 or 36 months.

Being realistic about how long the flip is going to take is crucial here – renovation projects often overrun, and you don’t want to come to the end of your buy-to-sell mortgage term, so you have not been able to sell and repay the loan.

Are there any alternative options?

There isn’t a one-size-fits-all solution when it comes to buy-to-sell mortgages, and you may find, depending on your circumstances, that there is an alternative that’s a better fit for you.

Buy-to-let mortgage: If you’re unsure about your longer-term plans and want to rent the house or even live in it yourself while you refurbish it, you could use a buy-to-sell arrangement before remortgaging onto a buy-to-let or residential mortgage once all the renovations have been completed.

Cash purchase: If you have the luxury, you can buy your investment property in cash. This way, you’ll incur no interest or product fees, pay for the property upfront, and then pocket any profits at the end.

Release equity: If you have an existing property portfolio and plenty of equity, another option is to take out a secured loan or a remortgage against one of your other properties.

How Online Mortgage Advisor can help you find the right broker

As you can see, getting the best deal on a buy-to-sell mortgage isn’t simply a case of popping into your local bank – getting a mortgage for flipping is a lot more specialist and best done with the support of a broker who has specific experience in buy-to-sell mortgages and bridging finance.

Give us a call now on 0330 818 7026 or fill out our short online enquiry form, and we will assess your circumstances and set up a no-obligation chat with a broker who has the best skills match for you.