Refurb to Let: Remortgaging Against OMV within Six Months

The Client: an experienced landlord who purchased properties via his limited company. He looked for properties in need of light refurbishment, completed the work and then rented the properties out.

The Property: a three-bedroomed mid-terrace property in Wales. It needed a new bathroom, kitchen and carpets throughout, in order to bring it up to a rentable standard.

The Finance: the client required a buy to let mortgage to purchase the property, including some additional funds to complete the light refurbishment works.

The Challenge: the property had a low purchase price and was not in a rentable condition; as such, it was not possible to apply for a buy to let mortgage to secure the initial purchase.

Additionally, the client had specified that once the property was in a rentable condition, he wanted the buy to let mortgage based on the new value of the property. This was likely to restrict the number of lenders available to us as the majority would base the post works valuation on the purchase price plus the amount spent completing the works. By securing a lender who would value the property anew, post works, the client could immediately realise the profit he’d made and use it to move onto his next project.

The Solution: to allow the client to raise the finance necessary to purchase the property and complete the essential refurbishment works, we agreed with the client that a short-term bridging loan would be the most suitable option. However, to satisfy the bridging lender, we also needed to line up an exit for the loan in the form of a buy to let mortgage.

Using our knowledge of the market, we discussed the possibility of a post works valuation with a few buy to let lenders that we thought would consider it. Fortunately, we were able to reach an agreement with a lender who could also provide the bridging loan, meaning the client could move seamlessly from the bridging finance to the new buy to let mortgage, releasing the profit he needed for the next project. Here are the details:

Property Details

Bridge Finance Details:

Property purchase price: £68,000

Property value after refurbishment: £120,000

Bridging Loan amount:  £51,000

Bridging LTV: 75%

Bridging Rate: 0.75% per calendar month

Term: 6 months 

Lender arrangement fee: 0.75% (£382.50)

Buy to Let Exit Finance Details:

Mortgage loan amount: £96,000

Mortgage LTV: 80%

Mortgage rate: 3.49%, 2-year fixed

Mortgage term: 25 years, interest-only

Mortgage payment:  £283 per calendar month

Lender arrangement fee: 1.5% (£1,440)

Rental income: £600 per calendar month

Gross yield: 5% per annum

Application: SPV Ltd Co 

Consultant: Andy McOwat, 01625 416396

28th February 2020