If you are purchasing a property that needs light refurbishment before it can be let but don’t want to fork out for hefty monthly repayments or redemption fees there is a solution as Chris Longhurst, consultant mortgage broker explains…
Buying a property to refurbish and keep or “do-up” and sell continues to be a popular topic among our property investor clients. It is a simple strategy that is considered by many, yet obtaining finance for these deals can be expensive.
The majority of buy to let lenders will lend only where their security for the mortgage advance is considered ‘good’ on the day that the loan completes and the funds are provided. In other words, they will only lend on properties that are in a good, ready to let condition on day one.
So if the property is in a tired or run-down state, either through neglect or lack of investment, perhaps as in a probate sale, then unless the potential new landlord or investor has cash he/she must secure finance where the lender will take a risk on the state of the property in its unrepaired state.
Standard bridging loan
For many, a standard bridging loan will be the answer. In general this means:
• A monthly rate of interest, (currently c.0.70% pcm upwards is the norm)
• Interest deducted from the loan amount
• Monthly repayments
• Early repayment charges or exit fees
• A term of 3-12 months
What’s the alternative?
But if you really need to make your borrowing stretch as far as possible and are concerned about cash flow, then we do have access to a lender which is currently offering an alternative short term finance solution:
• An annual interest rate
• Interest added to the loan amount
• Interest can be rolled up, so there are no monthly repayments
• No early repayment charges after three months
• No exit fees
• A term of 1-2 years (allowing time for possible resale if required)
With this lender, investors can borrow up to 65% of the property’s value (in its unrepaired state). Rates start from 8.89%* pa (10.7% APR) with a lender arrangement fee of 2% of the loan amount.
Whilst this may sound expensive, it’s not necessarily more expensive than a standard bridging loan and works particularly well if you need to borrower larger amounts. And remember, the loan is usually only for a short period whilst the property is undergoing its transformation.
After three months you can exit without any early repayment penalties, then get the property let or sold.
To compare how this type of deal might work against a standard bridging loan do get in touch and we’ll do the sums for you.
Will you qualify for this loan?
This product is available to experienced landlords, high net worth individuals and those raising money for business purposes, so let us know if it’s of interest and we can explain in more detail how it works and ascertain if it’s the best option for you.
Refinancing within six months
And if you’re worried that you won’t be able to refinance onto a buy to let mortgage within six months (many lenders don’t offer this option), we have access to lenders that will – another reason to get in touch!
Currently, our lending brand Keystone will lend up to 75% of the enhanced property value with funds being made available within two or three months of purchase, provided that the new loan is no more than 90% of the original purchase price (including costs).
Interested in this product or need more information?
*Fixed at 8.89% 2 years. Early Repayment Charge:3% early repayment charge applies during the first 3 months. Overall Cost for Comparison: 10.7% APR. Loan to Value: 65% loan to value for loan from £15,000 (for buy to let properties) from £25,001(for owner occupied properties). Lender Arrangement Fee: 2%. Broker Fee: A broker fee of £497 will apply (other fee options available). Repayment Options: No monthly payments required. Fixed rate of interest set at outset and rolled up to redemption – daily interest compounded monthly.
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