New and Unique Refurb to Let Mortgage
It’s not often we get excited about a new buy to let mortgage offering, but this latest offering for landlords is currently the only one of its kind on the market! Business Development Director, Jeni Browne, explains why you should be excited about it too!
Lenders have always been clear that if a property is not in ‘lettable condition’, you can’t have a buy to let mortgage for it. Instead, you have to take out bridging finance to secure the purchase, refurbish the property to a lettable standard and then refinance onto a buy to let mortgage afterwards. But not anymore!
One buy to let lender has made a unique addition to their criteria, allowing you to purchase an ‘un-lettable’ property on a buy to let mortgage, on the goodwill that you will complete the works necessary to bring it up to rentable standard. To ensure you complete the refurbishment, the affordability is calculated based on the projected post-work rental income. Therefore, if you do not complete the works, you’re likely to be left short-changed in income, and in breach of your mortgage contract.
What are the benefits?
The primary benefit of this product is that it can save you money. Bridging finance, while incredibly useful, is often perceived as expensive. Furthermore, there are often additional fees associated with refinancing onto a buy to let mortgage to exit from a bridge; this new product reduces both of those costs.
The lender offering this new buy to let mortgage accepts both individual and limited company applicants and is comfortable underwriting for complex company structures. There is no maximum limit on your background portfolio, age or a minimum income requirement.
Offering two or five-year fixed rates, up to 75% loan to value (LTV) on either capital and interest or interest-only repayment structures, it’s a very accommodating lender. Another perk is that on five-year fixed products, there are only two years of Early Repayment Charges (ERCs), meaning it’s a good option if you’re looking for a bit more flexibility for your property investment plans.
What are the drawbacks?
These products are restricted to light refurbishment, meaning that no structural work or changes requiring planning permission can be required to make the property lettable. Light refurbishment tends to include fitting a new kitchen or bathroom, general decorating and improving EPC ratings with insulation and boilers. Furthermore, unlike with some bridging loans, you will need to have the funds available to complete the required work, as well as a minimum 25% deposit for the purchase. Consequently, you’ll potentially need a bit more available capital than if you were purchasing a property already at a rentable standard. On the other hand, properties requiring light refurbishment are usually cheaper than a newly refurbished property of the same type.
One of the benefits of purchasing property with bridging finance is that it leaves your options open once improvement works are complete. Typically, the two options are to refinance onto a buy to let mortgage or to sell and release your profit immediately. By taking a fixed mortgage (even with a short ERC period), you’re committing to keeping the property once works are complete and cannot release capital as quickly as if you’d used bridging finance. However, if you know you’re adding the property to your buy to let portfolio, this could be a cost and time-efficient product to consider.
I will add that the rates from this lender start a little higher than other buy to let lenders. However, as a broker we will be able to draw up a comparison of costs for this product vs the traditional bridge to let route. For some, the traditional route may be cheaper, and for others, not. As with any property finance, it really depends on your circumstances. None the less, it’s brilliant that there is now another option out there!
If you’d like to know more about this new buy to let offering, and how it may benefit your property investment plans, call our experienced team today on 0345 345 6788 or email enquiry@mortgagesforbusiness.co.uk.
11th November 2020
