Sometimes properties that need some TLC offer buy to let landlords a great deal, but financing the purchase can be tricky. One specialist lender has released a new refurb-to-let product that has caught our attention and may be the financing solution you need.
Landlords are often frustrated that the property they want to acquire to let is not eligible for a standard BTL mortgage because it needs a cosmetic refresh before being deemed lettable. Buy to let mortgages require properties to be lettable on completion of the mortgage, so purchasing homes that do not meet these standards often need to be financed through bridging until owners can refinance them onto a regular BTL mortgage. Bridging can be costly, but it also creates uncertainty for the borrower about when and whether they will exit the loan.
While bridge-to-let has been a workable solution, a new range from one specialist lender aims to remove the need for bridging in these circumstances. One of the products, in particular, has caught our attention.
How does the refurb-to-let mortgage work?
This mortgage is available for properties needing non-structural and modernisation works, which can be signed off under the Competent Persons Scheme rather than buildings sign-off. While the property does not need to be in a lettable standard, it does require an EPC rating of E or above. Borrowers must complete works within 90 days of completion, and the costs cannot exceed more than 25% of the property's initial value.
Accepted works under the refurb-to-let mortgage
Acceptable works include but are not limited to complete re-wiring, improved insulation, replacement roof coverings, and non-load bearing internal reconfiguration.
Prohibited works include but are not limited to anything which requires building controls' sign-off, any load-bearing reconfiguration, and conversion of standard property into either HMOs or multi-units.
What loan to value (LTV) does this mortgage offer?
The refurbishment mortgage is available up to 75% of the pre-work value. Then 75% of the post-work value once the works are done and confirmed by the valuer upon reinspection.
Who can apply for this BTL mortgage?
This mortgage is available to both individuals and limited companies, and is applicable for standard buy to let properties, small HMOs and small MUFBs and short-term lets.
You want to purchase a three-bedroom house for £200,000. The property is not lettable, as internally it is very tired, and the bathroom has been ripped out.
The cost to refurb the property is £28,000, and the end value will be £275,000. Works will take six weeks.
The initial mortgage advance would be 75% of the purchase price, so £150,000. You would pay interest on this loan during the works period (unlike with bridging finance).
Once the works are complete, the valuer will go out, sign off the improvements, and then the lender will release a further £56,250, bringing the mortgage up to 75% of the post works value.
Refurb-to-let mortgage interest rates
With rates starting from 4.41%, this product offers an excellent alternative to the traditional bridge and remortgage exit.
What to do next
1st July 2022