Landlords are continuously faced with adjusting to changing legislation within the rental sector as well as tax legislation developments, meanwhile managing their own finances with the objective of making a profit from their property portfolio.
The type of mortgage used to fund property purchases is key to the profitability of a landlord’s business and therefore throughout this guide will explore the buy to sell mortgages.
What is a buy to sell Mortgage?
Buy to sell mortgages, sometimes known as bridging loans, are a short-term financial product to enable the purchase of a property, that you will sell before the end of the agreement.
One of the main benefits of opting for a buy to sell mortgage, is the flexibility offered, as with a standard mortgage an investor could be locked in for a specified duration as well as being liable for early settlement fees. Therefore, this type of finance option is popular with investors seeking to make a profit from purchasing and selling on properties.
Buy to sell mortgages are not usually available from traditional high street lenders, however, on the odd occasion that they do offer such financial products, the interest rates and fees may be higher than a standard mortgage. Therefore, a specialised mortgage broker is often sought to access a wide range of deals available on the market and seek the most competitive rates.
However, like most financial decisions, the most suitable product will depend on an individual’s circumstances and plans for the property, including how long they intend on owning it before the sale.
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Options available for buy to sell Mortgages
There are three common types of finance options under the umbrella term of a buy to sell mortgage. These are as follows:
Buy to sell short term loan
If the turnaround time of a property purchase and sale is expected to be very short term, under 12 months, for example, this quick process is often known as ‘property flipping’.
In this scenario, a bridging loan could be the finance solution to fund the purchase due to the short term nature of the financial product.
Bridging loans are a type of secured lending and therefore as part of the criteria for the mortgage, a procession of a high-value asset is required, which is ideal for landlords.
Bridging loans typically will be offered at higher interest rates compared to standard mortgages; however, they can be beneficial for landlords as they can be used to purchases non-mortgage properties, and also won’t have early redemption penalties.
Another benefit of using a bridging loan is the speed of the transaction, often the application and payment processes are much quicker than standard mortgages, and therefore having the finance available promptly can be an advantage for the landlord.
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- Can you get a mortgage on land?
- Refurbishment mortgages.
- Part and part mortgages.
- HMO mortgages.
Should the property sought to require refurbishments, especially on a large scale meaning that the current condition is unhabitable, obtaining a mortgage could be challenging. Traditional lenders will not approve a mortgage on properties in certain conditions, such as without a functioning kitchen or bathroom, due to the risks involved and therefore other finance methods will be required.
A refurbishment mortgage may be the solution. It is a short-term type of mortgage that requires a strategy upon application to notify the lender of how the monies will be repaid.
Refurbishment mortgages come in two types; Light refurbishment finance suitable for projects that do not require planning permission or building regulation consent to undertake the planned improvement works, or heavy refurbishment finance that would finance larger projects, typically that cost more than 15% of the property value.
The duration of the loan will require on the type of refurbishment mortgage opted for, and the timeline of the refurbishment works, however the longer the finance is in place, the more it will cost due to interest.
Refurbishment mortgages are usually offered by specialist lenders who would assess the property value after the proposed renovations have been completed, and therefore a landlord or investor can benefit from borrowing more than with a standard mortgage as typically standard mortgages are assessed on current property values only.
Flexible mortgages provide a landlord or investor with an option to save on early redemption fees, as often the timeline of property sales cannot be exactly planned.
An early redemption fee is charged on standard mortgages to penalise borrowers for ending a mortgage term early, whereas flexible mortgages have little or no early redemption fees so mortgage terms do not have to be considered when seeking to sell the property.
Flexible mortgages can be obtained for both residential and buy to let types of properties, however, they differ from refurbishment mortgages, as the property secured with the mortgage needs to be habitable.
Should a property investor be researching developing a plot of land to then sell on, often there would two types of mortgage suitable; self-build mortgages or development finance.
Should the development plan conclude with the mortgage owner living within the built property, a self-build mortgage may be option depending on the financial circumstances.
Self-build mortgages are often limited to 70% loan to value rate of the build cost, and therefore the balancing 30% would need to be self-funded as a deposit.
The funds are released from the lender in stages throughout the build. The work completed at each stage is then assessed by a surveyor, feeding back to the lender. The number of stages required would be set at the beginning of the process, depending on the scope of the building project.
Should the plot of land need to be purchased initially also, land mortgages would be an option.
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Buy to Sell Mortgages Summary
As every landlord or investor’s circumstances and background will differ due to many factors such as the number of properties within their portfolio and the level of equity available for further borrowing. As well as the objective for further borrowing, these other circumstances will be taken into consideration by lenders.
As the options discussed throughout this article are specialist financial products, a specialised broker would be required to review the individual circumstances as mentioned above, and the market conditions in order to provide tailored advice as well as source the best option and rates available.
Call us today on 01925 906 210 or contact us. One of our advisors can talk through all of your options with you.