What is a buy to sell mortgage?

It is a short term loan that enables you to buy a property, in almost any condition, and then renovate to sell on as quickly as possible. The lenders are aware that borrowers will be doing this and so there are no onerous exit fees or early repayment charges to worry about.

These types of mortgages are provided by bridging loan lenders who are very good at assessing loan applications quickly so property deals can be snapped up. As with most bridging finance, the loan is very flexible and can be repaid at any time. As there is no intention to keep the property, most loans are repaid in around 12 months.

The bridging lenders are also happy to lend on run down or uninhabitable properties, perfect for auction property purchases. These types of finance deals are only available from specialist mortgage lenders and not through high street banks or building societies who would class the properties as unmortgageable.

How does a buy to sell mortgage work?

It is a type of short term bridging loan. Because of this bridging loans can be arranged very quickly, often in just a few weeks. This enables developers to move quickly on property bargains and bridging finance is regularly used at property auctions due to the short period required for completion to take place.

You will normally be able to borrow 75% loan to value (LTV) but a 100% bridging loan is also possible in certain circumstances.

The loan will be set up on an interest only basis. The interest is charged monthly but can be added to the loan and paid off at the end. You will find that the interest rates are considerably higher than a normal mortgage.

The loan will be secured on the purchase property, usually as a first charge.

When applying you will have to tell the lender how long you want the money for and also your ‘exit strategy’. Depending on the level of works required, most loans will be set up for 12 to 24 months.

The exit strategy is how you intend to pay off the loan and the the exit route is generally sale of the property. Once sold you will clear the mortgage balance, including any fees and rolled up (accrued) interest. Choosing to have the interest added to the loan, rather than paying it each month, is great for your cashflow but will mean that your overall interest charges will be higher.

Who is it suitable for?

The majority of these mortgages will be used by property developers and investors. However, there is no need to have previous experience of buying and selling an investment property to apply for one.

To make this type of property deal work you need to purchase a property below market value (BMV) or acquire one that will increase in value after refurbishment. The refurbishment works can go from a quick spruce up to building an extension and there’s more to read about this further down the page.

It fits very well for buying properties at auction for two main reasons:

What about using a standard mortgage instead?

There really are only 2 types of standard mortgage that could be considered:

1. Residential home mortgage
2. Buy to let mortgage

RESIDENTIAL MORTGAGES

You could apply for a second home mortgage, these are readily available.

The lenders will assess your income and this needs to support the mortgage on your own home plus this new mortgage. It may be possible to borrow upto 90%. These types of mortgage take quite a while to arrange, 4-6 weeks would be an average. Also the property must be in good condition and habitable, not helpful for your auction bargains.

You could apply for a moving home mortgage and then live in the property you wish to flip. Again this would take a similar time to arrange and the property must be habitable when you buy it.

BUY TO LET MORTGAGE

While buy to let mortgages can be arranged reasonably quickly it would still take around 4-6 weeks. Some BTL mortgages have small repayment charges and so could be considered for short term financing. Unfortunately the loan is assessed using the rental income that can be achieved upon completion, so the property again needs to be in a livable condition.

Buy to sell with refurbishment

It’s very likely that a buy to sell property will need an element of home improvement or renovation prior to being marketable for sale.

Depending on the severity of this you will find that most high street lenders will not be interested. However, for a bridging loan lender this is exactly what they are looking for.

The lenders will assess the planned refurbishments and then decide which of two loan types you are eligible for:

Refurbishment applications can be assessed on the fully developed value of the property, enabling you to get finance for some of the improvements.

How to improve your mortgage application

The mortgage itself is reasonably easy to qualify for as the lender is really just assessing the property. But there are some things you can do to improve your chances, and maybe get a more competitive interest rate.

1. Deposit – You will need at least a 25% cash deposit. If more is available then you may have a wider choice of lenders or negotiate a lower interest rate.
2. Good exit strategy – With a buy to sell the exit route is sale of the property. If you can put a strong case forwards for the refurb and include a good assessment of the property market for sale then this could get the lender on your side.
3. Credit status – This is not easy to change but all finance applications are better with a good credit profile. Most lenders in this market will ignore the odd late payment or small CCJ.
4. Experience – If the work you are proposing is classed as heavy refurbishment then the lender will want to know what experience you already have for the planned work.

How to apply

These types of loans can’t be found on the high street, they are only offered by specialist lenders. Some of these will be happy to deal direct with borrowers but many prefer applications to come via a mortgage broker.

One of the reasons for this is that a mortgage broker like ourselves will be able to assess a clients circumstances and that of the property and then recommend the best lender. This means that applications are more likely to be accepted and include all of the relevant information the lender needs to give a decision. 

What now?

Call us today on 020 8301 7930 to speak with our expert brokers. We have experienced advisers who can help clients with bridging loans and buy to sell mortgages.

• We do the hard work for you
• We will search for the best deal
• We can guide you through the process