Releasing equity for buy-to-let opportunities?

Bangor1

Hi folks,

I am hoping this might be the right board but apologies if I have missed the mark with this. I have a couple of questions about property investment and how to fund it. Essentially I have been given an opportunity to buy an apartment "of plans" in a lucrative market in Northern Ireland. I have heard that it is becoming a common place investment practice to buy such properties and then sell them before completion for a profit. Of course the issue is that approx 10% of the completion price is required to secure the apartment. This has raised three questions for me and I would really appreciate it if anyone could answer these.

1. Is my theory correct in the first place - can I secure an apartment by deposit and then sell it for full price before it's actually completed thereby meaning I never need to get a buy-to-let mortgage???

2. Is it feasible/legal or advisable to raise the necessary money to do this by releasing equity on my home which will be paid back as soon as I have sold the apartment?

3. Assuming it is feasible and legal is it true that I can not extend my existing mortgage to do this and must take a homeowner loan instead?

Cheers

Guy_Montag

What happens if you can't sell?

Do they just take you deposit or will they chase you for the full amount? Can they take & sell your main dwelling if you don't cough up the full amount?

Debt_Free_Chick

Bangor1 wrote:

1. Is my theory correct in the first place - can I secure an apartment by deposit and then sell it for full price before it's actually completed thereby meaning I never need to get a buy-to-let mortgage???

Generally, no. You can't sell it until you own it and you don't own it until you've completed and paid the full purchase price.

What normally happens is that you line up a buyer. You then complete on the purchase, from the developer, and the sale, to the buyer, on the same day. ...... In theory

2. Is it feasible/legal or advisable to raise the necessary money to do this by releasing equity on my home which will be paid back as soon as I have sold the apartment?

Possibly - depends on the amount of equity you have on your current property ... and your credit rating.

3. Assuming it is feasible and legal is it true that I can not extend my existing mortgage to do this and must take a homeowner loan instead?

Subject to sufficient equity, many lenders will allow you to increase your mortgage (a "further advance") without caring what the money is for! Second property; car; home improvements; holiday .... etc

A homeowner loan is simply a "second mortgage" as it's a loan secured on the property. But the interest rates are often higher, as the lender has to take a second charge i.e. they only get a share of your house after the main lender (mortgage company) has taken their cut. If you have lots of equity, you may find that a homeowner loan is not much more expensive than a further advance on your existing mortgage - but "it depends".

HTH

Bangor1

Thanks for replying,

The short answer is that the expectation is that once your 10% is down you have made an agreement to pay the builder upon completion so there is no direct link to your home unless you default on the equity release. I am budgeting for the event that my premise of selling to make a fast profit (a la property developers strategy) will either not work out or not be feasible for some reason (legal or otherwise that I have overlooked) and so I am making an assumption that what I really need is enough equity to cover 30% in case I need to go through with the BTL mortgage. In which case I will have to get a BTL to cover the rest.

This all sounds a bit risky but NI has seen a 33.4% increase in property prices in the last year alone and has two of the highest % increase areas in the UK as a whole where price increase in the region of 50% were recorded. So there does seem to be some grounds to assume that there is good potential for the quick gains that could make this a good deal.

I just need to figure out if the basic idea I have is accurate.

Bangor1

Debt_Free_Chick wrote:

Generally, no. You can't sell it until you own it and you don't own it until you've completed and paid the full purchase price.

What normally happens is that you line up a buyer. You then complete on the purchase, from the developer, and the sale, to the buyer, on the same day. ...... In theory



Possibly - depends on the amount of equity you have on your current property ... and your credit rating.



Subject to sufficient equity, many lenders will allow you to increase your mortgage (a "further advance") without caring what the money is for! Second property; car; home improvements; holiday .... etc

A homeowner loan is simply a "second mortgage" as it's a loan secured on the property. But the interest rates are often higher, as the lender has to take a second charge i.e. they only get a share of your house after the main lender (mortgage company) has taken their cut. If you have lots of equity, you may find that a homeowner loan is not much more expensive than a further advance on your existing mortgage - but "it depends".

HTH

Thanks for this - excellent reply and tells me all I needed to know. I kind of had a feeling the first point was not as straight forward as my estate agent was implying to me!! This was the one that gave me a concern.

The only thing I am having issue with is that my mortgage lender is insisting I have to take a "further loan" at SVR - I guess this was naive of me but I thought I could increase the existing mortgage I had. Or possibly get a second mortgage from another lender at a competitive rate but from what I have seen this doesn't look so feasible. My credit rating is pretty good and I have about £150k equity on my home - I thought I would have got a better deal than I have seen so far. Which is why I have come here for advice from those who know a lot more about this than me.

Debt_Free_Chick

Bangor1 wrote:

The only thing I am having issue with is that my mortgage lender is insisting I have to take a "further loan" at SVR

Yes, that's normal. Unless you have the kind of mortgage where a maximum amount was agreed at outset and you could "drawdown" up to the maximum. Up to that limit would probably be at the fixed/discounted rate, but any excess would be at the standard SVR.

My credit rating is pretty good and I have about £150k equity on my home - I thought I would have got a better deal than I have seen so far. Which is why I have come here for advice from those who know a lot more about this than me.

In which case .... could you remortgage for the current amount outstanding PLUS the extra you want?

Subject, of course, to you agreeing to take on the risk, if you failed to complete on the new purchase and/or you were unable to sell at the same time.

Cheers

silvercar

Bangor1 wrote:

Hi folks,
1. Is my theory correct in the first place - can I secure an apartment by deposit and then sell it for full price before it's actually completed thereby meaning I never need to get a buy-to-let mortgage???

2. Is it feasible/legal or advisable to raise the necessary money to do this by releasing equity on my home which will be paid back as soon as I have sold the apartment?

3. Assuming it is feasible and legal is it true that I can not extend my existing mortgage to do this and must take a homeowner loan instead?

1. yes, tell your solicitor to ensure that your contract to purchase is "assignable". You then assign it to the buyer. They complete on your purchase of the flat and make a payment to you for your "profit" at the same time.

2. Yes you can increase your current mortgage for whatever reason you want, providing your lender agrees. [Remember, your home is at risk blah blah...]

3. if your current lender won't let you do what you want, you could look at remortgaging for a higher amount.

Rachman_2

1. Yes, you can if you jump through certain hoops.

But more importantly, take a look at NI, what's funding the price rises - private sector economic activity, BTL lemmings from Dublin trying to sell pyramids over the border or public sector joke jobs ?

It's had huge rises, they have decimated (not literally ) yields. If rates rise, can you see those price rises continuing - are you happy to commit to something that's not going to be built for 12 months and if you can't find a buyer, are you happy to bite the bullet and pay for the damn thing - even if it's not going to make any money on rent and may actually see large capital falls (just look at Dublin re: rental yields and most of the newbuild flats outside London in the UK for capital falls).

Why do you see continued price rises, or do you think it's feasible and financial alchemy..... ?