If I buy a house with a private loan, will a bank re-mortgage after 12 months?

daaave

I'd really appreciate some advice, please.

I'm mid-20's, renting, working, single, no kids etc. 1yr solid employment history (student, then period unemployed / temp jobbing before then). Fairly low likelihood of redundancy in next 12 months. Good credit rating, although I've never really had much credit before.

I'm looking at buying a place to renovate, get a lodger, live in for 12 months, then rent out after that and hold onto for the long-term. Gross rental yield would be 11%. My boss will lend me the cash immediately on a 12 month personal arrangement (based on trust, probably backed by legal agreement secured on the property) at a reasonable rate (~6%) so I can buy the property as a cash buyer. The reason for this arrangement is complicated, but from my perspective - I feel my 1 yr employment history will prevent me getting a decent mortgage rate, the terms of the mortgage will almost certainly prevent me letting it without consent - and the property will be a much better mortgage proposition after I have renovated & let it out. Oh, and time is of the essence.

I have about 0.3* salary as cash - I'd keep this as a slush-fund for renovation cost-overruns.
Cost of the property now is 1.75 * salary.
Total cost including fees, renovation & furnishing = 2.25 * salary. This would be the amount of the personal loan.

As for the property itself, I'm studying for a surveying degree - and I'm very confident that the value of the property in 12 months will be +20% on the sale price after renovation costs.

My key question is - In 12 months time, will I be able to get a bank to lend me 70-75% of the value of the property (about 2x salary) on a BTL mortgage? If they do approve me - Will they give this cash directly to me to then pay off the loan, or would they insist on paying my boss directly? Would this initial personal loan arrangement make it really difficult for me when I effectively remortgage?

Any help is much appreciated :j

BitterAndTwisted

To accept a private loan on that basis and on such terms is madness.

What makes you think you'd be able to get a mortgage for a property that you won't plan to live in? That would require a Buy-To-Let mortgage and the deposits required are about 25% of the purchase price with the rental income being 125% of the mortgage repayments. Will you have such a deposit at your disposal after only 2 years of employment? Meanwhile your boss has a charge on the property, so your security will be purely based on your relationship staying favourable? If your boss has so much money why doesn't he just buy a property outright without using you as an intermediary? Some of this has the stink of money-lau ndering or something else unsavoury.

I'd run a mile. Save up and buy a property with your own resources and you won't be beholden to anyone.

daaave

BitterAndTwisted wrote: »

Meanwhile your boss has a charge on the property, so your security will be purely based on your relationship staying favourable? If your boss has so much money why doesn't he just buy a property outright without using you as an intermediary? Some of this has the stink of money-lau ndering or something else unsavoury.

That is a fair point - but this is all above board.

He has his reasons, of which I'm aware but I'm sure you'll understand that I don't wish to go into on a public forum.

The cost of the house is not high ~£40k.

DVardysShadow

daaave wrote: »

The reason for this arrangement is complicated, but from my perspective - I feel my 1 yr employment history will prevent me getting a decent mortgage rate, the terms of the mortgage will almost certainly prevent me letting it without consent - and the property will be a much better mortgage proposition after I have renovated & let it out. Oh, and time is of the essence.

Before you go too much further, you should challenge your assumptions and get the views of a mortgage broker

edit: And only do it for your own benefit, not to help your boss.

BitterAndTwisted

I can see what's in it for him but not what's in it for you. He fronts the money, you become his property-developer increasing the value of his investment and meanwhile you're paying him for the prvilege. With what real security that you will be able to own it outright if and when you mortgage it? And the whole thing totally dependent on your relationship remaining sweet.

You can go into the details as you're completely anonymous here.

My own feeling is that your innocence and naivety are in danger of being ruthlessly exploited.

kingstreet

This will be a BTL proposition. Not residential.

The cost of the house is not high ~£40k.

Which will be below the minimum valuation for most, if not all, BTL lenders. You may also get caught out on minimum loan if you are only looking for 75% of that too.

This plan is fraught with danger. How can we possibly guarantee that what you may be able to do now you will be able to do in a year's time?

BLT lenders often have minimum personal incomes of £25k+ as well.

If the person providing the loan takes a charge over the property, on remortgaging, the solicitor handling the transaction will be responsible for settling the loan, paying on to you any residual funds.