Developer Mortgage

Jimbo1976

I don't think the 6 month thing is linked to Money laundering rules, it is more to do with prevention of fraud. In the boom time, someone could complete on a new build having bought it off plan early and then the next day remortgage it at the current market value (assuming there had been price inflation), this meant they could take their deposit back out via the remortgage so people could effectively buy without putting any money in

When the new build market ground to a halt, lenders were left with a large amount of new build property which had these kind of loans on them. The industry used to call it "back to back" lending.

I think the 6 month thing came from lenders trying to prevent this type of activity.

JQ.

So you're plan is to buy a house, refurbish it and have it sold within 6 months. Do you think that's realistic? Have you factored in that the actual sale process could take 3 months? That the first 3 buyers might fall away because they get refused mortgages and that it might actually take you 12 months to get a proceedable buyer.

In answer to your other question, yes, many small developers are cash buyers. Banks have had their fingers burned over the last few years and so are not very keen on bankrolling speculative development.

If you are intending to buy with a 25% deposit, are you planning to pay for all the renovations yourself or are you expecting the bank to pay? If you're expecting the bank to pay you might be in for a shock.

drummer_666

another option is to do what i'm doing

i bought my first house 2 months ago, but it's a big renovation and i'm doing it up to sell, but will sell in 1.5 or so years and treat it as home for that time

you could do that but just live in it for 1 year?

if it's your main home than you don't pay capital gain tax when you sell. you can also have lodger that bring in the money that more than pays for the mortgage.

that's if you dont have a mortgage elsewhere

for me, ok i have legal fees etc, but it still works out cheaper than renting and i will make a good few grand when i sell

AlexMac

If you're comitted to this project, it could be an advantage that most posts above are realistic and doubtful that you'll flip it in less than 6 months (ie that it will take all of 6 months to do the place up, market it, find a buyer, await their usual conveyancing/mortgage delays, then complete on the sale...). If this proves to be the case, and unless you already own a property on a mortgage, there is nothing wrong with approaching lenders that this is a conventional owner- occupation purchase; so you get a conventional mortgGE, not a more expensive BTL loan.

So just choose the cheapest lender - tracker or fix- on the lowest initial % rate, with no early settlement penalties. It's not illegal to sell your own home after 6-12 months and it wouldn't excite attention from the taxman (not that the capital gain would be that great).

But- and there's a big but... with most so called experts predicting static or falling house prices, you won't have inflation-based gains, make sure you can swallow the costs and still make a profit; fees (£1k plus?), Mortgage (£1k+ for 6months; £2k+ for 12 months on a £67.5k loan even if you get it at 3%) repairs (£3k- assuming there are no structural problems and you're doing the work yourselves, evenings and weekends?), discounting council tax and utilities which you'd have to pay if you lived somewhere else... How much profit over £5k will you make on a £90k purchase? And ensure that you have an escape plan- such as renting it out (with your lender's permission and a likely % rate hike to a BTL loan) and moving on to another project if -for any reason - it doesn't sell.

I got lucky with such a project in the late '90s - buying my home as a shell at auction for £65k, spending £25-30k and selling three years later for £180k- but then there was rampant house price inflation of 20% plus pa in some parts of SE London.

Good luck- I hope it works out