Advice on Bridging Finance vs Mortgage on Auction purchase

koradma

Have bought a property in an auction for 150k(to complete in 3 weeks time). Just realised the sold values in 2007 for a similar one was 185k. Checked with zoopla/nethouseprices.com

Have started process to get a mortgage through Mortgage works(BTL). Mortgage has been agreed in principle already. But I am having second thoughts now

As i just found its worth easily atleast30k more based on those zoopla values, do I use bridging finance to pay for it now and complete without a mortgage. Then remortgage in 6 months for the higher valuation thus 'releasing' the equity.

If i mortgaged now everything will be based on 150k that I have paid for it.

When I discussed with my mortgage broker who is going to lose his mortgage commission. He thinks even in 6 months time(the minimum a mortgage company will wait before remortgaging after a cash purchase), the valuation wont be far off the 150k I will pay for it.

Surely that cant be the case. I could ask various lenders and get a much higher valuation. I need to know if this is a sound strategy or would they still base it on it was sold for 150k, 6 months ago so its around this mark. If this is true, I am better off obtaining a mortgage right now and not worry about releasing the additional equity in the property.

Any advice please. Quicker the better.

NewbeeLandlord

GMS

Figure what the bridging finance will cost you over 6 months. Include all fees.

A lender may well want to know the reason for the uplift in value.

Ensure you have a clear exit from the bridge. TMW will not take out a bridge.

kingstreet

A purchase price of £150k now will cloud the surveyor's view in six months, in my opinion. He will base the valuation on how much it sold to you for and the prices fetched by other comparable properties in the vicinity in recent months.

At auction, you are paying the price that someone is prepared to pay. Any perceived increased value may be dependent on the property being on the market for a long time. Lenders don't want that and expect surveyors to value based on a reasonable turnaround time/price in the event of repossession.

I would urge my clients to have a full mortgage offer in their hands before bidding at auction, not just an AIP. Otherwise, the purchase is too risky, IMHO. Plenty of things could be wrong with the property and its title. I'd want a survey and solicitor to examine the legal back before a bid is made.

EMac_2

If the value does uplift so much then you can still look at a secured loan to release some of the equity or just take a 1 year deal from TMW if they are still doing these and then re-mo after 12 months. Buying at auction can be tricky and bridging can have unforeseen problems, i.e. how to pay it back. I'd stick with the mortgage. Best of luck.

Thrugelmir

koradma wrote: »

Have started process to get a mortgage through Mortgage works(BTL). Mortgage has been agreed in principle already. But I am having second thoughts now

Have you received a mortgage offer?

Three weeks isn't long. For the formalities to be completed. Has your solicitor commenced the work already?

Let_Us_See

Personally, I believe your priority is to ensure finance, whether mortgage or bridge, is in place for completion in three weeks with a viable exit strategy. It is good prectice to have arranged finance before the auction as all kinds of problems can appear once the property has been secured at auction. Your reasoning of expected 6 month valuation for possible mortgage purposes is unsound.

Dave_Ham

Last one to the party, but this is a terrible plan.

I can understand why you would think it was logical, but as many of the above has stated this is not practical.

I specifically love the part where you have already bought at auction and then checked the sold prices...

Good luck though - TMW are not always famed for speed and efficiency, so if that is your preferred lender suggest you get the ball rolling quickly.

koradma

I should have added that I have enough personal funds/savings to pay for it outright if I need to. Will involve taking some loans from my limited company(self employed). So I am not at risk in terms of completing the purchase for this property which I bought in the auction.

I have already paid them 10% so dont want to loose that money.

Agree this is not the ideal way to purchase in an auction. Have taken the risk and it has paid off with good rental returns and potentially good equity left in it as well. I would do it completely differently the next time I go to an auction. And get all checks done before I even bid or enter an auction house.

Am being told that since the property is purchased at an auction, it should be taken into consideration when they revalue the property in 6 months with a new valuation. (this is advice from an ex mortgage broker who is now a property investor)

The more I hear about it seems I should just pay for it outright with personal savings/loans. Remortgage in 6 months to release as much value as I can by then. Even a few grand will be worth it, if not I would get the same mortgage as before.

My question now is. Do i continue the valuation with TMW(already paid for) so they can tell me its atleast worth 150k. They could make an offer. I could always go back to them or another vendor who will give me the best valuation in 6 months.

Also the solicitor I have instructed could complete for me without the use of a mortgage provider, can check through all paper work.

Is there anything I need to look out for if I am completing with my personal funds.

Thanks all for your quick responses today.

NewbeeLandlord

koradma

EMac wrote: »

If the value does uplift so much then you can still look at a secured loan to release some of the equity or just take a 1 year deal from TMW if they are still doing these and then re-mo after 12 months. Buying at auction can be tricky and bridging can have unforeseen problems, i.e. how to pay it back. I'd stick with the mortgage. Best of luck.

Emac

The uplift is already there based on zoopla prices as of today. Am no expecting any uplift in the market. Just not sure if this will be 'given' to me in 6 or 12 months time. I am trying to release the equity thats already in the auction purchase I am about to complete. Hope this helps.

See my latest note as well. I do have personal funds/loans which can help me buy outright but will tighten things and I will have to cash in some ISAs etc.

koradma

Thrugelmir wrote: »

Have you received a mortgage offer?

Three weeks isn't long. For the formalities to be completed. Has your solicitor commenced the work already?

The mortgage work began the day I bought it at auction. The mortgage broker recommended TMW and BM and the broker preferred TMW(which I am told now is paying higher comission). I have AIP and its at the stage for a surveyor to go out.

Nothing has stopped on this mortgage front either. Can still go ahead and the broker has promised completion with 4 weeks end to end. Solicitor is also working on it and is aware of the completion dates. Searches have all been done by the sellers which are being reused, except local searches which is a one day affair I am told.

TMW can get me an offer 3-4 days after valuation. So technically by end of the month I 'should' have it. I will still have another week if something was delayed.

But also see my last note of buying it from my own funds. That would be stretching myself and cashing in on some ISAs etc which I would prefer not to.

NewbeeLandlord

koradma

Dave_Ham wrote: »

Last one to the party, but this is a terrible plan.

I can understand why you would think it was logical, but as many of the above has stated this is not practical.

I specifically love the part where you have already bought at auction and then checked the sold prices...

Good luck though - TMW are not always famed for speed and efficiency, so if that is your preferred lender suggest you get the ball rolling quickly.

Dave

I take it you mean using a mortgage via TMW is a terrible plan or the fact of using bridging finance. Am told bridging finance can be sorted in 2-3 days. I have 4 weeks in total to complete.

I did check the sold prices before hand, though I admit I could have done a lot more before hand. If i did probably wouldnt be asking for advice now

It was still a good buy at 150k. The mortgage is AIP. Offer will be sent pending a valuation. All paperwork has been accepted so far. Surveyor is trying to book a valuation slot. Worst case I can still get this mortgage and complete that way. TMW are aware I will buy with my own funds if they dont deliver on time. See latest note as well. I am not tempted to buy with own funds and expect higher valuation when I remortgage in 6 months time.

Thank you for your response, Could you please clarify which bit you are not happy with.