Advice on Bridging Finance vs Mortgage on Auction purchase

Thrugelmir

koradma wrote: »

Will involve taking some loans from my limited company(self employed).

Suggest you speak to your accountant so this is structured properly. Otherwise you may receive an unwelcome tax bill.

In the current lending enviroment unlikely you'll be able to release equity after 6 months. Days of property being a cash point machine are over as far as banks are concerned.

EMac_2

Thanks for the extra info. Forget about the bridge, worse case you have to use your own funds but I would continue with the mortgage as the preferred solution.

If you buy with a bridge then the bridge lender will want to know the take out, if you say mortgage they sometimes want to see a mortgage offer, i know - its crazy. If you can show you have your own funds they are pretty likely to do it BUT lenders can get sweaty when they see you have bought with a bridge and decline a re-mortgage.

Using your own funds is fine, just need to show the solicitor the source of funds for money laundering purposes. However, as earlier post, this could change your tax position so I would check on that first before moving money about.

I would probably have gone for TMW over BM but there is not much between them. I'm sure your broker showed you the competing quotes and explained why they recommended one over the other, be it rate, fee's, service or whatever. I doubt there is much difference between the commissions paid.

How long are you tied into the TMW deal? How buoyant a market is it in the area, have a lot of similar properties changing hands in the last 6 months?

The price you are paying now will, as earlier post, influence the valuers decision but if they have lots of more recent comparable sales he is more able to give you the higher value. The sooner you try to remortgage the more difficult this is going to be for them. Hope this helps.

Dave_Ham

The terrible plan I was referring to was bridging it for 6 months, with a view to releasing more money out further down the line.

Why you would even consider bridging when you have the funds available still throws me.

The fact you have the funds is a more robust plan, although I suspect it is unlikely to get it valued much more than the £150k.

Good luck

GMS

To refinance with an increase in value after 6 months would require evidence of works done to improve the value more so than an open market valuation now showing an increase. Technically the OMV should be used but the valuer will look at comparables in the area, the best one of which will be yours!

Lender underwriters will look at the purchase price and want to know why it has increased. A call to the valuer will ask why.

I have done many of these 6 month refinancing for clients but it has been on the basis of a cash purchase in poor order and a refurbishment of the property with clear evidence to the valuer which explains the increase.

Did one a few months back bought for 38k and valued at 80k 6 months later. List of works was substantial and house went from a wreck to looking like a show home.

Fees need to be taken into account too. Any extra you MAY be able to raise could be eaten up with fees

koradma

EMac wrote: »

If you buy with a bridge then the bridge lender will want to know the take out, if you say mortgage they sometimes want to see a mortgage offer, i know - its crazy. If you can show you have your own funds they are pretty likely to do it BUT lenders can get sweaty when they see you have bought with a bridge and decline a re-mortgage.

I would probably have gone for TMW over BM but there is not much between them. I'm sure your broker showed you the competing quotes and explained why they recommended one over the other, be it rate, fee's, service or whatever. I doubt there is much difference between the commissions paid.

How long are you tied into the TMW deal? How buoyant a market is it in the area, have a lot of similar properties changing hands in the last 6 months?

The price you are paying now will, as earlier post, influence the valuers decision but if they have lots of more recent comparable sales he is more able to give you the higher value. The sooner you try to remortgage the more difficult this is going to be for them. Hope this helps.

Emac

TMW deal is 2 year 2.99% with 3.5% fee. Am tempted to switch to the 3.99% with 3.5% fee (no tie in periods). This way if i try to revalue in 6 or 12 months can release the equity sooner if i can get a favourable valuation else continue on it. Even the first one is not bad as it has a 2 year tie in period. It seems from the advice on this board 12-24 months before I can see any equity release.

Mortgage broker recommended TMW & BM with a slight favour for TMW. Another broker also preferred TMW for a quick completion.

Survey is planned for 20th Feb with offer 'promised' by TMW in 3-4 days after. Am promised a mortgage upon favourable survey as all other checks are complete for now. The flat has been recently refurbished as well. So should easily value at 150k.

Unfortunately these properties dont tend to change hands a lot. I should have mentioned its an ex Council flat as well in a well to do london area. Hence very few have changed hands in the last 5 years. Of those its between 165k-187k. Hence my attempts to release the equity sooner rather than later.

Thank you for your quick responses. Much appreciated.

koradma

GMS wrote: »

To refinance with an increase in value after 6 months would require evidence of works done to improve the value more so than an open market valuation now showing an increase. Technically the OMV should be used but the valuer will look at comparables in the area, the best one of which will be yours!

Lender underwriters will look at the purchase price and want to know why it has increased. A call to the valuer will ask why.

I have done many of these 6 month refinancing for clients but it has been on the basis of a cash purchase in poor order and a refurbishment of the property with clear evidence to the valuer which explains the increase.

Did one a few months back bought for 38k and valued at 80k 6 months later. List of works was substantial and house went from a wreck to looking like a show home.

Fees need to be taken into account too. Any extra you MAY be able to raise could be eaten up with fees

GMS

It seems only way to show increase in value of the property in 6 months is extensive works or general market growth. We can write one of them off straight away. No works are needed as it has been recently refurbished.

It seems that buying BMV at an auction is not really helping to get a better valuation at all. It seems I am losing the equity gain by buying in an auction for another 12-24 months.

Thats really my question now. How do I release the BMV purchase from an auction.

Thank you for your quick response.

Thrugelmir

koradma wrote: »

How do I release the BMV purchase from an auction.

Market the property immediately on the open market. No lender is going to release further funds on the basis of a notional gain. The auction price represents the firesale value of the property.

GMS

If the property is sold BMV and is in good condition then why did it get to auction? Can happen but usually the open market would have been tried before.

Is there a short lease on it? Non standard construction?

I have a client who bought a property for cash. Last 5 comparables (approx) 75k, 80k, 75k, 70k, 45k. His was the 45k so he had brought down the comps on his own! Got him valued at 75k which was correct after some works. However a valuer may well view it as a falling market where the 45k was more realistic.

If cashflow is the issue then why not look at a higher LTV mortgage which obviously means less deposit (rent permitting). That way the urgency to refinance isn't so great and your pot of cash for further deposits (if thats the intention) goes further. After a period the original property may be refinanced at OMV.

koradma

Thrugelmir wrote: »

Market the property immediately on the open market. No lender is going to release further funds on the basis of a notional gain. The auction price represents the firesale value of the property.

Thruglemir

I would like to keep the property and not have to sell it. I see where you are coming from.

Actually you have given me an other way out of all this if things dont go to plan at any stage or any assumptions dont work out. I will loose fees but could walk away with no profit or loss with BMV purchase.

Guess there is no way to structure the deal to release the equity in the short term and still retain the property.

Thank you for your response.

koradma

GMS wrote: »

If the property is sold BMV and is in good condition then why did it get to auction? Can happen but usually the open market would have been tried before.

Is there a short lease on it? Non standard construction?

If cashflow is the issue then why not look at a higher LTV mortgage which obviously means less deposit (rent permitting). That way the urgency to refinance isn't so great and your pot of cash for further deposits (if thats the intention) goes further. After a period the original property may be refinanced at OMV.

GMS

Its an ex LA flat. Its in small block of 6 flats only in a very good london location. 104 years on lease left. Peppercorn rent. Solicitor cant see any issue. Already tennanted at 1k pcm. I think its a great deal. In perfect condition inside as well. Excellent schools nearby and access to motorways and stations as well.

Am going for 75% LTV right now. Will check if TMW do higher LTV. If its the mortgage route I am stuck with TMW given there is less than 3 weeks left to complete. Need to really pick a TMW mortgage product if I am to complete on time I assume.