Mortgage for buyer of renovation property

gillpsimonb

We have just bought a house that we are planning to do up and then sell on. Doing it up is likely to take a couple of months.

I found some information on the internet that worried me - it said that a potential buyer of the house, once it is done up and we are selling it, will not be able to get a mortgage if we have owned the house for less than 6 months.

Can anyone advice me if this is true - as it could make selling the property so much more difficult.

Here's hoping that it is not true.

kingstreet

Some lenders will not accept an application on a property where the current owners have owned it less than six months.

That is correct.

There are lenders who do not operate the six month "rule" and a potential purchaser would have to be aware of the difference.

gillpsimonb

kingstreet wrote: »

Some lenders will not accept an application on a property where the current owners have owned it less than six months.

That is correct.

There are lenders who do not operate the six month "rule" and a potential purchaser would have to be aware of the difference.

Thanks for your rapid response
Will it be difficult to find a lender - roughly what percentage of lenders don't apply the rule ?
Could this make the mortgage more expensive for the buyer ?

matt1234

It is true, you must build this into your exit plan, the rule is not going anywhere anytime soon.

Leon_W

Any prospective buyer should be made aware of the situation at the outset then it's up to them whether to proceed or not with a suitable lender.

You don't want to get near a completion date and find out they've used a lender with the 6 month rule !

kingstreet

I know of two who don't, loads that do and plenty inbetween I've never checked.

It doesn't necessarily make it more expensive, but it certainly restricts the purchaser's choice.

Dave_Ham

As suggested, you just have to accept the 6 months as part of your business model; maybe rent it out for 6 months once complete.

Alternatively, you will end up reducing the cost to make it that attractive that a potential buyer would entertain the idea..

There is no clever work around on this either and you may find that a surveyor on a purchase where the property has been owned such a short amount of time, carefully considers their valuation (even on a purchase)

Good luck

holly_hobby

Yep, at the risk of repeating what the Kings and Dave have already stated, some lenders chose to have a 6 mths min turnaround, whilst some don't - so its very much a suck it an see exercise for the purchaser I'm afraid.

Please also be aware (if not already), that as the property will have been purchased for the sole purpose of onward sale to generate a profit, that upon disposal, any net of expenses profit must be declared as income, and will be subject to income tax at your highest rate under your annual SA submission, rather than CGT - which may or may not put a fly in the ointment re your tax banding and the figs.

A way to navigate this, and given the potential 6 mth ownership issue re onward sale, could be to let for a period post completion, and then dispose of the dwelling. Which should (unless HMRC have a dig about) qualify you for CGT liability, whereby you may ALSO both exercise your annual unused CGT exemptions against any net (of permitted deductions) gain.

The danger will be if HMRC consider a relatively shortish ownership period between acquisition and disposal (even with say a 6 mth let period), to indicate a contrived tenancy to avoid income tax on disposal .... so do crunch the figs and tread carefully if going this route x

Your tax adviser will guide and advise you further.

Hope this helps

Holly x

Flashmanchop

How long are the renovations going to take?

can you market the property, say a Momnth after you complete, and any potential purchaers can see what you are doing?

May actually take longer than 6 Months to sell, or get to the point of becoming sold.

have you built thism into the business model.