Development Mortgage

Paulhs

Hi, posting for the first time, hopefully somebody can give me some guidance? Looking for funding options please.
I wish to purchase a property for redevelopment, with a view to selling on and not letting . (Already have buy to let, with no spare equity to borrow on).
I wish to purchase a property for £250,000 and have £100,000 to put down myself. I'm in the middle of a career change, so have no salary at present. My own property has a market value of £400,000, with 170,000 left outstanding against it.
What short term mortgage products (3 months to 1 year) are available to me in my situation with no current salary?
I'm trying to give myself work, by doing this development.
Many thanks.

amnblog

Paulhs wrote: »

I'm in the middle of a career change, so have no salary at present.

problem No1 Paul

Paulhs

Exactly....

GMS

How would you fund the works on the property? What are you planning to do to it? Any change of use etc required?

Bridging finance may be an option but is expensive and needs a defined exit route.

Paulhs

Thanks GMS, hadn't thought of bridging finance (not used it for over 20 years).

Have just made some initial enquiries and yes, It does appear too expensive for what I'm considering. Average is approx 1.25% per month (15% per annum...ouch!). Hoping to find borrowing at a more reasonable 4 to 5% per annum. With such large costs for short term borrowing, possibly I should look back down the buy-to-let mortgage route again and accept that I hold onto the property until any early repayment clause in the mortgage contract has lapsed.

The property is residential, no changes of use, only notification to building control being for a re-wire. The figures I quoted are just for the loan amount required to purchase the property, the funding for materials/works, legal fees, interest, etc. coming from a fund I've set aside separately.

Let_Us_See

Whilst development finance is available from lenders (you will need to prove previous experience or include a partner with experience) I wouldn't have thought a re-wire would qualify as a "development." Best to use a bridging loan where the higher rates are a great motivation for completing any remedial work and placing back on market.

Paulhs

Comments appreciated, thanks.

Cornucopia

Some BTL lenders are now not requiring a salary - just basing affordability on projected rental income. However, ingoing fees are high, and early repayment penalties tend to apply for 2 years+. Still likely to be cheaper than bridging loan, though.

Alternatively, if the project is big, and genuinely involves re-instating a barely habitable building, try Ecology BS - they have various types of loans focused around environmental improvement.

Might be worth consulting a broker (some are free) to get an idea of do-ability.

holly_hobby

Development finance - ie loan to refurb and immediately sell on for gain, is essentially commercial finance, with (net of deductions) profit on sale, to be declared under your income tax (IT) schedule and taxed at your highest rate.

Looking at it another way, as stated, you will be classed as a professional landlord (given you already operate a BTL unit), so there are lenders whom don't have the min income requirement. But of course fundamentaly when applying for a BTL mge, you must have the intention to let following completion, otherwise you're manipulating the application. (plus if let, you should be able to apply CGT to any gain, instead of IT, but be aware that HMRC may choose to dig to see if the let was a contrived tenancy for IT avoidance, so consider how you may manage this).

A re-wire (full rewire will typically equate to a full retention as essential works, whilst a partial rewire will generally equate to a partial retention - but it depends what the valuers opinion is), will obviously cause a ripple with the mge finance and you will need funds to address this.

Of course whilst there may be a way to source the finance, you need to consider that without a salary or the property being let out, how would you service the debt upto its onward sale ?

Hope this helps

Holly