Funding a property purchase with a bank loan

PSNE

Hi,
I would like to know if anyone has any thoughts. I am looking to start property investing and am expecting to have difficulty obtaining a mortgage even for a small amount. I have about 5k-8k available already and I am considering simply getting a bank loan to purchase a property for cash at an auction. I can turn the property refurbishment around in 3-4 weeks ready to re-list on the market. I would like to know if this is both legal and if anyone else has used this method before.

ACG

There are a few issues in this:
1) How much do you need? A bank loan is unlikely to go above £25k without security.
2) Will you then have money to do up the property?
3) Once a house is purchased there are very few lenders who will lend to your buyers. There is generally a 6 month waiting period for all but the odd lender (none on the high street that im aware of) so this will limit who your buyer you can use for a Mortgage.

Why do you think you will not be able to get a mortgage?
What sort of renovation work are we talking? Is it tarting up or is it a complete refurb, plastering, knocking walls down etc?

PSNE

Hi,
Issues I am going to face when applying for a mortgage are:
Average credit rating, I am director of three companies but all have traded less than 12 months and I am currently renting.
I am involved already in property repairs and estimate expenditure of around £5000-£7,500 for a couple that I have seen. Looking to borrow only £20,000 as the properties are in poor condition and going cheap. I have not carried out surveys yet on them only checking options for funding. I have money set aside for repairs via empty credit cards.

Are you advising that if I do not mortgage the property then it can effect the mortgage of a potential buyer and that I would need to hold the property for 6 months?

PSNE

Its a partial refurb by the way, Kitchen, Glazing and Bathroom tiling. General decor work.

Okydoky25

Aside from all the other reasons why you can't and shouldn't do this. Why would a property be THAT cheap but only need £5k to do it up?

ACG

A property can not usually be purchased more than once in a 6 month period. There is no law against this, its usually a lenders condition - so a cash buyer for example would have no problems.

I think as far as raising the finance you would stand a better chance of getting bridging/development finance. The downside if your potentially going to be stuck with this for 6 months and it will not be cheap (circa 10-15% interest). The positives are that you can do it on an interest only basis and its easier to arrange than a mortgage.

Ignore your credit score its not a massive issue on bridging. The biggest issue will be the low purchase price.

I think you should get your credit reports down to a mortgage broker and get them to do some work for you. Im not sure if there will be an answer, but i am sure it will not be in the form of a loan from your bank.

jc808

Sounds like a way to lose money - 'Homes under the hammer' presents an idyllic situation!!!!

00ec25

PSNE wrote: »

Are you advising that if I do not mortgage the property then it can effect the mortgage of a potential buyer and that I would need to hold the property for 6 months?

I don't know how property developers manage it but all the mortgage advisers who post on this forum (I am not one of them BTW) repeatedly state that the vast majority of lenders will not give a mortgage to a purchaser where the vendor has owned for less than 6 months. I believe it is related to the money laundering regulations, therefore your pool of potential buyers will be tiny and that is your major problem

clearly developers do turnover property in less than 6 months but you'll have to wait for a reply from someone else as to how they do it

martindow

PSNE wrote: »

I have money set aside for repairs via empty credit cards.

Have you worked out how much this will cost during the months it will take to do up and sell the house?

PSNE

I have calculations based on a fast turnaround with time included for a slow sale however the 6 month issue is a new obstacle to investigate and calculate further. I have other an option of including investors but want to avoid this if possible as this will deduct from profits.

Pixie5740

You might find it difficult to get a loan being a director of companies that have been trading for a short time. I'm self-employed and when I was looking for a loan I could only get one if I was a home owner, which I'm not so I never got a loan despite my bank repeatedly telling me what a great customer I am.