Funding a property purchase with a bank loan

ACG

Sorry i misread.

PSNE

I am taking on board various angles of advice and appreciate all the input from everyone. I understand the risk issues related with this market and feel confident that I can create a good strategy but it clear that research is absolutley crucial going forward. I have both lost and gained in the past when I have done this but I was not very wise on the market when I last did this last.

Do people feel that I am looking at too low a property value for starting out? My idea was to minimise my financial risk at the cost of having a lower return. The smaller profit could then be used to fund a slightly larger project then continue doing this until I found my level that I happy to buy property for in the long run.

vectistim

At such a small price there are two (related) concerns:
1) Post-works resale price could be below some mortgage lenders' minimum valuations
2) Given (1) how quickly can sales on the open market be achieved for this sort of property in this sort of area. (What else does it say about saleability in the area if prices are so low?)

PSNE

For instance one that I have been looking at as an example property is for sale at £19,995. This is however an auction so I am going to assume it will rise. I know personally that the area is a good area close to town centre. Recent sales of flats on the same estate have sold for £46,500. There is two of them within the last year. It suggests that there is work to do within.

Your point about "1) Post-works resale price could be below some mortgage lenders' minimum valuations" is interesting.
Also this then raises the issue of getting a mortgage or bridge for myself on such a low valued property!

ACG

My assumption (rightly or wrongly) was that these properties when sold would be going to BTL investors - these people would most likely know the mortgage market better than most (possibly even a lot of advisors) or they could even be cash buyers initially... so i never really looked int the purchase price too much.

I would suggest if you are looking to sell to homeowners then whatever work you do brings the value up to £50k plus otherwise it could be difficult to raise a mortgage against them.

PSNE

One option I am considering is to renovate then switch to a BTL mortgage after. However my research on these suggest 30%+ deposits. Would this be the case if I were already the owner on a bridge scheme?

martindow

PSNE wrote: »

For instance one that I have been looking at as an example property is for sale at £19,995. This is however an auction so I am going to assume it will rise. I know personally that the area is a good area close to town centre. Recent sales of flats on the same estate have sold for £46,500. There is two of them within the last year. It suggests that there is work to do within.

What is key here is not what the guide price is but what it actually goes for at auction. Guide prices, as others have said, are often pitched low to attract bidders.

PSNE

martindow wrote: »

What is key here is not what the guide price is but what it actually goes for at auction. Guide prices, as others have said, are often pitched low to attract bidders.

It seems the best way forward is to visit some auctions as a spectator and get a good grasp of the process. I may look at higher value properties also as a starting point but I think above all else the right purchase is key.

ACG

PSNE wrote: »

One option I am considering is to renovate then switch to a BTL mortgage after. However my research on these suggest 30%+ deposits. Would this be the case if I were already the owner on a bridge scheme?

Depends on the time frame and lender.

Some will allow you upto 75% of the purchase price - on the basis that the valuation could not have rocketed beyond a set amount with such a short time frame (which is obviously a load of rubbish).

Other lenders will lend you upto 75% of the new valuation. For that you would need to evidence what you had done to build up the value and have a valuation done.

It is entirely possible to purchase somewhere for say £25k. Spend £5k on it and remortgage it for £32,500, assuming the value of the property had gone up to £50k.

So you then have your £25k back and a small rental income.
This can only go on for so long though as you would be having a credit check for the Bridge and then the BTL - at some point your credit score is going to give in and you are going to struggle. but assuming your only doing it twice a year, it should be fine.

Errata

PSNE wrote: »

It seems the best way forward is to visit some auctions as a spectator and get a good grasp of the process. I may look at higher value properties also as a starting point but I think above all else the right purchase is key.

Of course it is. Are you courageous enough to post a Rightmove link to the type of property and it's location that you're considering?