BTL with light refurbishment

utab007

Hello,

I need some help.

My partner & I have seen a property we are keen to buy as BTL. We have a deposit of £622k and we think a purchase price of approx £960k will be accepted. I am an existing BTL landlord.

The estate agent has told me a BTL mortgage is likely to fail on this property based on condition. The property is just dated inside and could do with redecorating, new bathroom and kitchen. However, the property is still habitable, so the existing kitchen and bathroom is still usable.

Agent thinks it will get rejected and I will be out of pocket having paid the valuation fee. I could understand this view for a LTV of 80% or more, but in my case it's LTV of just 40%

Using the stress rate on my mortgage:

£378k * 5% = 18900 / 12 = 1575 * 1.25 = £1968 pcm

I have been advised this property will easily achieve a rental income of £2000 pcm in it's current condition. After the some light refurbishment £2500 to £3000 pcm

As I am putting down a very large deposit, I would expect the lender to approve the mortgage and let me carry out and a light refurbishment before I let the property out. Why is this a problem? and what are my options?

I prefer to buy a property that requires a light refurbishment as it allows me to add some value.

Please advise.

Many Thanks

dimbo61

Sorry but what is the yield on a Million pound plus property after buying and refurbishment costs + stamp duty, surveys, mortgage fees etc when you expect to rent it out for £2000/25000 maybe £3,000 a month ?

utab007

Sure, rental yield will be low. Maybe around 4%

Forgot to say, my plan is to live there in future. So for now I want to do a light refurbishment and rent it. So not bothered about rental yield. But in around 5 years I will convert to a residential mortgage and move in. At that point, I will start doing more work to the house as funds permit.

anselld

Let it out in current condition initially to keep the mortgage people happy.
Refurb when you get a tenancy void.

This also makes any like-for-like refurb a revenue expense whereas expenditure prior to first let is generally considered capital.

kingstreet

If it isn't in "readily lettable condition" it may be necessary to go for a light renovation product.

Using 5% as the rental cover calculator rate is bit dangerous. I always use 6%, knowing I'll have options. At 5%, you are leaving no margin for error. There are lots of lenders who use more than 5% pa.

daisyfrau

utab007 wrote: »

We have a deposit of £622k...

:eek: :rotfl:

utab007

Kingstreet,

Whether the property is in a lettable or unlettable condition seems to be a grey area as it very much depends on the view on the valuer. Problem is I have to put down £1k to find out and risk losing the property & valuation fee.

I am not familiar with light renovation or bridging products. Can you please explain how it works? Bare in mind, my reason for using the BTL product is for self funding. On my income alone I would not be able to borrow the same amount.

Thanks

Owain_Moneysaver

utab007 wrote: »

The estate agent has told me a BTL mortgage is likely to fail on this property based on condition.

The estate agent wants someone else to buy it as the agent can get a mortgage commission from another buyer?

Dave_Ham

More to the point, if you do not currently own and occupy a property in excess of 1m then you are unlikely to pass any plausibility tests.

Intent to move in at some point in the future will only make a lender more wary..

utab007

Dave_Ham wrote: »

More to the point, if you do not currently own and occupy a property in excess of 1m then you are unlikely to pass any plausibility tests.

Intent to move in at some point in the future will only make a lender more wary..

Dave,

Huh? Plausibility test? Really? Just looking to invest in a BTL and I'm putting down a large deposit, so minimises risk for a lender.

Nothing wrong with letting out a property for x years and then moving in the future. I would convert from a BTL to Residential mortgage, so all above board. Why would this make a lender wary?? I don't follow...

Anyway, none of this answers my question. Can someone please answer?

Thanks

Dave_Ham

My point was your question is probably not that relevant given no lender is going to allow you to buy this property unless it is plausible.

Your deposit is immaterial in the scenario

What is your actual question?