Best mortgage type?

amnblog

Not the ones you need who know what they are doing it would appear.

MortgageMamma

Mikeopvc


I did a case like this quite recently, and did a direct comparison between three light refurbishment bridging loans and a LIBOR linked buy to let mortgage. The buy to let mortgage (once all fees and early repayment charges were taken into account) was only marginally the better option but the client opted for the buy to let because she may choose to rent if it doesn't sell quickly. The property purchase price was £70000.


Bridging finance is fast, I think the fastest completion I have ever known is 1 week but both sides knew they were in a rush and got the legal work done quickly. It can be an expensive option if you can't sell the property quickly enough but you always have the option of taking a conventional buy to let mortgage and renting out if that happens to you.


It can work well for smaller investors in terms of cash flow as it can be arranged to capitalise the fees and monthly payments, improving your cash flow. It can be secured on your existing home as a second charge or on the property you wish to purchase as a first charge.


You should really consider this along with a conventional buy to let. If you choose a conventional buy to let you would need to remortgage your home or take a further advance to have a buy to let mortgage deposit. Not all mortgage lenders are keen on doing that. With the bridging you can borrow against your residential property without having to raise a deposit. Bear in mind that raising money on your own property does leave you wide open to negative equity if house prices fall, but if you are confident the benefit of structuring the transaction in that manner would save you a 2nd set of fees that you would incur with the deposit raising transaction.


Hope this helps


MM

mikeopvc

Hello again,
So I looked into the bridging loan option as you suggested and my new broker has emailed the figures as below, does this look like a reasonable deal?


Remortgage current property-

£145,000 loan over 24 years/ £655/month 2 year fixed, 2.29%, no arrangement fee, no valuation, free legal work.
Our fee of £95 on application and £595 on completion.

Bridging loan.
Minimum lend is £50,000
Term between 1 month and 18 months
70% loan to value
2% lender arrangement fee
0.99% per month (paid at the end or as you go) (might actually be a little less than this depending on state of property and loan to value.
£295 lender assessment fee.
3% stamp duty
Solicitor £1,000 might be less than this depending who you use. (someone cheap we use was around £700 last time)
Valuation fee either £265 or £465 depending how they see the proposal.
Our fee of £995 for bridges, as it specialist. No high street lenders will do it.


Thanks

Mike

mikeopvc

Can anyone please advise if the above is a good deal?
Please ����

waveneygnome

Approx, what value property are you looking to buy?
How much money will it take to do up?
How much contingency money do you have saved in case you go over budget?
How long will it take you to do up?
What do you hope to sell it for?
Whats plan B if it doesn't sell?

Thrugelmir

mikeopvc wrote: »

Can anyone please advise if the above is a good deal?
Please ����

Finance is only one element of purchasing a property, completing renovations then selling on. Without crunching the numbers fully there's no way of telling.

mikeopvc

Hi, thanks for the reply

It's our first one so figures are small but like I said its our first one.

£75,000
£10,000-£15,000
£5,000
6-8 weeks
£105,000-£110,000
Buy to let mortgage if not sold within 2 months, use profit of rent to mortgage to cover early repayment charges and sell in twelve months

Cornucopia

I would have thought that bridging finance would be risky, and this is probably an inappropriate use for it, anyway.

Depending on the price of the new property, there are only three options: raise a mortgage on the new property, raise funds from the existing property or a combination of the two.

I think the OP is asking the wrong question in terms of what is the right mortgage. The more relevant question is whether the figures work.

The easiest/laziest/lowest risk way to make it work is almost certainly going to be BTL. I would not be touching 0.99% per month with a barge-pole.

Cornucopia

mikeopvc wrote: »

Hi, thanks for the reply

It's our first one so figures are small but like I said its our first one.

£75,000
£10,000-£15,000
£5,000
6-8 weeks
£105,000-£110,000
Buy to let mortgage if not sold within 2 months, use profit of rent to mortgage to cover early repayment charges and sell in twelve months

Okay, so if you took the Broker's remortgage, you'd have nearly £40k to put into the new property. If you were looking at BTL, then you'd need 30-35% minimum deposit, so... a purchase price of £75k would take around £26k of the £40k, leaving £14k for refurb.

For a BTL, the prospective rent also has to balance out. Typically the rent has to be 125% or more of the mortgage interest payments at a notional rate of 6% (though the rules vary from lender to lender).

Thrugelmir

mikeopvc wrote: »

Hi, thanks for the reply

It's our first one so figures are small but like I said its our first one.

£75,000
£10,000-£15,000
£5,000
6-8 weeks
£105,000-£110,000
Buy to let mortgage if not sold within 2 months, use profit of rent to mortgage to cover early repayment charges and sell in twelve months

At a cost price of £75k and spending £15k, that's a total of £90k.

What's the added value of £20k to make it worth £110k just 6 weeks later?