First Time Buyer Mortgage - Option to Purchase

William09_2

Hello forum,

I'm hoping for a little help with the below please.

Overview

I am a first-time buyer and I am going to buy a property that I have an option to purchase on. The option price is £220,000 and I have around £22,000 in savings/Help to Buy ISA so the initial mortgage required will be approximately £198,000.

Properties in the area that are of the same size and condition currently sell for £275,000~

According to the advice I've been given and my own research the lender can not/will not value the property at more than the option price of £220,000.

What I would like

To as soon as possible have a long term fixed interest only mortgage on the property, ideally 10 years but definitely 5+.

• Are there any lenders that provide 5+ year fixed interest only mortages to first-time buyers (90% LTV), if not

• how quickly could I remortgage (assuming the initial mortgage has no large penalties) and realise the true value of the property? Would the CML 6 Month Mortgage Rule be a problem?

Thanks in advance.
Will

middleclassbutpoor

Would suggest engaging a broker but some questions and thoughts below.

William09 wrote: »

Hello forum,

I'm hoping for a little help with the below please.

Overview

I am a first-time buyer and I am going to buy a property that I have an option to purchase on. The option price is £220,000 and I have around £22,000 in savings/Help to Buy ISA so the initial mortgage required will be approximately £198,000.

Properties in the area that are of the same size and condition currently sell for £275,000~What would the purpose be to raise this extra capital? Do you know if your income would support the additional borrowing?

According to the advice I've been given and my own research the lender can not/will not value the property at more than the option price of £220,000.

What I would like

To as soon as possible have a long term fixed interest only mortgage on the property, ideally 10 years but definitely 5+. Do you have a repayment vehicle in place to repay the capital? Lenders are naturally cautious around IO mortgages and without a repayment vehicle, you are mad for considering this if there was a lender who would do this.

• Are there any lenders that provide 5+ year fixed interest only mortages to first-time buyers (90% LTV), if not

• how quickly could I remortgage (assuming the initial mortgage has no large penalties) and realise the true value of the property? Would the CML 6 Month Mortgage Rule be a problem?I believe there are lenders who will do remortgages sooner but you need to see a broker from what I have read on here.

Thanks in advance.
Will

sparkey1

Surveyors wont normally value a property higher than what you are paying as they are valuing a property against its sell price, not its future value.

One of the problems you have is that anyone can look at sold prices nowadays so in six months time your new surveyor will turn up, having seen how much you paid for it and want a justification as to why it is suddenly worth more.

Most lenders wont remortgage a property until you have owned it for 6 months. (Known informally as the Six Month Rule).

Hope that helps

William09_2

I would not be be looking to raise any extra capital, just realise the true value to achieve a better LTV and access better mortgage offers.

There will be a structure in place to repay capital so this should not be an issue. It's only madness if you are not disciplined :-)

middleclassbutpoor wrote: »

Would suggest engaging a broker but some questions and thoughts below.

William09_2

The justification would be it was valued lower because the purchase option essentially caps the valuation on the initial mortgage application.

Yes the CML 6 Month Rule might prove a sticking point, although from what I have researched there is some flexibility in it.

sparkey1 wrote: »

Surveyors wont normally value a property higher than what you are paying as they are valuing a property against its sell price, not its future value.

One of the problems you have is that anyone can look at sold prices nowadays so in six months time your new surveyor will turn up, having seen how much you paid for it and want a justification as to why it is suddenly worth more.

Most lenders wont remortgage a property until you have owned it for 6 months. (Known informally as the Six Month Rule).

Hope that helps

shortcrust

William09 wrote: »

The justification would be it was valued lower because the purchase option essentially caps the valuation on the initial mortgage application.

Yes the CML 6 Month Rule might prove a sticking point, although from what I have researched there is some flexibility in it.

But they won't be looking at the previous valuation, they'll be looking at the actual sale price.

William09_2

shortcrust wrote: »

But they won't be looking at the previous valuation, they'll be looking at the actual sale price.

Please explain.

middleclassbutpoor

Glad to hear you have structure in place to repay capital.

Think you would need to have a good evidence of why you believe you paid below market value for the remortgage. Simply supplying a list of similar properties isn't going to cut it imo.

There could be significant differences which aren't seen on the land registry sold prices to why another property is worth more/less that what you are paying - i.e. school catchment areas, crime rates, off road parking/garage, size of property (sq ft rather than bedrooms), outdoor space/garden size, freehold/leasehold etc. etc.

Ultimately sold prices are a guide but if that was all that was required then you could question what value is added by having someone survey the property.

Unfortunately, it will depend on the lender/valuer at that point. There is nothing anyone can tell you on here which would guarantee that your house would value up 6 months down the line.

sparkey1

Ok I see, so if you had a valuation of 275K and you paid a few thousand off the property you could get a loan below 70% LTV.

I have done the same myself with BTL property in order to release equity. The difficulty is the surveyor who will come armed with all the statistics, so you need to add value. I have been able to do that by decorating and proving that I was getting a higher rent per month.

Considerations, repayment penalties on the original mortgage cashed in after six months could be extensive, and could significantly outweigh the gain unless you find a mortgage with no exit fee. The lenders that will lend before 6 months are few and far between.

William09_2

middleclassbutpoor wrote: »

Glad to hear you have structure in place to repay capital.

Think you would need to have a good evidence of why you believe you paid below market value for the remortgage. Simply supplying a list of similar properties isn't going to cut it imo.

There could be significant differences which aren't seen on the land registry sold prices to why another property is worth more/less that what you are paying - i.e. school catchment areas, crime rates, off road parking/garage, size of property (sq ft rather than bedrooms), outdoor space/garden size, freehold/leasehold etc. etc.

Ultimately sold prices are a guide but if that was all that was required then you could question what value is added by having someone survey the property.

Unfortunately, it will depend on the lender/valuer at that point. There is nothing anyone can tell you on here which would guarantee that your house would value up 6 months down the line.

I totally understand the need to provide good evidence. The houses I refer to are all on the same road (within 100 metres or so) and are nearly identical (detached, rooms, layout, plot, garage etc). One of these houses is currently on the market for £310k, the only real difference between it and the one I will purchase for £220k is it has recently been refurbished to a high standard.

middleclassbutpoor

There you go, a modernised version of your property would increase the value. Are you sure your property is actually worth 275k. High standard renovations don’t come at £35k.

It sounds like a good buy if you can update this property to a high standard