Property Developer Mortgage

sheenangel

I wish to buy a property, renovate it and then sell it on.

However, the only mortgages I can find are ones that charge a substantial sum to come out of the deal early.

Are there any mortgages out there that have either no fee or a very small one?

Alternatively, is there any other way that I might be able to get the funds to finance this project?

Generali

sheenangel wrote: »

I wish to buy a property, renovate it and then sell it on.

However, the only mortgages I can find are ones that charge a substantial sum to come out of the deal early.

Are there any mortgages out there that have either no fee or a very small one?

Alternatively, is there any other way that I might be able to get the funds to finance this project?

It's a pretty risky proposition for a bank to take on, especially if you have little or no experience of what you are doing. At the moment, banks are looking to reduce risk rather than taking on more.

Do you have another way you can raise funds? Can you mortgage another property or have savings you can dip into? Perhaps family or friends would lend you the money.

As an aside, I'd think twice before taking on a project like this at this time unless you really are positive you know what you are doing - that you have a really good deal on what you're buying, can get the work done properly at a good price and to schedule and that you know the ins-and-outs of the rules. House prices are falling right now and don't look like they're about to stop any time soon so if you are to make money you have to add value to cover:

1. cost of purchasing the house
2. costs of refurb
3. cost of carry (that is the interest you pay on the borrowed money+other costs of ownership like council tax)
4. cost of buying and selling (solicitor's fees, mortgage fees, surveyor's fees etc)
5. reduction in the market value of properties at the time of sale.

You should stress test the business with real numbers. Do a simple spreadsheet and then see what happens if you can't sell for a year after your estmated time of completing works? What happens if house prices fall by 10, 20 or 30% after you have bought? What happens if you find bats in the loft or crested newts in the back garden? What happens if you have to replace the plumbing, electrics and roof unexpectedly? What happens if neighbours object to the works?

It's not that if any of the scenarios cause you to make a loss you should abandon your scheme but you should look at the circumstances that would cause you to lose money as well as those that allow you to gain.

Overall, I'd be very circumspect about getting in to this right now. The choice is yours though. Perhaps all this credit crunch is a storm in a teacup. Plenty of people think so.

mustrum_ridcully

Not wishing to sound too rude but this isn't 2004 anymore. To get a mortgage you will now need a decent deposit, if you don't have that then forget it. Even if you get a mortgage there's no guarantee you'll be able to sell the house or even recover your costs.

JimmyTheWig

Agree with Generali in terms of costs, and with mustrum in terms of conditions having changed in the last 4 years.
But to answer your question, you may have to go for a lender's standard variable rate (SVR). They might not advertise these particularly widely, as they are generally bad value, but I'm sure a broker could advise on who has low SVRs.

sheenangel

Should really have specified this, but we are purchasing the house a lot lower than the lowest value of the property as we are buying it from a family member who wishes to help us out. Therefore, we just want to re-sell it after doing some minor work on it to raise capital for a new house. We have about a 13% deposit for it.

SquatNow

You are entering a legal minefield. If the person you are buying off die or goes bust in the next 6 years you could end up with a huge bill for the difference between "market value" an what you're paying.

I assume that rather than being a builder, you are just some random person who has seen it done on TV.

The most you can make in terms of "profit" is the difference between the discounted purchase price and the true market value.

In this case you'de be better off selling the house on the open market and them just gifting you the money.

Generali

sheenangel wrote: »

Should really have specified this, but we are purchasing the house a lot lower than the lowest value of the property as we are buying it from a family member who wishes to help us out. Therefore, we just want to re-sell it after doing some minor work on it to raise capital for a new house. We have about a 13% deposit for it.

There could be a problem if the vendor dies within 7(?) years as AFAIK, the discount on the house to market value would be counted as a gift and so may well be included in the estate for inheritance tax rules.

However, it is hard to prove what market value is and also, if you've had some work done (and can prove it) you can argue that the increase in value was a result of your hard work. It may wash or it may not depending on the view of a court ultimately.

Jonbvn

sheenangel wrote: »

We have about a 13% deposit for it.

Gieven the current market conditions, I think that you will be unlikely to get a mortgage with such a high LTV. Most lenders will only consider mortgages for development/investment property with a maximum LTV of 75% (i.e. you need a 25% deposit).

Generali

If you are buying it for less than the market value and have a 13% deposit which total 25% of the value of the house then you might be able to get something.

The alternative would be for the seller to raise a mortgage of 12% of the value of the house and give it to you. You would then have a 25% deposit and the mortgage would be repaid on completion.

Strictly speaking it's illegal (fraud) but the chances of getting caught are nil unless one of the parties to it tells someone. Even then you'd be unlikely to be prosecuted I suspect.

dopester

You are aware industry insiders are reporting developers have slashed the value of their land banks by around 40%+ ? I personally doubt the banks would lend to you unless you could stump up a load of cash yourself.

Mortgage: It is a French word generally believed to be derived from two Latin words–”mort” (meaning death) and “gage” (meaning pledge or something of value that’s forfeited if the debt is not repaid).

Generali

dopester wrote: »

Mortgage: It is a French word generally believed to be derived from two Latin words–”mort” (meaning death) and “gage” (meaning pledge or something of value that’s forfeited if the debt is not repaid).

I love that stuff. Testify comes from the same root as testicle, as supposedly in a Roman court you'd hold your testicles when giving evidence.