Auction property that appears to be un-mortgageable

by Readers Question

10:37 AM, 11th May 2015
About 4 years ago

Auction property that appears to be un-mortgageable

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Auction property that appears to be un-mortgageable

I intend to purchase a property with cash at an auction next week. What I would like to do is get a Buy to Let mortgage immediately afterwards to release capital. I would then renovate and would probably sell on, although renting it out could be an option. Auction property that appears to be un-mortgageable

My mortgage broker has informed me of the following problems.

My main problem is that the guide price is £30k and that no lender would lend on something that cheap.

Secondly, that no lender will lend on a BTL basis on a renovation project

Thirdly, even if I renovate it no lender will mortgage it until I’ve owned it for more than 6 months,

Is this all correct?

Does anyone have any suggestions for getting round this?

Regards

Onslow Clough



Comments

Mark Alexander

10:41 AM, 11th May 2015
About 4 years ago

Hi Onslow

You need to find yourself a better broker.

Please have a read of this article, written by one of our recommended brokers about this very subject >>> http://www.property118.com/buy-to-let-mortgages-on-low-value-properties/41785/
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Ian Narbeth

14:36 PM, 11th May 2015
About 4 years ago

Hi Onslow
In the current climate I would not rely on getting your BTL finance lined up AFTER the auction. You will typically have only 28 days (and you may find the auction special conditions provide for a 3 working day period under a notice to complete) to complete. Getting a mortgage offer and having your lawyer look over the title before you bid is safest but may not be cost effective.

Be aware the "guide price" does not mean the property will sell at or about that level. It just gives an indication of where the reserve is.

There are problems getting a BTL loan if renovation work is needed. Not all lenders will touch property in this condition.

My advice is that if you cannot buy for cash think very carefully indeed before bidding. Remember also the auction house is where the difficult properties go and it is not unknown to find some title or planning issue that appears insignificant but which makes the property unmortgageable until it is sorted out.

Rob Crawford

16:28 PM, 11th May 2015
About 4 years ago

If you have no intention of letting the property then a BTL is the wrong product for you, there will be all sorts of caveats preventing this. If however, you want to let the property a BTL should be available but as mentioned in the link provided by Mark - it may be the best deal for your circumstance but it won't be the cheapest deal. The word "refurb" does not always bide too well with mortgage providers who's preference will always be to start with a tenantable property. Is it really a "refurb"? Or maybe you are only planning a "makeover"? The later seems to be more acceptable. If it is a refurb then you can expect to pay a significantly higher premium for the property insurance for 3 months as well. My policy on auctions - if you can't afford to purchase and renovate it with cash, don't bid! Low auction guide prices are often used to attract many interested bidders. The bid will soon climb above that if it represents good value. If the bidding does not climb there maybe a good reason. At the same time it maybe a great bargain. The only way you'll find out is to do a significant amount of ground work (legal & survey) before the auction - there will be additional upfront cost to this if done properly.

Onslow Clough

17:59 PM, 11th May 2015
About 4 years ago

Reply to the comment left by "Ian Narbeth" at "11/05/2015 - 14:36":

Thank you for your reply Ian, I will be buying the property and renovating it with my own cash. The problem is I want to get some of my capital back by then mortgaging the house.. The problems i'm experiencing are that lenders don't want to lend on values under £50k, if they did they still wouldn't lend on a renovation project and thirdly even if they did lend under £50k on renovations, it would appear i have to own the house for over 6 months before anyone would lend on it.

Ian Narbeth

18:05 PM, 11th May 2015
About 4 years ago

Reply to the comment left by "Onslow Clough" at "11/05/2015 - 17:59":

There are some lenders who will lend after 4 or 5 months. Problem is lot size as the paperwork is the same for a £40K loan as a £200K one.

Onslow Clough

18:20 PM, 11th May 2015
About 4 years ago

Reply to the comment left by "Rob Crawford" at "11/05/2015 - 16:28":

Thank you Rob, I agree, I probably could get a mortgage on the low balance and that BTL mortgages are difficult for refurbs

Unless anyone has any better suggestions i intend to buy the property, renovate get a tenant and then sit out until i've owned it for 6 months and then finally mortgage it.

Mark Alexander

18:41 PM, 11th May 2015
About 4 years ago

Reply to the comment left by "Onslow Clough" at "11/05/2015 - 18:20":

Onslow

It makes sense to do that anyway for CGT purposes.

If you sell it without ever having a tenant in it then you will be taxed on profits as a trade as opposed to the lower CGT rates. There is also annual CGT exemptions to be considered so if you have a partner (or kids over 18), buy it in joint names to maximise your CGT allowances when you do eventually sell.
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Jireh Homes

17:29 PM, 12th May 2015
About 4 years ago

Hi Onslow - agree with your current strategy in buying cash, renovate, tenant and then re-mortgage after 6 months. This will give you a much wider range of products at reasonable rates and also benefit from improvement in capital value to above the minimum loan threshold. Many lenders will not offer loan if not "immediately" habitable.

Puzzler

12:44 PM, 16th May 2015
About 4 years ago

As Rob, Ian et al. above have said, this property is not likely to be sold at the guide price (these are often set very low to generate interest) so if your budget is £30K, use it as a deposit in a more straightforward deal.

Tony Simpson

10:21 AM, 24th May 2015
About 4 years ago

I am doing something very similar and have been told by my broker that Virgin Money and RBS offer "day 1" mortgages, meaning there AML processes allow them to offer a mortgage almost immediately after the purchase.

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