We’ve all heard of those ‘no money down’ schemes (mortgage fraud scams) where a ‘property sourcer’ has negotiated a discount and the buyer and his friendly mortgage salesman gets a mortgage based on the normal market value. Many were very active in this market, some still are, however ……
….. what is not so widely reported – mainly because the shrewd investors who use the following strategy don’t normally shout about it – is the ‘cross charging’ 100% capital raising process which allows for the full purchase price, refurbishment costs and subsequent buy to let remortgage (if keeping the property) all to be arranged in a transparent and legal process, often all with the same lender.
How do I know about this?
Because we’re doing it, and I have a case study to share with you …
Case Study for a 1st and 2nd Charge combined arrangement
Our client required a deal they couldn’t get via their usual high street lender. He was looking to buy a property, renovate and then take out a BTL based on its new and improved value.
Crucially, and the main issue that nearly caused him to lose this opportunity, is that he was also limited in the cash required to secure this deal, although he had a good level of equity in his main residence.
Our client ideally needed to borrow 100% of the purchase price and 100% of the renovation costs using the equity in his home as additional security. Once renovated he wanted a quick solution in changing the bridging loan into a BTL.
- Our client owned his residential property with a value of £600k
- Mortgage outstanding £300k with Halifax
- Purchase price of the property currently worth £150k
- Refurbish costs £40,000 – Renovation including new kitchen and bathroom
- Total borrowing required £190k
The solution?
First, to borrow 75% of the new purchase which gave him £112.5k
Second, the shortfall of £37.5k towards the purchase and the additional £40k needed for the renovation works (£77,500 in total) was raised by adding in the additional security via a 2nd charge on the main residence.
He was actually offered a 2nd charge bridge on his residential property up to 70% LTV, which meant he could, if he wanted to, raise up to £120k from this property (70% = £420k, his existing mortgage is £300k), far more than enough to make up the required difference (£77,500) to cover the full 100% of the purchase and 100% of the renovation costs.
The valuer was booked to attend the property within 72 hours. In the meantime our client was quick in supplying the shopping list of requirements required and forunately instructed a solicitor who understood the speed required for a bridging loan. The deal was completed within a few weeks enabling our client to ‘do up’ his new property, increasing the value to £300k.
Three months later our client was able to change the bridging loan product to the lenders BTL product, releasing 75% of its new improved value. This released £225,000, enough to pay off the bridging loan and put some money back into his cash flow.
This is the intelligent, new improved, ‘no money down’ style of investing and refurbishing which is helping many savvy investors to add property to their portfolio without laying out any of their own liquid cash. Instead, they are letting their own existing bricks and mortar do that for them.
We are now very closely associated with a leading and award winning bridging loan / short term lending packager who specialise in these cases.
We have a very simple enquiry / AIP process and as highlighted above, cases can be processed very quickly indeed. In this case, after 12 weeks of work, our client ended up with another property in his portfolio and also approximately £20k in cash (after fees etc) as well.
Could this be of interest to you?
Contact Howard Reuben
Mortgages, Commercial and Bridging Finance, Life Insurance, Wills, Trusts and LPA's.
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