Estate properties are great investment opportunities with amazing ROI. If you desire to buy a property that you will eventually put up for sale or you need finance to acquire a property you will put up for sale, then getting a buy-to-sell mortgage may be an amazing option for you. This article explains what a buy-to-sell mortgage is, its comparison and also analyzes how to get one. Furthermore, it covers the buy-to-sell mortgage calculator, its rates and deposits in the UK.
Buy To Sale Mortgage
This is short-loan financing that provides you with funds to buy a property. These properties are then resold for profit. Sometimes they are renovated if there is a need for renovation. Buy-to-sell mortgage is also referred to as a bridging loan. It differs from a mortgage for buying a live-in home property. One of the major differences between them is the duration of time it takes to complete the payment of a mortgage to sell the mortgage. Other mortgages can take up to three years and above before payment is completed but a bridging loan demands a shorter time frame. Additionally, this mortgage mostly demands a higher loan amount than a standard mortgage.
How Does a Buy-to-Sell Mortgage Work?
People who settle for bridging loans usually spend time looking out for new properties to buy. Mostly, you find them in auction houses and around probate properties. Also, they look out for properties that sell below market value BMV with little or no need for renovation. Ideally, you are expected to make at least a 20-25% deposit, unlike other mortgage properties. Moreover, buy-to-sell mortgages usually have an exit fee, which you will have to agree on upfront. The exit fee is mostly paid out at the end of the loan agreement, which is mostly after the property is sold.
Usually, the rates on buy-to-sell properties are higher than a standard mortgage because of the short-term nature of the loan. It uses a monthly interest rate rather than the regular APR on other mortgages. This interest rate is based on the ratio of the value of your loan to the value of the property.
There are also additional charges to consider such as an agreement to mortgage fee when you use a broker to apply for a mortgage.
Finance Options Available For Buy-to-Sell Properties
The various means of financing a buy-to-sell property include the following:
#1. Flexible Residential
Flexible residential is available on a main residential mortgage. Here, you acquire the property to move into. Of course, this applies when you don’t already own a residential property You can get a loan with an LTV of up to 95%. If you currently own a home, you must have a minimum 10% deposit and be able to afford the new mortgage as well as any existing debt. The lender must also judge the property as livable. The greater the deposit, the better, because higher LTV packages frequently come with repayment penalties (which you’ll want to avoid if you want to sell the home early in the term). A 25 per cent deposit, on the other hand, will provide you access to deals with minimal or no payment penalties.
#2. Bridging Loan Short-Term Finance
A buy-to-sell short-term finance is open to you. Just in case you desire to flip a house in 12 months or less, buy-to-sell short-term finance is the perfect option for you. Ideally, the six-month rule on mortgaged properties may not apply to this option of buy-to-sell mortgage because it intends to sell off the property fast. As a result of the short-term nature of this financial instrument, a bridging loan or short-term loan could be the best option for funding the purchase or buy-to-sell of the properties. It has a high deposit fee, which protects lenders in the case of default payment.
Mostly, it requires a minimum deposit of 25% as an upfront payment and has a high interest rate. Bridging loans do not have an early redemption penalty and are also faster than standard traditional mortgages. This means you can choose to make an early payment without additional charges.
#3. Refurbishment Finance
Refurbishment finance is specifically used for the development or renovation of properties. A not-suitable house can be bought at BMV below market value most often. Investors and estate developers use it to acquire a mortgage loan and then refurbish the property and place it for sale again. The goal in this situation is to raise the value of such properties and then sell them off at a higher price.
Buy To Sell Mortgage Deposits
A buy-to-sell mortgage demands investors have a larger cash reserve than most other forms of mortgages. Mostly, mortgage providers will not provide the entire sum for buy-to-sell properties unless you present another property as additional security. The percentage of the money you provide out of the entire buy-to-sell property value is your mortgage deposits. Moreover, buy-to-sell mortgages have a 20–25% rule on deposits. This means you are expected to have about 20–25% of the property value to apply for a mortgage.
The larger your deposit is in comparison to your mortgage, the lower your loan-to-value ratio will be. Additionally, higher mortgage deposits on buy-to-sell property give you lower interest rates and a better mortgage deal.
For instance, Philips, an investor wants to buy a property worth £400,000 with mortgage deposits of 40%. It means Philips will be paying £160,000 and get the remaining £240,000 on the mortgage. The interest on this mortgage loan will be lower compared to Austin, which has 25% deposits for his buy-to-sell property. Buy-to-sell mortgage providers insist on the 20-25% mortgage deposit to protect themselves in cases of default payment.
Buy To Sell Mortgage Calculator UK
The buy-to-sell mortgage calculator is specifically designed to provide guides on the cost of mortgage loans even in the UK. It uses your ideal loan amount, estimated time and interest rate to calculate your monthly payment.
Most buy-to-sell mortgage calculators have some or all of the following interface:
- Bridging loan amount
- Term required
- Monthly interest
- Additional Property used as security
- Property value
- Property mortgage balance
- Lenders facility fee
- Exit fee
- Brokers fee
- Admin fee
- Lenders fee
Fees To Consider In A Buy-to-Sell Property Loan
- Arrangement fees
- Valuations charges
- Legal costs
- Exit charges
- Early repayment fees
- Interest rates
- Broker’s fee
- Lender’s fee
Buy-to-sell mortgage comparison
This buy-to-sell mortgage comparison is a list of top bridging loan providers in the UK.
| NAME | LTV | LOAN TERM | LOAN AMOUNT | 0.55%-0.75% |
| MFS Bridging Loan | 75% First70% Second | 3 Months to 2 years | £100,000 to -£30,000,000 | 0’59 – 0.95% |
| Precise Mortgage | 65% | 1 month – 18 months | £50,000 – £1,000,000 | 0’49 – 0.69% |
| LendInvest Mortgage | 75 % | 3 months – 1 year | £57,000 – £15,000,000 | 0.55% – 0.75% |
| 0.55%-0.90% | 75% | 1 month – 23 months | £50,000 – £25,000,000 | 0.55% – 0.90% |
| 0.48%-1.10% | 75% First70% Second | 3 months – 3 years | £125,000 – £25,000,000 | 0.48% – 1.10% |
Conclusion
As much as buy-to-sell properties appear appealing to investors, it is advisable to use the service of a mortgage expert. They are familiar with the pros and cons, as well as the extra charges that come with buy-to-sell mortgages. Also, there are various buy-to-sell mortgage providers and this creates room for comparison. Finally, ensure you effectively strategize on means of paying back the loan, as failure to do so will place you at a huge disadvantage—losing the property, funds and time invested in it.
