Buy-to-sell mortgages

Buy-to-sell mortgages are a short-term finance arrangement for buying property with the intention of selling it. You can also use bridging loans for this purpose, depending on the state of the property and required speed of purchase.

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Compare bridging loans and rates

Table: sorted by monthly interest rate
Data indicated here is updated regularly
Name Product Maximum LTV Loan term Loan amount Monthly interest rate
United Trust Bridging Loan
United Trust Bridging Loan
70%
1 month to 36 months
£75,000 to £25,000,000
0.48% to 1.1%
Hope Capital Bridging Loan
Hope Capital Bridging Loan
75%
3 months to 24 months
£50,000 to £500,000
0.54% to 1.05%
Octane Bridging Loan
Octane Bridging Loan
65%
1 month to 24 months
£150,000 to £25,000,000
0.55% to 1%
Lend Invest Bridging Loan
Lend Invest Bridging Loan
75%
3 months to 24 months
£75,000 to £25,000,000
0.55% to 0.94%
MFS Bridging Loan
MFS Bridging Loan
75%
3 months to 18 months
£100,000 to £0
0.65% to 1.25%
Octopus Bridging Loan
Octopus Bridging Loan
60%
1 month to 24 months
£50,000 to £25,000,000
0.7% to 0.9%
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Overall representative example for regulated bridging loans
If you borrowed £223,000 over a 1-year term at 8.76% p.a. (fixed), you would make 12 monthly payments of £1,658.93 and pay £242,907.16 overall, which includes interest of £15,657.16, a broker fee of £0.00 and a lender fee of £4,250. The overall cost for comparison is 11.3% APRC representative.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.

Why would I need a buy-to-sell mortgage or a bridging loan to buy a property?

It is possible to make a lot of money buying property, then selling it quickly at a profit. The process is called “flipping“, and there are plenty of investors who make a lucrative career out of it.

Many will buy properties below market value at auction or seek to invest in and renovate uninhabitable property.

However, it’s difficult to do this profitably with traditional mortgages because:

  • It takes too long to finalise the loan.
  • You’ll face large early repayment charges.
  • You can’t secure your loan against uninhabitable property.
  • You may have to own your property for a minimum time period before being allowed to sell.

Thankfully, there are various loans designed specifically for short-term purchases. There are buy-to-sell mortgages, which have no early repayment charges and no restrictions on quick sales. There are also bridging loans, which can be arranged quickly and secured against uninhabitable property.

What is a buy-to-sell mortgage?

Whereas most traditional mortgages will charge fees for early repayment and make you wait at least six months before selling, a buy-to-sell mortgage doesn’t have these restrictions.

These products, sometimes called flexible mortgages, are available on a residential or buy-to-let basis. The majority of deals are offered by specialist lenders, rather than high street mortgage providers.

You’ll go through the same application process as with traditional mortgages, although the interest rates on offer are likely to be a lot higher. In fact, you may see them advertised at monthly rates, rather than as an APR.

You can expect to pay higher fees and stump up a larger deposit too. But if you’re looking to flip a property quickly, these deals are still likely to appeal.

The biggest downside to these mortgages is that they typically have to be secured against a habitable property, meaning it has to be fully enclosed with working kitchens, bathrooms and amenities.

If you’re looking to refurbish a building which is not habitable, you’ll have to search for alternative funding, perhaps via a refurbishment loan or bridging loan.

What is a bridging loan?

Bridging loans are also unlikely to have restrictions when it comes to early repayment or quick sale of a property. What’s more, they can be used to purchase uninhabitable buildings.

They are available with or without an end date. Open-ended bridging loans, with no set end date, offer more flexibility, but usually have higher interest rates.

Bridging loans tend to be finalised within 14 days, which is a lot faster than most mortgages, making them ideal for investors who want to flip properties as quickly as possible.

They’re easier to be approved for than traditional mortgages too. The lender’s biggest concern is your strategy for repaying the loan, often called your exit route.

Bridging loans are commonly used for dilapidated properties bought at auction. In this scenario, you’ll need to put down a 10% deposit immediately, then stump up the rest of the cash within 28 days. These deals are sometimes called auction finance.

Example of using bridging finance

An overall representative example for regulated bridging loans
Based on borrowing£226,500 over 1 year
Interest rate8.15% p.a. (fixed)
Lender fee£4,500
Overall cost of comparison10.7% APRC
Broker fee£0.00
Total amount repayable£245,326.56 inc. interest of £18,826.56

Who is a buy-to-sell mortgage good for?

Buy-to-sell mortgages are aimed at investors who are looking to buy a property with the intention of selling it, rather than live in it themselves. In this situation you’re unlikely to be able to secure a traditional mortgage to fund the transaction.

Typically only available through a specialist lender, you can expect to pay higher interest rates and fees, and be required to have a larger deposit for a buy-to-sell mortgage.

Buy-to-sell mortgages and bridging loans are both types of short-term finance you can use to purchase a property with the aim of selling it on again in the near future.

One of the main differences between the two is that buy-to-sell mortgages can usually only be secured against a property that is already habitable, whereas a bridging loan can be used to buy a property that needs extensive refurbishment to make it liveable.

How to be approved for the best buy-to-sell mortgages

To be eligible for these type of finance deals, you’ll usually need to stump up 25% of the property’s value as a deposit. The larger the deposit, the more likely you’ll be approved for a good interest rate.

You can also improve your odds of getting a great mortgage deal by demonstrating the following qualities:

  • A strong exit route. You’ll be questioned extensively about your exit route. Typically, this will involve remortgaging or selling the property. If your project involves refurbishment, the lender will usually want to see evidence that your plans are realistic. The more reliable your exit route appears, the easier it will be to get a good mortgage deal approved.
  • A good security property. The easier the property looks to sell, the more comfortable a lender will be with approving your loan. If the property is already inhabitable, that will work in your favour. If there are no hurdles to a smooth sale, such as leaseholds or non-standard construction, that’s a good sign too.
  • A good credit score. Lenders will use your credit score to assess how reliable you are when it comes to repaying debt. A good score may allow you to access the best rates. If your exit route involves remortgaging, they’ll be particularly keen to check that your credit score will allow this.
  • Experience in property flipping. If you can demonstrate experience of having successfully used these mortgages to flip properties in the past, the lender may be more comfortable approving your application.
  • Using a mortgage adviser. A mortgage adviser with specialist knowledge of this market will be able to point you in the direction of the best interest rates from the lenders most likely to approve your application.

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2 Responses

  1. Default Gravatar
    JodyMarch 10, 2019

    Ok, so my partner and I are exploring the idea of converting a property into flat. The property’s asking price is 1,000,000. We will go in with a lower offer but my question is what would be needed and how realistic would it be?

    • Avatarfinder Customer Care
      JoshuaMarch 12, 2019Staff

      Hi Jody,

      Thanks for getting in touch with Finder. I hope all is well with you. 😃

      Regarding your question, that would depend on your situation and what you and the seller agreed upon. Best is to discuss this with the seller to learn the proper course of action to take.

      I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.

      Have a wonderful day!

      Cheers,
      Joshua

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