The Question
My wife and I would like to purchase a buy-to-let property. We are currently looking at ‘doer-uppers’ and wondered if we could finance the renovation work either using a buy-to-let mortgage or a short term secured loan. We expect the work to take around six months to a year.
Anthony’s Answer
Congratulations on thinking about taking your next step in property.
Purchasing a buy-to-let property is a slightly different process from a residential home.
Buyers in your situation would not usually use a buy-to-let mortgage, you would use what’s called a bridging loan, which I explained in my last article.
It’s a form of short-term finance over a year to 24 months which is used to purchase the property. The lender will also release funds for you to do renovation before renting it out to ensure it is at a rentable standard before your move tenants in.
The lender will take into account the amount of work via a ‘schedule of works’ listed by the builder.
The method you mention to raise the finance is a secured loan or ‘remortgage’ on your residential property (if you have equity in it). The lender will take into account your income and expenditure to originate this loan usually known as a ‘second charge’.
You can then use the funds to purchase the property in full cash, or put it in as a deposit, raising the remained for the purchase and funding the renovation again with development finance.
Both are possible options are possible. The main thing you need to think about, if you’re taking this route, is the type of project you’re going for, the expertise of the builder and what you will do with the property at the end of the project.
Your options are usually to sell or refinance the project at the Grid Development Value (GDV is the final value after works is complete).
Meet our expert…
Anthony Wright is a specialist development broker at Always Wright Mortgages Limited and every day he helps clients to obtain the best mortgages to finance their dream home, second home or buy-to-let portfolio.
With four years’ experience in mortgages working with the UK’s top banks and being multi-award winning broker he is ideally skilled to answer YOUR questions. If you have a query about any aspect of your mortgage send us a message in the comments below or email kate.saines@emap.com
