The Question
I’ve decided to purchase a house at auction to renovate before letting it out. I plan to carry out the work myself with help from family and friends, which will likely take 18 months to two years.
Should I take out a buy-to-let mortgage during this period, even though it won’t be lived in by a tenant for at least a year and a half, and I won’t be earning any rental income?
David’s Answer
A buy-to-let mortgage is designed for properties that will be rented out, and the lender’s decision is based primarily on the property’s rental potential.
If the property requires significant renovations and won’t be habitable for 18 months or more, securing a buy-to-let mortgage can be difficult, as lenders typically expect the property to be rented out relatively soon after the mortgage is taken out.
In this situation, a bridging loan might be a better option. Bridging loans are short-term loans designed to ‘bridge’ a gap, such as financing the renovation period before you switch to a buy-to-let mortgage once the property is ready to be rented. Some lenders offer products that transition from a bridging loan to a buy-to-let mortgage once the renovations are complete.
Since 18 months is generally too long to hold a buy-to-let mortgage without rental income, exploring alternative financing like a bridging loan would be advisable.
Once the renovations are done and the property is habitable, you can then refinance onto a buy-to-let mortgage.
Meet our expert…
David Jackson established Prestige Private Finance in 2014 after nearly two decades in the mortgage industry. With experience in London’s high-net-worth areas, David and his team offer empathetic and expert advice for your financial journey.
If you have a question for David please email kate.saines@emap.com or leave a message in the comments below.
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