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  • Mortgages & Finance

    Refurb Mortgages

    Hi all/Lisa,Please can anyone help on how refurb mortgages work as I am unsure re BTL. So when a property needs work wold you always have to use a refurb mortgage or can you use a normal BTL product?
    Say the property is worth
    about 85k in its current retail value as it needs work and you negotiate
    the purchase to 70k, how do you use a Light Refurb mortgage i.e. 70% of
    purchase price advanced £49k, putting in
    £21k: once refurb is complete and lettable getting 75% LTV i.e £75k on
    the value of 100k: or do you  get a normal 75% BTL
    mortgage on the pp of £70k without an ERC then remortgaging to 75% of the 100k value
    -is this only when the property does not need any work?What product do investors use now when the property needs work?Thanks
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    Hi Fernando,
    I’ll reply here instead of by email so others can benefit.
    The key is what condition the property is in as most lenders will insist that the surveyor regards the property as lettable pretty much upon purchase.
    Some lenders don’t mind minor redecoration as long as it is minor and won’t hinder rentabilty for too long. But a new kitchen, bathroom, anything structural, other works would usually hinder a standard buy to let mortgage and may result in a retention or refusal to lend.
    As such refurb mortgages are a huge bonus to investors as you can carry out the works and draw down money sooner than a typical remortgage.
    There are other products such as BMs House to House which has a different requirement in that the property must be habitable but not necessarily lettable so that’s an option. For most investors it will usually be a cash purchase and/or bridging finance then a remortgage.
    Regards, Lisa
    https://www.keys-mortgages.com
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    Lisa All comments are for education and information purposes only and do not construe as advice or a financial promotion. No liability is accepted for comments made. If you wish to receive information in an advisory capacity then please contact me about becoming a client. www.keys-mortgages.com

    Hi,
    You would struggle to get a standard BTL if the property wasn't considered to be is a habitable condition, or suitable for letting in it's current condition. TMW offer a light refurb product which will advance up to 70% of the value or purchase price (whichever is lower) and allow you 3 months after completion to carry out the works, after which time they will release up to 70% of the after works value up to £25k with a sucessful re-inspection by their appointed surveyors.
    Alternatively bridging is popular for these types of projects, albeit quite expensive by comparison. It depends on the individual project as to which method of financing is best, but if you are buying BMV you can use bridging to borrow against the OMV rather than the purchase price (not all bridgers offer this).
    Lucy
    W&B Mortgage Solutions Ltd
    https://www.wbmortgagesolutions.co.uk
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    Hi Lisa and Lucy,
    Thanks very much for your reply.
    So if the property is ok-ish needs a 'lick of paint'/not that much work you can get a standard 70-75% BTL mortgage and then remortgage to the OMV 6 months later at 100k.
    So how does the Light rentention refurb product work: you get a 70% ltv on 70k, once work is done how is the remainder released, do you remortgage to 75% after inspection or as Lisa put it, you draw down? What's the difference, sorry to state the obvious.
    So Prop worth £75k
    After work be worth 100k
    Purchase at 70k
    Mortgage lender advance you 70% of 70k = £49k with £21k deposit.
    Refurb complete, now worth 100k.
    Then what is the process after surveyor values property at 100k...?
    Thanks again Lucy & Lisa.
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    Hi Fernando,
    As Lisa says, each product is different, but if you were using a refurb product, it would generally just be a further advance rather than a remortgage, so you don't put a whole new application in, just a re-inspection by the surveyor and then the funds will be released by the lender.
    You have to be careful with remortgaging after 6 months because most BTL products come with early repayment penalties, which makes a refurb product so beneficial.
    If it is just a lick of paint you may be fine on a standard BTL, and there wouldn't be much gain in value either so probably not worth remortgaging in that case.
    Lucy
    https://www.wbmortgagesolutions.co.uk

    Fernando Duzaza said:
    Hi Lisa and Lucy,Thanks very much for your reply.So if the property is ok-ish needs a 'lick of paint'/not that much work you can get a standard 70-75% BTL mortgage and then remortgage to the OMV 6 months later at 100k.So how does the Light rentention refurb product work: you get a 70% ltv on 70k, once work is done how is the remainder released, do you remortgage to 75% after inspection or as Lisa put it, you draw down? What's the difference, sorry to state the obvious.So Prop worth £85kAfter work be worth 100kPurchase at 70kMortgage lender advance you 70% of 70k = £49k with £21k deposit.Refurb complete, now worth 100k.Then what is the process after surveyor values property at 100k...?Thanks again Lucy & Lisa.
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    Hi Lucy thanks for your reply.
    When I meant a lick of paint I meant cosmetic works: so if the property was worth 85k in its condition, and you knew comps were selling for 100k, you could purchase at 70k, do some light cosmetic work to add some value make the property nicer, and remortgage 6months later to 75% of 100k, ie 75k...
    Re the further advance: they would now lend you 75% of the 100k so 75k: pay off the old mortgage of £49k =26,000 - 21k deposit = 5,000 cash out: would this cash out be ok?
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    In principle you could either remortgage if you originally went with a standard BTL product and benefit from the enhanced value, but as mentioned before, need to be careful of early repayment penalties on the original product. If you had a refurb product at say 70% of the purchase price, you could then take it to 70% of the increased value after the works are completed. The process in this case is a simple further advance being made by the lender without having to make a remortgage application, they just send a surveyor back out to confirm the enhanced value. This would leave you with cash in your hand.
    Lucy Barrett
    https://www.wbmortgagesolutions.co.uk

    Fernando Duzaza said:
    Hi Lucy thanks for your reply.When I meant a lick of paint I meant cosmetic works: so if the property was worth 85k in its condition, and you knew comps were selling for 100k, you could purchase at 70k, do some light cosmetic work to add some value make the property nicer, and remortgage 6months later to 75% of 100k, ie 75k...Re the further advance: they would now lend you 75% of the 100k so 75k: pay off the old mortgage of £49k =26,000 - 21k deposit = 5,000 cash out: would this cash out be ok?
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    Hey Lucy - Would the further advance be 70% or 75% of the end value? Are the lenders ok with you buying so cheap at 70k and then initially drawing out 26k?
    Thanks
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    Hi Fernando,
    The way Mortgage Works do this is as a retention. They in effect offer you the full amount but hold back the retained amount which is anything over and above your initial 70% of purchase price. Once the works have been done (must be within 12 weeks) then the valuer will reinspect and they will release the retained amount. The retention can be up to 25k as long as it is not more than 70% of the end value and there is sufficient rental coverage.
    A remortgage is a whole new mortgage – as Lucy said you may incur fees unless you have a non-penalty product which are rare as hens teeth these days though TMW now do a couple or if using cash or bridging.
    Most lenders will require you to have owned the property for at least 6 months before remortgaging. There’s the odd exception.
    The usual way would be to apply for a further advance instead; again as Lucy said this would involve a new valuation or reinspection by the valuer and either a further advance of the same product rate and terms or a new product rate and terms. For example with TMW you could have your original loan on a 4.99% 1 year fix and a further advance on a 3 year fix at 5.49%. It depends upon lenders terms and products.
    It is important to bear in mind that lenders have no interest in funding the BMV market. If you have done nothing to the property to add value and you only purchased it 6 months ago at a discount I would not expect you to achieve a substantial further advance. It’s highly likely to be down valued significantly. If however you have added value then there is a much greater chance of getting your money out. What you think its worth and what a valuer will put on it are two different things!
    I advise my clients that if the money they put into a deal just has to come out in 6 months then not to apply for a mortgage with the hope of a further advance. I’ll happily do it if they insist but it’s a risky strategy if you have to have that money out in the current market. It’s much better to pay cash or bridge then do a remortgage in 6 months – not fool proof but higher chance IMHO of getting a higher valuation than with a further advance.
    Lisa
    https://www.keys-mortgages.com

    The above comments are for discussuon purposes only and do not constitute advice.
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    Lisa All comments are for education and information purposes only and do not construe as advice or a financial promotion. No liability is accepted for comments made. If you wish to receive information in an advisory capacity then please contact me about becoming a client. www.keys-mortgages.com

    The question of being in lettable condition works in exactly the opposite way to that you you describe, if you are talking about The Mortgage Works. I am nearing the end of a formal complaint process with them, and shall shortly be taking the case to the Ombudsman. They say that being, in their opinion, already in a lettable condition before refurbishment disqualifies a property from a Light Refurbishment mortgage. My arguments with them are, firstly, that this was a concealed criterion when I applied and, secondly, that the property was most definitely NOT of a lettable (or, indeed habitable, standard on purchase. Add to that their claim that the purchase price was fair and that a £15k refurbishment has added no value to the property and you can see why I am far from gruntled. Lisa: We have discussed this elsewhere - have you come across anyone else falling foul of this yet?
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    Hi Lisa,
    Thanks for your reply to the above.
    2 Questions: 1]on the further advance is the maximum only 70% of the end value and not 75%?
    2] How does the Mortgage Works rentention work in reality: so Current value 75k, but purchase price is 70k, other comps worth 100k, how does it work, can you give me an example please like ltv on the pp of 70k then LTV on the 100k?
    Thanks
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