There is an urban myth amongst some buy-to-let landlords and brokers that a rental property cannot be remortgaged within six months of purchase.
The reality is that although many (but not all) mainstream buy-to-let lenders won’t allow a property to be refinanced within six months, there are several specialist and commercial lenders who are quite happy to lend on this basis.
Why would a landlord want to refinance a property they purchased less than six months ago?
It’s worth bearing in mind that only about a third of buy-to-let properties are mortgaged and the majority are cash purchases. Buying for cash not only enables an investor to negotiate from a position of strength, but also buy the type of property that may be difficult to mortgage at the time of purchase. It may, for example, be in a poor state of repair and require significant refurbishment before it’s in a suitable condition to let.
The investor may also intend to convert the property into an HMO or multi-unit and then mortgage the property when the conversion or restoration work has been completed. Buying with cash and then mortgaging at a later date and at an enhanced value, makes an awful lot of sense.
Which all sounds very sensible, so why are some lenders unwilling to lend within six months of purchase? Part of the problem is money laundering and lenders may want to know where the funds came from to finance a cash purchase. But if the funds can be proven, then there should be no problem.
Another issue is that lenders are not keen on borrowers who continually re-leverage properties and, for that reason, many will only lend against the original purchase price of a property, rather than the enhanced value following restoration work.
One solution for investors who can’t fund the purchase of a property with cash but who want to restore a property and then apply for a mortgage based on its enhanced value, is to use bridging finance. Aldermore and Precise both offer ‘bridge-to-term’ mortgages which are designed to provide bridging finance for the acquisition of a property which can then be remortgaged onto a term deal at a later date. What’s more, the products offer the added benefit of placing no restrictions on the amount of money a landlord can leverage from the property.
So, for example, an investor may buy a property with a purchase value of £100,000 using a bridging loan of £70,000 (70% LTV). They then carry out £20,000 of restoration work which results in an uplift in the value of a property to £150,000. By opting for a ‘bridge-to-term deal’ the borrower can then remortgage the property to 80% of the enhanced value, which is £120,000. What’s more, this can be done during the six months following the purchase of the property.
Another option for borrowers who don’t want to bridge is a mortgage from a specialist lender who will lend against the enhanced value of the property. In the above example, some lenders will provide a mortgage based on 90% of the purchase price and the cost of restoration (£100,000 + £20,000 x 90% = £108,000) proving this does not exceed 75% of the final uplifted value. Again, in this example, 75% of the final £150,000 value = £112,500, so a loan of £108,000 would be fine. Again, these deals can be completed within six months of purchasing the property.
The amount that lenders want investors to leave in the property is sometimes referred to as ‘hurt money’. It’s another way of saying it’s the investor’s skin in the game!
There are, therefore, several options for landlords who want to purchase rental property and then remortgage within six months. It doesn’t matter if it’s a straight purchase and then remortgage or if it involves restoration or conversion work. There are competitive deals to be had which offer the required flexibility and are available for limited companies, HMOs, multi-lets and unusual properties.
Refinancing within six months is more common than you may imagine and, contrary to popular misconceptions, these deals can be placed with a number of lenders.
For further information on Buy to Let mortgages both for individuals and Limited Companies please contact RLA Mortgages on 0844 858 4420 or visit the website www.rlamortgages.co.uk
Please note lenders have different minimum criteria requirements and not all landlords and property types will qualify for this specific product. For further information contact RLA Mortgages.
This is a financial promotion and in no way should it be viewed as a personal recommendation or advice. Before a recommendation/advice can be given you should seek independant mortgage or financial advice.
RLA Mortgages is operated exclusively for the RLA by 3mc, which is authorised and regulated by the Financial Conduct Authority. FCA No. 302992. ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. Although the FCA regulate the way the majority of mortgages are sold, in most cases they do not regulate buy to let mortgages. This means you may have less protection if things go wrong with a buy-to-let mortgage. All calls are recorded for training and monitoring purposes.