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Buy to Sell Mortgages: How to finance property flipping

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What are buy to sell mortgages?

Flipping property can be incredibly lucrative and rewarding for many buyers. The process involves buying a property, spending money refurbishing it, and then selling it on to make a profit. Whilst some buyers are in the position to buy a property with cash, or by releasing equity in other properties, not everyone can. If you need finance, finding the right finance can be tricky as the short-term nature of property flipping makes a standard mortgage unsuitable. You’ll therefore need specialist finance to fund your project, and this is where buy to sell mortgages come in. 

Buy to sell mortgages are a type of bridging finance which offer short-term, flexible borrowing, allowing you to buy a property and pay for its renovation. Unlike a standard mortgage which can take months to arrange, buy to sell mortgages can take just days. This is ideal if you are buying a property at auction or have short timescales in which to flip the property. With a buy to sell mortgage, lenders can also look at the projected value of the property post renovations rather than the purchase price. This allows you to borrow more so you can cover the costs of renovations as well. 

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Common scenarios where buy to sell mortgages are useful

Buy to sell mortgages are very popular with property investors who are watching the market for properties they can make a profit on. These are properties that are being sold below market value and could include: 
 

  • Properties where the current owner wants a quick sale 
  • Repossessed properties 
  • Properties in poor condition that need significant work doing 
  • Renovation projects that have run out of money 
  • Inherited properties, or properties that have gone through probate 
  • Auction properties where there is a 28 day completion timescale in place 
  • Properties that offer the opportunity to add value in any other way 

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Buy to sell mortgage requirements

Like all other mortgage applications, lenders have their own individual criteria for buy to sell mortgages. These requirements also differ in comparison to residential mortgages and buy to let mortgages. 

How much deposit do I need for a buy to sell mortgage? 

Lenders tend to consider buy to sell properties as higher risk compared to other types of mortgage. You’ll therefore need a bigger deposit compared to a residential application – usually 25% of the current property value as a minimum. It may be possible to get finance with a smaller deposit, but it’s best to contact our team to find out more. Generally speaking, the higher the deposit you can put down, the better the mortgage rates and products available. 

What is an exit strategy? 

When applying for a buy to sell mortgage, you’ll need a solid exit strategy. This details your plan as to how you intend to repay the finance at the end of the term. Buy to sell mortgages are usually taken out on an interest only basis so the original loan doesn’t reduce. With buy to sell mortgages, the expectation is that you will sell the property and the finance will be repaid from the sales proceeds. If this is not the case, you’ll need to confirm how the finance will be repaid. We can look at options to refinance and retain the property if you wish. 

How long do I have to flip the property? 

Most buy to sell mortgages will give you 6 -18 months to renovate and sell the property. It may be possible to take out your finance up to 36 months or longer depending on the lender and your plans for the property. To find out more, speak to our friendly mortgage team

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What interest options do I have?

Buy to sell mortgages are usually taken out on an interest only period but you could have a choice as to how the lender charges the interest. 
 
Serviced – You pay the interest monthly. Similar to an interest only mortgage, you make payments each month to pay the interest that’s due. This can result in the maximum loan being available to you, but the lender will carry out an affordability assessment to ensure you can make repayments. Some loans can be part-serviced. 
 
Rolled Up – The lender adds the interest to the loan. You then repay the original amount borrowed plus interest at the end. This can sometimes result in a lower loan at the beginning to allow for the interest to be added to it. 
 
Retained – The lender calculates the interest due for the duration of the loan and deducts it from the loan. At the end of the loan, you pay the original advance requested. This is the most common type of arrangement. 
 
The decision on how you will repay will depend on what options the lender is offering, your current situation and your future plans. Our mortgage team will discuss this with you when we assess your situation, and we will recommend the best solution for your needs and objectives. 

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Are buy to sell mortgages a good idea?

Buy to sell mortgages are a fantastic finance option if you intend to buy a property and sell it on for profit. Benefits include: 
 

  • It’s quick to arrange. Lenders release funds much quicker – ideal if you have tight timescales, e.g. if you are buying at auction and have only days to complete. 
  • You could borrow more. Some buy to sell lenders base their lending on the after repairs value of a property rather than the current value. If the property is being sold below market and your works will significantly boost the value, you’ll be able to borrow more. 
  • You can buy ‘unmortgageable’ properties. With residential and buy to let mortgages, the lender will want to ensure the property is habitable. This is not the case with buy to sell mortgages so you’ll still be able to secure finance even if there is no kitchen, bathroom, electricity etc. 
  • No need to tie up your cash. Buy to sell mortgages allow you to borrow the funds you need to buy and renovate a property before selling it for a profit. This means you have more flexibility over your assets and they won’t be all tied up in the property. 
  • Greater flexibility. You’ll have more flexibility over how you repay the interest on the finance ensuring greater financial control. You’ll also only repay the original loan once it’s sold, unless you decide to transfer to another mortgage. 
  • Finance suitable for your project. Buy to sell mortgages are tailored to your specific needs, ensuring that the loan terms and conditions are the right fit for your project. 
     
    It’s also worth pointing out that buy to sell mortgages do have their drawbacks too. These include: 
     
  • You might need a bigger deposit. Lenders consider short term lending to be riskier so you could need to provide a bigger deposit compared to other types of finance. 
  • Higher interest rates and fees. Interest rates can be higher on buy to sell mortgages compared to other types of mortgage. Late repayment fees can also be high if the property does not sell in time, or a project overruns. 
  • If you are unable to repay the loan at the end of the term the lender could repossess the property or take legal action against you personally. 
  • Because many bridging loans are unregulated the market is rife with poor quality lenders and it’s important to work with a trusted adviser to navigate it. 

Why choose Simple Fast Mortgage for your Buy to Sell Mortgage?

At Simple Fast Mortgage, we specialise in helping clients find reliable finance solutions that enables them to follow their property plans. With our extensive experience in the industry, we understand the intricacies of property transactions and provide a personalised service that meets your unique requirements. Our team of experts will guide you through the process, offering tailored solutions that align with your financial goals. Contact us today to explore how our buy to sell mortgages can benefit you. 

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