Instant Remortgages. 10 posts • Page 1 of 1

[Tony Pearson]

Hello everyone.

A quick post here which will be of interest to anyone who buys BMV properties that are in need of refurbishment...

We have access to a lender who will remortgage a property that has been bought for cash where the property requires refurbishment which will add value.

Illustration.

Property purchased for cash (or bridging) for £80k
Property value £100k (lender will provide mortgage up to £85k here as will lend up to 85% LTV before works) - you therefore cover your initial costs with the first part of the remortgage - i.e. No Money Down!
Value after works £110k (lender will keep a retention on £3k as will lend up to 80% LTV after works).

If anyone has a project along these lines and would like to discuss further, please feel free to contact me on 01142567442.

Tony.

[REI]

Tony,

What do you mean by a retention?

[Tony Pearson]

Hi John

The retention is simply the amount of funds the lender will keep held back until all relevant works are completed.

[REI]

Tony,

Thanks for the quick reply. Though I have been investing for a long time sometimes I am still not up to speed on British English when used in the property sector. Indulge me yet again to clarify the following.

Illustration.

Property purchased for cash (or bridging) for £80k
Property value £100k (lender will provide mortgage up to £85k here as will lend up to 85% LTV before works) - you therefore cover your initial costs with the first part of the remortgage - i.e. No Money Down!
Value after works £110k (lender will keep a retention on £3k as will lend up to 80% LTV after works).

Tony.

Are you assuming that the amount held back is the amount needed for the projected repairs? That the lender is making a loan but holding back 100% of the refurbishment costs?

The lender will lend 85% of the value independent of the purchase price if the borrower can show that the future value after repairs is even higher than the present value.

Assuming I have it correct the lender will hold back the cost of the scheduled repairs so that could result in the buyer needing to come to the closing with cash if the repairs are high (purchase price plus repairs is more than the discounted price). Correct?

[Tony Pearson]

Hi John

The retention is no linked to the cost of the works to be carried out. You can borrow 85% of the valuation in current condition (eg £85k of a £100k valuation) and you can borrow 80% after works (eg £88k of new valutaion £110k). The difference is what is held back as a retention. You might have done £10k worth of worth to achieve a £10k increase in the valuation but that does not effect what you can borrow.

[REI]

Hi John

The retention is no linked to the cost of the works to be carried out. You can borrow 85% of the valuation in current condition (eg £85k of a £100k valuation) and you can borrow 80% after works (eg £88k of new valutaion £110k). The difference is what is held back as a retention. You might have done £10k worth of worth to achieve a £10k increase in the valuation but that does not effect what you can borrow.

One last question on the program.

If I take out the loan and then wish to obtain more funds based on the work to be done is there one closing or two? Does the lender put the loan in place to buy and then change the loan amount based on the work to be done or do they want to do it all in one go?

Two reasons. If I am buying I might not be ready to identify the work to be done before I need to complete? Second, if the lender can handle the process in two steps are there any extra costs (legal fees or otherwise)?

[Tony Pearson]

The loan would be offered on the value after works. i.e. you would get an offer of £88k and they would release £85k in the first instance. This means that (1) there would be no costs to release the extra funds and (2) you can only apply for such a product if you confirm the works before the purchase.

[REI]

Thanks Tony. The info is clear now. The program sounds fine for deals where I know what I want to do before I complete. Maybe most deals fit that profile so all the better.

[philharmer]

Thanks Tony,
Very useful info. Good to know that it's still possible to structure a deal like this. One other question. Is the lender happy to do a self-certified BTL mortgage?

Thanks,

Phil

[Tony Pearson]

Hi Phil

This product is based on a self-cert income so the rental isn't important. You are very rarely asked to prove your income on a buy-to-let mortgage application.

Tony.