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I intend to buy a property at a local auction, with the intension of renovating it and selling it after 3 months. What's the best mortgage option?

by markdally 14 February 2010 |

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134

liesarenocomfort posted
Three things:
1. Properties that are sold at auctions are often not mortgageable (that is often why they sold at auctions and not by private treaty). If you own a wreck that's falling down with a big hole in the roof, you try your luck at auction.
2. I assume that you realise htat when you bid (successfully) at auction that is effectively exchange of contracts + you are committed + have to pay a 10% deposit there and then. Completion is usually within 28 days. People who buy at auction are (almost) always cash buyers (ie cash for the full price).
3. There are difficuties in getting a mortgage offer on a property before it goes to auction (and it is rare to do this). You can't tell the mortgage company how much you are buying it for, for a start! Also there is good chance you won't be the succcessful bidder + you will then have lost dough on the application.
If you have your eye on a property you could try approaching the seller with an offer to take it out of the auction. There are no lenders that particularly specialise in "auction properties" as far as I know.
Remortgage your own property for funds?
Posted on 14 February 2010 | Love 2 loves Report
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MikeGG1 posted
If you intend to hold it for only a few months then there is no point in obtaining a mortgage, with all the costs and restrictions that would entail.
Get a bank loan, or rather the offer of a loan, before the auction. Then you can confirm the amount of loan required after the mortgage. The loan would be much more flexible than a mortgage. You could take what you need for the original purchase, then take more as you need to spend on renovation. The interest rate would probably be at their base rate + x%. You would then be able to redeem the loan as soon as you sell the property.
With a mortgage, it would be set up for a much longer term than you would want and most providers restrict the amount that can be repaid in any one year, possibly to 10% of the outstanding capital at the start of the year. However, if you got a short term fixed rate mortgage, you would be able to repay in full at the end of the term.
The bank would probably want to take a second charge on your current home, if there is sufficient equity in it, otherwise on any other assets you might have.
Mike
Posted on 14 February 2010 | Love 0 loves Report
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SmudgeButt posted
Another alternative would be to get a flexible mortgage on your current home -assuming you have one.
For example - if you have a home worth £250k and you currently have a mortgage of £50k and you get a flexible mortgage for £200k you would have an excess facility of £150 which you could use like cash to splash out on a second place with no questions asked. As long as you keep up your flexi mortgage within your facility of £200k the bank won't care what you're doing with the cash. If you are able to buy, renovate and resell within a short time the cash just goes back on the mortgage.
I have in mind the RBS/Virginone mortgage which is what I have hence the familiarity and as far as I'm aware has no penalties for dropping money into it at any given time. The rates should be slightly less than a bank loan but obviously you will need to satisfy yourself what is the best route for you.
Posted on 14 February 2010 | Love 1 love Report
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iPension posted
There are some lenders who will do it at an interest rate of 5% per month. At this rate it doesn't take long for you to lose any profit and they still insist on a substantial 40% deposit (otherwise they would have no equity to keep if you defaulted).
The advice given by the other commenters above is very sound and the Virgin/RBS offset mortgage does work the way smudgebutt says - I know because I have one and have have reduced it to zero a few times.
Posted on 16 February 2010 | Love 0 loves Report
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matchmade posted
My experience in the current market is that banks are very reluctant to lend on renovation or new-build properties other than to self-builders (confirmed by Buildstore at a recent exhibition). I'm trying to build 4 flats at the moment - Barclays won't lend unless I've pre-sold the lot, HSBC aren't lending on new-build until the end of 2011 at the earliest, Lloyds won't lend on anything higher than a 30% loan-to-value basis, NatWest will go to 50% but you need to use a NHBC-registered builder.
Your best bet might be a small building society or Buildstore or a straight bank loan (depends on the size of the loan). Say you are intending to live in it after renovation (perhaps you will, or would like this option), then say you've changed your mind, met a new partner, changed jobs, whatever: they can't stop you selling.
Posted on 28 April 2010 | Love 0 loves Report

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