When purchasing a new property at auction that needed some refurbishment, our client required a bridging loan to complete the purchase and undertake the renovation before re-mortgaging onto a buy to let mortgage.
The Client
An experienced buy to let landlord with a well-established property portfolio.
The Property
A three-bedroom semi-detached property in the West Midlands. In order to be rented out by our client, the property was in need of some light refurbishment work. Once this work had been completed, the property was sure to generate ample rental demand from prospective tenants.
The Finance
Our client was hoping to purchase the property at auction, which meant the client benefited from a lower purchase price than the market value. As the property needed some refurbishment work, our client needed bridging finance to purchase the property, complete the work, and then re-mortgage onto a buy to let once this has completed..
The Challenge
One primary challenge that comes with purchasing a property through auction is the short timescales to get to completion. In this case, we had just 20 working days to get the property purchase completed.
Another issue was that our client had no prior refurbishment experience in their background portfolio. Accessing bridging finance can be a complicated process regardless of the specific case requirements, but this inexperience made many lenders wary of the stability of the deal. As such, we had access to a restricted number of lenders that we could approach with this case.
Finally, bridging and short-term finance lenders will have a maximum loan-to-value (LTV) of 75%. In this case, our client was seeking a loan at 75%, and, combined with their inexperience, made finding a lender comfortable with this case much more challenging.
The Solution
The very first discussion we had with our client was around their plans for the property. In bridging cases such as this, lenders want to see a clear and viable ‘exit’ from the bridging finance. In this case, our client wanted to use the finance to improve the property with some refurbishments, and then planned to exit onto a buy to let mortgage.
With this plan in mind, we were able to search for the right lenders to meet our client’s needs. With experience and loan requirements as prevalent issues on this case, we made sure to demonstrate to lenders our client’s success with his existing buy to let portfolio. Their understanding and capability within this market, as well as a clear exit-route set out, meant we found a lender comfortable to offer on this case. The chosen lender was happy to offer a competitive rate for this deal, which our client was more than happy to accept.
Here are the details:
Property Details
Property value: £150,000
Loan amount: £112,500
LTV: 75%
Rate: 0.84% per calendar month
Lender arrangement fee: 2% of the loan amount
Rental income: £800 per month
Gross yield: 6.4%
Application: SPV Limited Company
You may also find the following blog useful: 7 Tips for Buying Property at Auction
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