Buy to Sell Mortgages: A Comprehensive Guide for UK Investors

In the ever-evolving real estate investment landscape, “buy-to-sell mortgages” have become a popular strategy for savvy investors. This article aims to demystify the concept of buy-to-sell mortgages, particularly in the UK context, and provide you with the latest statistics highlighting the current market trends.

The Rise of Buy-to-Sell Mortgages

Last year, around 23,000 homes were sold within 12 months of being bought, generating investors an average profit of £40,995. This trend underscores the growing popularity of buy-to-sell mortgages, where investors purchase properties to sell them quickly for a profit.

The UK Market: A Closer Look

The UK’s buy-to-sell mortgage market has seen significant growth in recent years. As of 2022, the total value of the buy-to-let mortgage market stood at a staggering £41.3 billion, marking an impressive 88% growth compared to 2013. In Q2 2022 , buy-to-let mortgages occupied 13.6% of total gross mortgage advances, equating to £10.6 billion worth of lending.

The Bigger Picture

Looking at the broader mortgage market, the outstanding value of all residential mortgage loans decreased by 0.1% from the previous quarter to £1,657.6 billion and was 1.1% lower than a year earlier. The value of gross mortgage advances decreased by 13.4% from the previous quarter to £54.0 billion and was 33.8% lower than a year earlier.

Stay tuned as we dive deeper into the world of buy-to-sell mortgages, providing you with the knowledge and insights you need to make informed investment decisions. Whether you’re a seasoned investor or a newcomer to the property market, we aim to help you navigate the complexities of buy-to-sell mortgages in the UK.

Post Topics

What is the meaning of the term ‘buy to sell mortgage’?

How does a buy-to-sell mortgage work?

What are the most common options available for buy to sell mortgages?

What are the affordability criteria for a BTS mortgage?

Next Steps

FAQs on buy-to-sell mortgages

What is the meaning of the term ‘buy to sell mortgage’?

A buy-to-sell mortgage is a term used for a type of mortgage that allows you to borrow money from your bank or building society to purchase and sell an existing property quickly.
There are many reasons why people choose to use a buy-to-sell loan.

For example, if you have inherited a house but need to move out within a few months, a buy-to-sale mortgage is ideal, as you can quickly sell the property without waiting for the usual six-month cooling-off period. Another reason someone may choose to take out a buy-to-sale mortgage is to make a quick profit on their investment. If you plan to invest in a property and intend to sell it within a year, then a buy-to-sale mortgage could be the right option.

Some lenders can help, but high-street lenders may not approve your mortgage application. However, an experienced mortgage broker can help you with your mortgage application and connect you with the right lender.

How does a buy-to-sell mortgage work?

When you apply for a buy-to-sell mortgage, you will usually be asked to provide proof of income, such as payslips and bank statementsA record of a borrower's financial transactions often requir.... This information is needed so your lender can calculate how much you can pay back each month. You will also be asked about any other debts you might have, including credit cards, loans and overdrafts. Your lender will also ask you to complete a financial questionnaire, which will give them a better understanding of your finances. Once you have completed these forms, your lender will decide whether or not to offer you a mortgage based on your answers. If they do agree to lend you money, they will send you a formal letter confirming your application. The amount you are approved for depends on several factors, including your current debt levels, your monthly income and your ability to repay the loan.

The process of getting a buy-to-sell mortgage is similar to that of regular mortgages; however, if you hire a market broker, the chances of application approval are higher.

What are the most common options available for buy to sell mortgages?

If you are interested in buying or selling a property quickly, you will have three major financial options.

Buy to sell short-term loans:

Property flipping is becoming popular, and as a result, there are now more financial opportunities for property investors. If you want to buy a house within 12 months or less, then a bridging mortgage might be an alternative to consider.

Bridging loans usually carry higher interest than conventional mortgages, but they can help you to buy a property that isn’t eligible for a mortgage. You won’t have to pay any fees for early repayment, and you won’t have to wait six months before selling.

Refurbishment Finance:

A refurbishment mortgage option can be useful for buying a rundown property with the aim of refurbishing the property and selling it for a higher profit. Refurbishment mortgages are assessed on the actual value of the house or a property post refurbishment. It means, that you can borrow more amount as compared to standard mortgages. The standard mortgages are assessed on the present value of the property and not future potential value.

Flexible Mortgage Option:

A flexible mortgage is the type of loan that gives the borrower more options towards the repayments. A flexible mortgageA type of mortgage that allows the borrower to overpay, unde... option usually has very low or no early repayment fees. An early repayment fee is when a mortgage lender penalises you for completing your mortgage term early.

This is why a flexible mortgage can be a good financing decision for frequently buying and selling a property. Such mortgages can be used for both buy-to-let and residential properties. It is important to note that these properties must be habitable to qualify for the mortgage. affordability criteria for

What are the affordability criteria for a BTS mortgage?

The affordability criteria for a Buy To Sell mortgage, also known as a bridging loan, can vary among lenders, but there are some common factors that most lenders consider:

1. Deposit: The Loan-to-Value (LTV) ratio accepted by the lender will determine the amount of deposit you need to put up. The LTV is usually capped at a lower maximum than standard mortgages, around 75% on average for buy-to-sell mortgages.
2. Exit Strategy: Unlike standard mortgages, where repayment affordability is usually assessed based on your income from employment or projected rental income, with buy-to-sell mortgages, lenders place more importance on your exit strategy.
3. Existing Financial Commitments and Debts: Lenders must consider your financial commitments and debts.
4. Number of Financial Dependents: The number of people financially dependent on you is another factor that lenders consider.
5. Day-to-day living Expenses and Spending Habits: Your regular expenditures are considered to ensure that you can afford the mortgage repayments.
6. Stress Test: Lenders perform a stress test to see whether the loan would still be affordable if rates were 3% higher. However, as of August 2022, the Bank of England scrapped this key mortgage affordability stress test.

It’s important to note that these are general criteria, and individual lenders may have additional requirements. It’s always a good idea to consult with a mortgage broker or financial adviser to understand the specific criteria for the lender you’re considering.

Next Steps

Buying and selling a property is not easy, and there are many things that need to be considered. As specialist mortgage brokers, we can help you simplify your mortgage process. We work with various specialist mortgage lenders who can provide you with the best mortgage deals. All we need to do is review your documentation and check your mortgage affordability criteria. Feel free to contact our team of expert mortgage advisers.

FAQs on buy-to-sell mortgages

How does a buy-to-sell mortgage differ from traditional and bridging loans?

Unlike traditional mortgages designed for long-term ownership, a Buy-to-sell (BTS) mortgage is tailored for investors who aim to purchase, renovate, and sell property quickly. While similar to bridging loans, which offer short-term finance, BTS mortgages specifically cater to rapid property flipping, often involving a renovation project.

What is the impact of credit history and credit score on BTS mortgage approval?

Lenders scrutinize your credit history and credit score to determine your eligibility for a BTS mortgage. A strong credit report signals financial reliability, influencing your loan terms, interest rate, and the amount you can borrow, which is crucial for property investors looking to expand their property portfolio.

Can you explain the loan terms and repayment charges associated with a BTS mortgage?

The loan term of a BTS mortgage is short, aligning with the quick turnover rate of property flipping. Repayment charges are designed to encourage early repayment, often coinciding with the sale of the renovated property, a key exit strategy for property investors.

What role does a mortgage advisor or broker play in securing a BTS mortgage?

A mortgage adviser or broker can be your guide, offering professional service to navigate through the application process, understand various mortgage products, and secure terms that align with your investment strategy, ensuring you proceed with complete confidence.

How do property type and renovation projects influence BTS mortgage terms?

The type of property and the scope of your renovation project significantly impact the terms of your BTS mortgage. Properties with high potential for profit post-renovation, such as those requiring substantial refurbishment or bought at auction, are attractive to lenders specializing in short-term finance arrangements.

What are the considerations for property investors regarding mortgage arrangement fees and exit fees?

Property investors should be mindful of mortgage arrangement fees and any potential exit fees associated with a BTS mortgage. These fees should be factored into the overall cost calculation of the property investment, influencing the total profit from the property sale.

How do specialist lenders cater to property developers with BTS mortgages?

Specialist lenders offer BTS mortgages as niche financial products designed to meet the specific needs of property developers and investors. They provide expertise, flexible terms, and an understanding of the property development cycle, often going the extra mile to accommodate unique project requirements.

What alternatives should property developers consider if a BTS mortgage isn’t the right fit?

Property developers have several alternatives, including secured loans, refurbishment loans, and other short-term home loan options. These alternatives cater to different aspects of property investment, such as longer renovation schedules or different types of property investment.

What distinguishes a Buy to Sell mortgage from other mortgage types?

Buy to Sell mortgages, a specialist mortgage product, are designed for short-term investment strategies, particularly in the property market. Unlike traditional or buy to let mortgages, which cater to long-term property ownership or rental income, a Buy to Sell mortgage is for investors looking to purchase, renovate, and quickly sell a property, often seen at auctions or in need of substantial refurbishment.

How can an exclusive mortgage expert or experienced mortgage broker assist in securing a BTS mortgage?

An exclusive mortgage expert or experienced mortgage broker specializes in navigating the complex landscape of mortgage borrowing. They can provide professional service, guiding you through the application process, explaining the nuances of different mortgage products, and helping you secure a mortgage that aligns with your investment goals, especially in the fast-paced property market.

In the context of BTS mortgages, how crucial is your credit report and history?

Your credit report and credit history are paramount in securing a BTS mortgage. Lenders use this information to assess your financial stability and risk level, which influences your mortgage borrowing capacity, interest rates, and loan terms. A strong credit profile is essential for approval, especially during a credit crunch when lending criteria might tighten.

What role does a loan calculator play in planning for a BTS mortgage?

A loan calculator is an invaluable tool for potential borrowers to estimate their monthly repayments, interest rates, and loan affordability. It helps in budgeting for renovation costs, ensuring that the investment property’s purchase price and the subsequent renovation expenses align with your financial capabilities.

How do refurbishment loans and secured loans compare as alternative options to BTS mortgages?

Refurbishment loans and secured loans are viable alternative options for property developers looking for funding. While a refurbishment loan is specifically tailored for renovation projects, a secured loan offers a broader range of uses but requires collateral. Both are attractive options for those who may not fit the criteria for a BTS mortgage or need a different type of financial product to suit their project’s needs.

Why is a larger deposit beneficial when applying for a BTS mortgage?

Offering a larger deposit can significantly enhance your loan terms, including lower interest rates and better borrowing conditions. It demonstrates to lenders your commitment and financial stability, which is particularly appealing when applying for specialized products like BTS mortgages through an online form or via a mortgage advisor.

How do mortgage lenders assess the purchase price and renovation costs in the BTS mortgage application process?

Mortgage providers lending for BTS projects closely examine the purchase price and projected renovation costs to determine the loan’s viability. They consider the property’s potential value post-renovation, your proposed renovation schedule, and your ability to manage the project within the stipulated loan term, ensuring the investment aligns with their risk parameters.

How important is it to have a contingency fund when embarking on a property renovation with a BTS mortgage?

A contingency fund is crucial in property renovation, providing a financial buffer for unforeseen expenses and ensuring the project stays on track financially. Lenders view a well-planned budget, including a contingency fund, as a sign of prudent financial management, essential for approval in the BTS mortgage process.