Last reviewed on 3rd September 2023 by Martin Alexander (Mortgage Advisor)
As the government is forever changing buy to let legislation, investors are constantly looking for ways to make property investment a profitable venture. As a result, buy to sell mortgages are on the increase.
Our advisors have noticed a spike in demands from landlords aiming to purchase properties, to then sell for a profit. We’ve put together this guide to explain buy to sell mortgages in greater detail.
As there are other financing options such as bridging loans and refurbishment mortgages, choosing the right type of finance for your investment is crucial. With so many options available, it can be confusing even for seasoned investors.
Our specialist advisors cover the entire spectrum of finance. Whether you need a buy to sell mortgage, bridging finance or even a land mortgage, we can help.
With expertise in buy to let mortgages, we can assess your application and select the best-suited lenders for your project. Our advisors always work tirelessly to find the best rates for our clients, ensuring the best deals are secured with the lowest possible fees.
What is a buy to sell mortgage?
A buy to sell mortgage is a loan used to purchase a property to then sell. Buy to sell mortgages are popular with investors looking to make a profit from buying and selling property.
A regular mortgage may not be suitable, especially if you wish to sell the property soon after purchasing it. This is because lenders have early repayment charges and won’t allow you to sell within 6 months of purchasing. As a result, anyone looking to sell soon after buying may benefit from a buy to sell mortgage, as opposed to traditional routes of finance.
Buy to sell mortgages aren’t widely available as the majority of high street lenders only offer regular mortgages. If there is a product available from a high street lender, then it tends to have high rates and fees.
Lenders that specialise in buy to sell mortgages often have better deals in comparison. That being said, the right mortgage is largely based on your own individual plans. An investor may want to buy a property and then sell it instantly, whereas a buyer may want to live in the home and sell it a few years later.
If you don’t mind waiting 2-3 years before selling, then a traditional fixed-term mortgage would be suitable. If you’re aiming to sell within 12 months of purchase, then alternative routes to finance may be more appropriate, such as a buy to sell mortgage or bridging loan.
Buy to sell mortgage options
If you’re looking to buy and sell property, you’ll usually have three broad financial options to choose from. Within each option, there’s a multitude of even more options available.
Buy to sell short-term loans
‘Property flips’ are on the increase and as a result, so are the financial options available. If you’re looking to flip a property within 12 months or sooner, then a bridging loan may be an option to consider.
Bridging loans will have higher rates of interest when compared to mortgages, but they can be used to purchase non-mortgageable properties. A bridging loan won’t have early redemption charges, nor will you have to wait 6 months before selling.
Short-term finance can be useful and is often used by developers. If you’re looking to flip an auction property, auction finance is another example of buy to sell short-term finance. Funds are also released a lot quicker when compared to traditional mortgages. This can be important, as auction deals often require buyers to complete within 28 days.
If your aim is to buy a property that needs upgrading, then getting a mortgage may be difficult. This is because lenders won’t approve finance on a property that isn’t habitable. This is largely due to risk.
Traditional lenders prefer to lend on properties that are of a good standard and can accommodate occupiers immediately. If a property doesn’t have an ‘active’ bathroom or kitchen, then lenders would deem the property uninhabitable and would decline the mortgage.
A refurbishment mortgage may be more appropriate for buying a rundown property, with the aim of refurbishing and then reselling for a profit. Lenders typically offer products for ‘light’ refurbishment and ‘heavy’ refurbishment.
Refurbishment loans are often assessed on the value of the property, post-refurbishment. This means that you can borrow more than if you were to use a standard mortgage. This is because standard mortgages are often assessed on the current property value and not the potential value.
A flexible mortgage often has little or no early repayment fees. An early repayment fee is where a lender will penalise you for ending your mortgage term early.
As flexible mortgage products have little or no early repayment fees, they can be great for providing finance for buying and selling a property. This is because you can sell at any point and don’t have to wait for your initial mortgage term to expire.
Flexible mortgages can be used for both buy to let and residential properties. The property does need to be habitable and anything that needs extensive work won’t qualify for a mortgage. A bridging loan or refurbishment mortgage will therefore be more suitable if that is the case.
Mortgages for buying, developing and selling
If you’re looking to develop a property on a plot of land, then you’ll usually have two options to choose from. These are self-build mortgages and development finance.
If you don’t already own the land and need a mortgage, there are land mortgages available.
If your aim is to build a property and then live in it yourself, then a self-build mortgage will be ideal.
Self-build mortgages usually start from 70% of the total cost. For instance, if the land has cost you £40k and the total build cost is £160k, the total cost would be £200k. Based on a 70% LTV, you could get a self-build mortgage of £140k. The remaining £60k/30% would need to come from your own deposit and savings.
Funds are released in stages throughout the build. A surveyor will attend each phase to inform the lender on whether or not further lending is viable.
Using the above example, lenders won’t release the entire £140k immediately. Instead, the funds would be drip-fed through 4-5 stages (depending on the scope of the build). Income would then fund the build until the project is complete.
Development finance is to be used for building property to then sell on and not live there yourself. This type of finance is very popular with developers who need additional finance to fund their projects.
Read more: What is development finance?
Buy to sell mortgage specialists
Buying and selling property isn’t simple at the best of times. The financial market is packed to the brim with options. Our advisors can help you choose the right type of finance based on your goals.
Our advisors have whole of market access and in addition, have access to specialist lenders. The last thing you’d want to do is waste money on an application for it to be declined. Having the expertise of an experienced advisor can save you money, time, and frustration! You can make an enquiry to assess what options you’ll qualify for.
About the author
Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.