Want to buy 2nd property for development - mortgage advice?

[torqueofthedevil]

I have owned my house for nearly 4 years and have always been eager to buy somewhere to do up and sell on.

I have found a property which I could be interested in, which is going to be auctioned in about 6 weeks.

I have enough for a 10% payment on the day. I just need to speak to a bank regarding other requirements for this type of mortage. Should I go to my existing mortgage provider(HSBC)?

Search for other good deals? (what would this mortgage be called? I would most likely want to develop and sell).

Speak to a broker? I always resisted brokers when I bought my house as non filled me with confidence and were talking about deals which were worse than I easily found online. Maybe they will be more useful for this as its more specialised?

Any other info?

What are the likely LTV's going to be on motgages like this?

Presumably the 10% you pay at the auction goes towards any deposit the bank requires - i.e. if bank will accept 90% LTV and you paid 10% on the night of the auction, you dont need to give the bank another wedge?!?

Cheers.

[KTF]

I always thought buying at auction involved cash only as if there is a mortgage involved then that adds delay plus lenders may not be so keen to lend on something that they may not get their money back on.

[CAPP0]

I doubt you'll get anywhere remotely close to 90% LTV for a doer-upper (or even a BTL). I think those are running at around the 70-75% mark currently, although there may be exceptions, but 90% would be a real stretch.

Can you mortgage your home for more deposit?

At the auction you will usually have 28 days to complete so you will have to have your finances all lined up before bidding.

[torqueofthedevil]

Yes - you definately can get a mortgage for auctions.

And yes 28 days to complete, so I want to start speaking to banks now to get confirmation of what they will lend me if I 'win' it.

90% was just for the example but I was hoping I would get 70 - 75 LTV

I can probably raise that. I am thinking of going halves with somebody because not only does it lower the risk and initial outlay - the property lends itself to it as it is one auction but two apartments.

[Sir Bagalot]

It's not as easy as Homes under the Hammer make it appear. The obvious one is that whilst they tell you how much it’s worth minus purchase price minus refurb costs…. What they leave out of the equation is the important things like Loan interest… Stamp Duty… Legal Fees.. and when selling Agent Fees… Legal fees…etc

There is money to be made, but just go in with your eyes wide open.

Is it possible for the likes of HSBC to turn around a mortgage in 28 days? At auction there are companies that specialise in 28 days turnarounds…. But the interest is usually 0.75% per month

[Sarnie]

It can be done as I've done it for a client last month but the property needs to be habitable at the point of survey............and you'd want a profit with no ERC's too......

[JQ]

Where will you get the money to fund the development?

[98elise]

Does the property have a working kitchen and bathroom? If not you are very unlikely to get a mortgage. If you have equity in your property consider re-mortgaging to fund the purchase.

[torqueofthedevil]

I need to go and speak to a bank - i would have thought they would give a mortgage to develop a house.

It won't have a kitchen or bathroom, but it is part completed - i.e. all flooring and stairs in.

To answer - how will I fund development - further savings, my salary, and credit.

[Sarnie]

Good luck speaking to banks!

[Griff Boy]

torqueofthedevil said:

I need to go and speak to a bank - i would have thought they would give a mortgage to develop a house.

It won't have a kitchen or bathroom, but it is part completed - i.e. all flooring and stairs in.

To answer - how will I fund development - further savings, my salary, and credit.

If it doesn't have a working bathroom or kitchen then it will not be classed as habitable and you will not get a normal mortgage on it. Maybe a development mortgage or bridging loan? Try a company called Furness?

[98elise]

Griff Boy said:

torqueofthedevil said:

I need to go and speak to a bank - i would have thought they would give a mortgage to develop a house.

It won't have a kitchen or bathroom, but it is part completed - i.e. all flooring and stairs in.

To answer - how will I fund development - further savings, my salary, and credit.

If it doesn't have a working bathroom or kitchen then it will not be classed as habitable and you will not get a normal mortgage on it. Maybe a development mortgage or bridging loan? Try a company called Furness?

Agreed. I've viewed (and bought) a few properties without kitchens and bathrooms. They have always been cash only sales. A bank will not give you a normal mortgage if its not habitable.

As it happens I've been to see a flat today without a kitchen. The first thing the EA said was cash only.

[torqueofthedevil]

Ok - Spoke to HSBC today who would not be able to provide a mortgage for this property based on:

- They will only give mortgages for habitable buildings
- They can not complete with 28 days - takes 6-8 weeks

They also stated that they can offer an agreement in principle. This is based purely on my financial situation. Once I have entered into the contract to buy at auction, then their surveyor would assess the value of the property and they would only lend this amount.

I presume that this is standard practice. People who have experience of this - how has this panned out for you? Is it like when you buy a house normally and the bank's surveyor always says its worth the same amount as what you have agreed to pay for it?

Big risk here - if I value the property more than the bank's surveyor and they refuse to give a mortgage!

[westberks]

have to say that you are treading on very thin ice if you expect HSBC to deliver on this. they are renowned for given initial 'guidance' and then coming back with a completely different proposition. Some of the people working in these branches actually very little idea about waht they are talking about in the grand scheme of things.

buying a project at auction ideally needs to be funded by a specialist lender in that field; even high street commercial banks really dislike first time 'developers'. i know this from all sides as a broker and former developer.

if they fund it as residential you'll need to be able to afford both mortgages under current regs and their 'time to offer' varies dramatically; with a 28 day completion you really don't need that pressure on you.

good luck, but do a lot more research before sticking your hand up in an auction room!

[Renovation]

I wouldn't consider losing 10% on a High St lender.

Go to a specialist who will guaranty you the money - I'm unsure if they even exist but I know many people who have lost money after relying on a Bank's assurance, that they later went back on.

[jonah35]

torqueofthedevil said:

Ok - Spoke to HSBC today who would not be able to provide a mortgage for this property based on:

- They will only give mortgages for habitable buildings
- They can not complete with 28 days - takes 6-8 weeks

They also stated that they can offer an agreement in principle. This is based purely on my financial situation. Once I have entered into the contract to buy at auction, then their surveyor would assess the value of the property and they would only lend this amount.

I presume that this is standard practice. People who have experience of this - how has this panned out for you? Is it like when you buy a house normally and the bank's surveyor always says its worth the same amount as what you have agreed to pay for it?

Big risk here - if I value the property more than the bank's surveyor and they refuse to give a mortgage!

You sound a bit of a newbie here. You could end up paying 10 PC deposit on the day of auction and losing it due to not being able to complete.

Either remortgage own home or consider development finance or bridging loan, but they aren't cheap.

You're getting into property development and it isnt as easy as homes under the hammer. Pay a good ifa for independent advice.

Plus remember of its at auction it could be for a reason, eg structural probs etc.

Buyers premium, solicitor fee to buy, sell, stamp duty, council tax and insurance from hammer falling, bills, estate agent fee to sell etc etc. needs to be a big margin to make it doable.

Plus assume you do buy then thats a month till you own it, 3 months to turn around and then a further 6 months to complete the sale.

Its a year long job even on a smallish project

[Ade07]

Be aware that not all auction purchases are 28 day completion, some are 21 or even 14 days, we have recently bought one that was a 10 day completion. Make sure you go through the legal pack thoroughly.

[torqueofthedevil]

Thanks for all replies and yes I am a newbie. Complete newbie as it will be the first time I have done this sort of thing. I openly admit that and hence my post on here. This is my research, along with a lot of other stuff, including ringing banks which Ive done today and clearly they are not the right route. Looking for some constructive comments from people who have done this before. I am a builder so understand a lot of the issues involved but also realise it will be a steep learning curve.

Having said all this and taking account of the above comments, if this is a good investment proposition I want to be able to source finance. Ill look for some specialist providers.

Regarding comments on remortgaging, there is little to no equity in my house so I doubt this is an option.

[eliot]

Forget talking to HSBC for this sort of stuff - they will only lend on traditional stuff and they are very conservative.
You need more cash behind you, because you are competing with others that have cash.

[thepeoplespal]

What happens when things go wrong & you need an extra £50k to finish your project or it took 2 years to sell, I'd tread very carefully or you could effectively lose everything, for want of a bit of cashflow.

I think you probably need a bit more financial backing, that doesn't need a big finance company involvement to scupper your deal, they are very good at bankrupting people unnecessarily (give umbrellas out when dry and take them back when it rains springs to mind).