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.

[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.

[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.

[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!

[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.

[torqueofthedevil]

Thanks for last few replies t Chet are more constructive. There is still so much negativity and pessimism about tho.



Info admit that pat other people seem to start off buying their first investment with cash; then after that they keep remortgaging. It's just getting 50k or more together is pretty hard! Most shave made cash on a house they bought for about 10k in the 90s and sold for 120!

I need t borrow to ge started. Lesson seems to be - get a property where I can get a mortgage - something habitable and then do that up.

My house can't be extended or really improved in value.

Just out if interest here is the info on the place I liked:

Guide price 50k, planning for house to be split into two 2-bedroom flats. Great village location. Windows fitted. Stairs and floors in. The original terrace already has two flats - same size. Just sold for 80k each. Was going to go halves with a mate - seemed fairly low risk.

Say 30 each to buy. 30 to renovate. 20k profit. Very vague estimates.

[torqueofthedevil]

Rostfritt said:

vescaegg said:

Id estimate a bank taking 8-10 weeks unless there is a special division for this sort of thing? There may be - Sarnie?

Edited by vescaegg on Thursday 21st August 11:22

I spoke to Halifax about getting something at auction (didn't in the end) and they said they put a marker on the file to prioritise it. I suppose it is in their interest to get it done on time as otherwise they lose a mortgage sale and have a very unhappy customer.

Bear in mind that the buyers pack contains the local area surveys so you don't have to wait around for those to be done or have something come up in them later on. I sent Halifax a link to the pack from the auction house website and they said they could give it some sort of preliminary check on whether they were likely to lend on it.

Still be absolutely bricking it after dropping 10% on the night and then just hoping that the bank kept its word. Most experiences of businesses saying they'll prioritise things usually amounts to things taking ages.

[torqueofthedevil]

C Lee Farquar said:

That's why you get a mortgage offer before you bid. And you're potentially risking more than 10%. If you fail to complete you're in breach of contract, you could be liable for more than 10%.

Yes but what we are saying is, despite an offer, following the auction the bank can either change its mind, or take too long to complete. You are correct though, the penalties for not completing are pretty severe

[torqueofthedevil]

Sarnie said:

torqueofthedevil said:

Yes but what we are saying is, despite an offer, following the auction the bank can either change its mind, or take too long to complete. You are correct though, the penalties for not completing are pretty severe

Once you have a mortgage offer, the bank is highly unlikely to change their minds unless your details change. Once you have an offer it's got nothing to do with the bank how long it takes to complete, that will be down to your Solicitor.....

1 - they might not value the house as high as you think it's worth and have subsequently agreed to pay - therefore they won't lend u the money.
2 - no it's the bank that takes time - I have just spoken to few banks and they asked how long did the auction give to complete, when I said 28 days they said, we can't complete in that time, we need a minimum of 6-8 weeks.

[torqueofthedevil]

Sarnie said:

mattdaniels said:

Side point but I some people might not be appreciating the difference between an agreement in principle and a mortgage offer.

Agreement in principle = the lender has processed your application forms, done its sums and accepted you and the proposed property as a "good risk" based on the details you provided.

Mortgage offer - the next stage - the lender has carried out its surveys
Ok/valuation of the property and its other checks, is satisfied, and is committing to an exact amount of cash to give you and awaiting the green light from you.

Sarnie is correct IMHO - if you have a mortgage offer (not just agreement in principle) then the lender has completed their valuation on the specific property in question and the funds are ready for you to access.

Yep, exactly what I was trying to tell him.....

Sorry I didn't mean to contradict you earlier, I just meant that when I spoke to the bank they said they wouldn't survey a property before an auction and therefore there wouldn't be a proper offer on the table. Again, I appreciate the advice