Buy-To-Sell Mortgages: Learn How to Maximise Your Opportunities in Properties

Important to know

A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

While many lenders may hesitate to approve mortgages for individuals buying a property with the intent of selling it off after a short while, there’s no need to worry. Specialist lenders are readily available to cater to your buy-to-sell mortgage needs, providing a confident path for your property investment journey.

In this guide, you will learn how to find lenders who will approve your buy-to-sell mortgage applications, helping you to maximise your property investment. You will also understand the benefits and downsides you must consider before applying for a buy-to-sell mortgage. Read on. 

What Buy-to-sell Mortgage Is

A buy-to-sell mortgage is a financing option available to individuals looking to buy a property with the intention of selling it later. Unlike mortgages for residential property, buy-to-sell mortgage agreements are short-term in nature. This means that if you take out a buy-to-sell loan, you will be required to pay it off at the end of the mortgage term. 

Buying a property for residential purposes often comes with numerous restrictions, primarily due to the long-term nature of the agreement. However, a buy-to-sell mortgage provides a flexible solution, empowering landlords to secure the financing they need to buy their property while bypassing the constraints associated with long-term agreements.

Some buy-to-sell mortgages, also known as bridging loans, do not attract any fees if you decide to repay them early, while the repayment fee for some is considerably low. This makes them ideal options for individuals looking to repay their mortgages without attracting a financial penalty. It also allows investors to maximise profit once they are able to clear the loan amount. 

A variety of buy-to-sell mortgages are available in the market. These products may differ in several ways, including the initial deposit amount, the mortgage length, the interest rate, and the criteria applicants must meet before their mortgage is approved. Common eligibility requirements include a good credit score, a precise plan for the property’s resale, and a stable income.

Who Benefits the Most from a Buy-to-Sell Mortgage?

Buy-to-sell mortgages have sparked excitement among individuals who are eager to build a property portfolio and potentially make quick, lucrative profits from the property market. This financial tool is also beneficial for those who inherit properties that need renovation, offering a promising buy-to-sell arrangement. 

The short-term agreement leaves enough time to refurbish and sell the property at a profit, a process known as “flipping.”

What Rate Do Lenders Charge as Interest for Buy-to-Sell Mortgages?

Several factors come together to determine the interest rate for a buy-to-sell mortgage. These factors differ among lenders. They include:

  • The property type
  • Your choice of a lender
  • The size of your initial deposit on the property
  • The loan-to-value (LTV) ratio
  • Your debt-to-income (DTI) ratio
  • Your credit history/report
  • The stability of your income

Most buy-to-sell mortgages have high interest rates. However, an investor can pay less in interest than someone who applies for a residential mortgage. The reason is that the long-term nature of residential mortgages allows for more interest accumulation in the long run. 

The length of a mortgage greatly affects the interest paid over time. A typical buy-to-sell mortgage agreement lasts 3 to 24 months.

How a Buy-to-sell Mortgage Works

Many investors buy properties either through an estate agent or in an auction. This provides them with the opportunity to leverage a good investment option and make a profit. This is especially true for individuals who understand the buy-to-sell market and the risks involved and have experience in property flipping. 

A buy-to-sell mortgage agreement is short-term, and repayment is within 24 months. A traditional mortgage agreement, on the other hand, can stretch as much as 10 to 40 years. 

The risk involved in a buy-to-sell mortgage is higher than that of a residential mortgage. This is because the borrower is required to repay both the mortgage interest and capital within a short period, usually 12 months, unlike the residential mortgage, which may take up to 40 years to pay off. 

The downside, however, is that you will end up paying more in interest because of the short-term nature of the agreement. Additionally, you risk not being able to sell the property at a profit within the agreed time frame. 

How Much Deposit Will I Pay for a Buy-to-Sell Mortgage?

Lenders take on a higher risk when they approve a buy-to-sell mortgage. In the event you are not able to repay the loan, the mortgage lender will have to deal with a partially refurbished property that they won’t be able to sell or let. As a result, you will be required to pay a large deposit. 

Paying a large deposit will result in a decrease in the loan-to-value ratio. Investors will, therefore, need to deposit at least 25% of the property’s market value. Making a large deposit minimises the risk of running into negative equity. 

Although Saving up for a large deposit can be demanding, it is also needful. 

Below is an example of a buy-to-sell mortgage deposit. To find out the exact amount you will need to deposit, you will need to consult with a mortgage expert to help you. 

Buy-to-sell property for a property value of £350,000 

Deposit Size Loan-to-value (LTV) ratio Deposit amount
20% 80% £70,000
25% 75% £87,500
30% 70% £105,000

What Costs Will I Incur in a Buy-to-Sell Transaction?

Several factors affect the cost of a buy-to-sell transaction. It is important to set money aside to take care of any unexpected charges that may occur. You will also be required to pay some standard fees while going through the process of purchasing a property.

It is also crucial to factor in property maintenance costs. Having the property in the best shape is necessary if you are going to sell and make a profit from it. 

The following are the costs you will incur in a buy-to-sell transaction

  • Mortgage broker fees
  • Contingency fund
  • Administration fees
  • Solicitor’s fees
  • Auction fees

Options for a Buy-to-sell Mortgage

The mortgage option available to you depends on your peculiar situation. For instance, if you are looking to acquire and pay off the mortgage quickly, a specialist mortgage like a bridging loan or buy-to-sell is a deal. 

However, if you plan to sell the property after living in it for a few years, a residential mortgage will be more appropriate. Your choice will depend on your circumstances. 

It is important to note that the terms for each mortgage product differ among lenders. With the number of lenders in the market, deciding on the product to go for may be challenging. Therefore, to get the best deals, it is ideal to work with a specialist broker who will help you narrow down the options. 

Here are options for a buy-to-sell mortgage

#1. Refurbishment Finance

This type of mortgage is ideal if you want to purchase properties, renovate them, and then sell them for a profit. Lenders offer varying products for this type of loan based on the extent of refurbishment you will need to carry out on the property. 

The amount you may be eligible to borrow varies, but depending on your circumstances, you can access even more loans than a residential mortgage. The assessment of this type of loan is based on the property’s post refurbishment value. 

#2. Short-term Loans

Short-term loans allow borrowers to access funding to buy a property at auction, pending their ability to secure a traditional mortgage. The loan term is usually between 0 and 12 months but can differ with lenders. 

#3. Flexible buy-to-let Mortgages

Some investors purchase a property and rent it out for a period before selling it later. A flexible buy-to-let mortgage is ideal for landlords in this category. These loans are popular for their low early repayment charges. 

Property prices can decrease or increase with time. Therefore, investors may decide to rent the property until its price increases before they can sell. However, this type of investment comes with some measure of risk because property prices can be unpredictable. 

Pros of Buy-to-sell Mortgages

The following are the benefits of buy-to-sell mortgages

  • You can make a considerable amount of profit with a buy-to-sell mortgage where the property’s potential value is far higher than the price it was bought for.
  • Some lenders determine the amount you can borrow by assessing the property’s post-refurbishment value. This means you can qualify for a higher loan amount than a residential mortgage. 
  • You can easily release funds with buy-to-sell mortgages, unlike traditional mortgages.
  • Buy-to-sell mortgage criteria are more flexible compared to a residential mortgage. 
  • The mortgage is repaid at the sale of the property. 

Cons of Buy-to-sell Mortgages

Here are the downsides to buy-to-sell mortgages

  • Buy-to-sell mortgages have higher interest rates, and the late repayment fees are also higher than residential mortgages.
  • Many UK banks do not provide this service. Therefore, finding a lender on the high street that offers this type of mortgage can take time and effort. 
  • Borrowers are required to make a larger deposit because these types of loans are considered to be high-risk. 
  • Where the loan is for a property that the borrower won’t live in, they are usually unregulated. This exposes the borrower to greater risks. 

Approval Tips for a Buy-to-sell Mortgage

You can increase your chances of getting approval for your buy-to-let mortgage application with the following tips

#1. Improve Your Credit Score

One of the factors that affect your loan approval is your credit score. A poor credit score suggests to the lender that there are chances you may default in repaying the loan. However, having a higher credit score will work to your benefit because it tells the lender you have a good history of timely repayment.

#2. Have Property Flipping Experience

Getting a buy-to-sell mortgage approval as a first-time investor without a property flipping experience can be challenging. Proving to the buyer that you have relevant experience can go a long way in helping your application pull through. Relevant experience in related fields like plumbing, carpentry, and building can also work to your advantage. 

#3. Have a Clear Budget and Plan

Property investment comes with risks. Therefore, lenders will want to see a clear plan of action regarding renovations and profit afterward. 

Therefore, have a clear budget and a solid exit strategy. This lets the lender know that even if you are unable to cover the repayment with the mortgage proceeds, you have an alternative means of repaying the loan. 

#4. Talk with an Expert

The process of comparing different lenders and the products they offer before making a decision can be tasking and time-consuming. It is, therefore, important that you only do that with the help of an expert mortgage broker. You may also have concerns along the lines that an experienced professional can help provide answers to. 

A mortgage broker already understands the market and has access to different lenders. Hence, they are in a better position to recommend a product based on your circumstance. 

Moving Forward

Before you begin your buy-to-sell investing journey, take the time to conduct research and ensure your credit score is in good shape. You can also calculate how much you are eligible for

Ensure your application has a great chance of passing before you apply. A rejection can negatively impact your ability to get a mortgage subsequently. Ensure you ask for help from an expert on the best route to take in your application.

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Luca Bertolino

Mortgage Expert

Your Mortgage Experts is led by Luca Bertolino with 20 years experience in financial services and in the property market. Through Luca’s wealth of knowledge and expertise, Your Mortgage Experts have become a trusted adviser that clients have come to rely upon for all their mortgage and protection needs.

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