26 Jul BTL Remortgaging and the Six Month Rule…
BTL Remortgaging and the Six Month Rule…
You can buy a property without a mortgage, and remortgage later, normally this will be six months after you have purchased it at a minimum. Although there are some lenders that can consider a shorter remortgage period if required. However, for severely bad property conditions I could envisage it is likely to take between three and six months to get the property into a lettable condition and address all the issues that need to be addressed for trouble-free letting going forwards.
Anyway, you will need to account for this minimum six-month period as this will enable you to remortgage the maximum amount of funds out from the investment. Applying to remortgaging before the six months is possible although often with restrictions on the amount that can be refinanced. Of course, after application there is still the time taken for the conveyancing work to carry out the remortgage of typically at least three to four weeks. Therefore, in your financial calculations, allow at least seven to eight months until earliest estimated remortgage money drawdown.
If you have managed to secure the property at a significant discount to true market value then there should be significant equity in the property to do this. This is even after adding the repair and refurbishment costs to the purchase price paid.
If the rental income is sufficient, then this should allow for a remortgage currently of around 75% of market value. Then, in an ideal world, the 75% of the market value would be at least equal to all the costs put into the property project, including interest payments and fees for finance arrangements and legal costs etc.
As with any purchase by any means, it is normal to have to wait six months before being able to apply to remortgage. This will also likely be the approximate period you will need anyway to fully repair and refurbish a property that is not mortgageable. Some works will take even longer than this to do depending on how well you can organise the work and how much work is involved.
If you cannot cover the full amount invested with the remortgage funds, then it will be necessary to put an amount of money into the property deal to make up the difference and pay off all dues after remortgaging. However, this will likely be of a much lesser value than even a deposit would have been to purchase the property.
If the property is then making money on the rental income, this can be seen as part of paying back this final amount of money, although it will take time. Some of the larger and more serious investors are quite happy if this shortfall of funds is paid back within a year of the remortgage from the rental profits, they would still class that as a good deal.
The skill of course in doing these deals is to predict, accurately enough, all the costs involved as well as the end value of the property. Additionally, predicting whether the rental income will be sufficient to support a remortgage at the full LTV of the suitable remortgage products available.
This requires significant investor knowledge and experience so it is better to start with the smaller projects first and build up to the larger ones. In this way, you are less likely to get caught out with a project that requires a significant amount of money to be put into it after remortgage.
I have seen people looking for help in the on-going financing of these projects after the repair and refurbishment works have been done; they have simply bitten off more than they could chew and come up short at the end. It is not a nice position to be in and the best option in this situation might be to sell the property to realise the full market value for the property in order to pay off all the debts.
This will then have been a pointless exercise as far as you are concerned even though at least you paid off all the money owed. The nightmare situation is where you enter into such a deal and even on sale you can’t pay off all the people you owe money to.
Incidentally, commercial mortgages are not affected by the six-month rule for remortgaging and these mortgages can work well even for typical buy-to-let properties. Maybe this aspect can be used to your advantage if you want to more rapidly build a portfolio through remortgaging to release investment funds to re-invest. You will, however, need to accept the typically lower mortgage term (10 – 15 years) and the higher monthly mortgage payments that will need supporting.
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