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Get Half Your Deposit Back on a Buy to Let

Find in Mortgages August 20th, 2010 - 6,194 views

If you are:

1/ An experienced landlord

2/ Can afford a 30% deposit

3/ Want to buy a Buy-to-Let property that needs some work

Then it may be possible to get over half the deposit back once a bit of redecorating work has been done as well as recoup some of the cost of the redecorating.

There is a mortgage product available known as a ‘Light Refurb’ offer.

The way it works is this:

1/ 70% of the current property value is advanced (subject to the potential rental value)

2/ The ‘light refurb’ work is carried out (within 3 months)

3/ 70% of the newly refurb’ed value is then released

So, using some example figures I’ve thrown around with a builder friend of mine who does a lot of refurb work:

Current value of property in need of work = £120,000

70% is the maximum mortgage at this stage which is £84,000

The deposit is £120,000 – £84,000 = £36,000

Depending on location and work required the following will vary.

A new kitchen, bathroom, double glazing, central heating and decorating could turn a £120,000 property into a £150,000 property.

Here’s where part 3 takes place.

The property is now worth £150,000 and the lender will release up to 70% of this value (less the existing mortgage).

70% of £150,000 is £105,000

The existing mortgage is £84,000

The difference is the amount the lender will now release.

£105,000 – £84,000 = £21,000

Less about £3000 in fees = £18,000 which is half the original deposit.

What’s more, the original deposit of £36,000 became the equity in the property.

If the house is now worth £150,000 and the mortgage is £105,000 the equity is now £45,000 so there is an extra £9,000 in the property.

Total gain could be about £27,000 which is half the deposit plus a reasonable contribution towards the redecorating costs.

Not including possible legal fees, broker fees and valuation fees which could be £2000 – £2500 and if the purchase price is above £125,000 then stamp duty too.

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