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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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Any information shared on UKMoneyPot does not constitute financial advice. The Website is intended to provide general information only and does not attempt to give you advice that relates to your specific circumstances. You are advised to discuss your specific requirements with an independent financial adviser.