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.
