Jump to content
andrew ridley

How soon can you mortgage a property after purchasing with cash?

Recommended Posts

Hello Hub,

 

A quick question for hub members. It's everyone's favourite subject: Mortgages!

 

Lets say 2 weeks ago I completed on the purchase of a house for £100K, paid for in cash.

 

I now want to pull some of this money back out via a mortgage, and I want to do it now - not in 6 months time.

 

Can I do this?

 

PS: I'm happy for the mortgage to be based on a £100K property valuation - so I'm not claiming that I bought the property Below Market Value.

 

Many Thanks

 

Andy

Share this post


Link to post
Share on other sites

Hey Andy,

 

I asked the exact same question to my mortgage broker recently when I was considering buying for cash.

His response - 6 months - doesn't matter if you get a mortgage or buy for cash initially.

 

Having said that, there are some providers who will overlook the 6 month rule, but you've got to have a good case to offer or have a good relationship with them.

 

If I remember correctly, Damien Fogg said something similar on his interview with Rob and Rob on the podcast (last week I think it was).

 

Hope that helps.

 

K.

Share this post


Link to post
Share on other sites

Thanks for the responses guys,

 

That's interesting, I've heard from a mortgage broker that as long as you buy with cash and you are applying for a mortgage using the same property value as you bought for then it shouldn't be a problem. 

 

I'd be interested in hearing other's experiences and views on this - hopefully culminating in a full blown mortgage broker-off!

 

Cheers

 

Andy

Share this post


Link to post
Share on other sites

I understand the bank's position on this regarding remortgaging within the first 6 months, but I had no idea that the same restriction applied when buying the property in cash. 

 

Is this the case for all mortgage providers? What is the purpose of this restriction if you are originally buying in cash?

Share this post


Link to post
Share on other sites

Hi Graham,

 

Yeh I can't quite see the logic myself either on this. Surely if you own 100% of a property and you want to raise some capital against it then it shouldn't matter when it was bought, so long as you're not trying to claim it has gone up in value loads in a short amount of time?

 

Cheers,

 

Andy

Share this post


Link to post
Share on other sites

Hi Andy

 

It's a definite 'yes you can' and there are a small number of lenders that will do it.  I have personal experience doing this with Shawbrook Bank, so I do know it can be done (SB are classed as a commercial bank and so are outside of the scope of the CML, which principally covers residential home loan lenders as far as I understand it). SB are not the tastiest lender on the market but their short-term finance product is cheaper than standard bridging and being able to convert to a mid/long term loan (interest only) whilst at a higher rate than some saves me £££s due to the speed involved. I will remortgage away from SB after 3 years so it's not a biggy really for the turnaround benefits.

 

In your case i suggest that you work on the ROI you will get on the reinvested funds compared to the increased cost of not waiting for the whole of market to open up to you after six months...which by the way is not really six months at all as the interpretation is that you can only APPLY after six months has elapsed and most loans will take two months to complete thereabouts...so it's more like 8 months really. I also know this from experience...

 

If you are feeling really anorak-like you can scan through the CML guidelines for the six month rule and it gives a list of the lenders that adhere to it and those that don't or at least would consider it in the right circumstances; it is buried away in the lender section and so not easy to find and in fact this version here may not be the right one but I'm tired now... http://www.cml.org.uk/cml/handbook/englandandwales/question-list/201

 

Best

 

Richard

Share this post


Link to post
Share on other sites

Hi Richard,

 

Thanks for the response. So it seems like a bit of a grey area where there are some lenders out there who would be happy to do it, and others that won't.

 

So everyone's right (and wrong!)

 

That's interesting about the CML guidelines providing a list of lenders who are more open to it - thanks for that.

 

The scenario is actually hypothetical and I just wanted to get the Hub's view on it - as I keep hearing from people on both sides of the argument who seem adamant that it CAN or CANT be done. 

 

Many Thanks

 

Andy

Share this post


Link to post
Share on other sites

Hi Andrew,

 

I found myself asking the same question recently. On asking my mortgage advisor, I was left with the idea that you couldn't! 

 

However, I had recently set up an account with Metro Bank - and they are happy to do this! I don't know if you have a Metro Bank in your area, but they seem pretty helpful.

 

cheers

 

James

Share this post


Link to post
Share on other sites

Quick question on this one from a 'buy-to-sell' perspective. If you were to buy with cash BMV and then refurb the property within a month or two, would this prevent any potential purchasers being able to get a mortgage on it?

 

I've heard a few opinions on this and they all seem to say that this would be an issue with the new mortgage provider but there are countless people online 'flipping' within 6 months. Advice?

Share this post


Link to post
Share on other sites

Hi Dale

 

In short these flips could be caught up within the CML 6-month guideline yes.  In practice, what this means is that for the first 6 months it would limit a resale of the property to a buyer that can pay cash or one using a mortgage provider that does not look at the 6 month restriction, of which there are not many (some yes but usually niche players).

 

For this reason, flips are best examined over a 6 month hold period, which also has more holding costs - and if the buyer was using a mortgage from a lender that adheres to the 6 month guideline that means only applying after 6 months has elapsed so in effect longer than 6 months really...I usually work on 9 myself.  That said, I have flipped and the buyer used a mortgage applying within 6 months but completing after...the lender was Nationwide and they asked questions about why the property was being sold so soon but agreed to it as it was sold to the tenant within the property.

 

In conclusion, yes you can flip within 6 months of course but as it potentially narrows down the market it could also have an impact on the selling price achieved. 

Share this post


Link to post
Share on other sites

Oopsy, sorry I'm late.

 

I have recently done this with Virgin, Kent Reliance and Skipton.  While I'd like to say it was entirely my winning way that smoothed the process and made them want to bend all of their rules just to accommodate me... I fear that may not necessarily be the truth. 

 

The link Richard provided is perfect (and sadly I had it bookmarked), as it shows that a lot of the lenders just want to make sure there is no dodgy reason why you are trying to flip or refinance the property too quickly.  

 

The questions I am usually asked are;

  • Why did you buy it cash?
  • What did you pay for it?
  • Who did you buy it off and is there a relationship?
  • Have you done any work to the property, if so what and how much have you spent?

 

Sometimes my response has simply been, "because I got a better deal by completing sooner than if I'd waited for a mortgage".  Usually met by a humpf, but generally accepted as a fair reason.  If you are not looking for any increase in value from what you paid, which generally I am not, then things tend to progress as per usual from there. 

 

If I have done some work and am looking for an upward valuation, that is when they want to know more about the previous condition and it's current condition.  This can show any genuine upgrades you have made to the property which would correlate to an increase in market value. 

I recommend taking a fairly detailed photographic schedule of the works you carry out.  Not usually asked for, but just in case. 

 

 

Richard makes an excellent point about resale though.  I haven't  tried to flip a property recently so I imagine it would potentially restrict the sale market.  That said, provided it is an arms length transaction and you could provide details of the condition it was in when you bought it, the upgrade works you have carried out, and the condition it is in now, I wonder if the mortgage companies would accept that as the reason for a fast turn around? 

 

I sense an experiment coming on... :-) 

Share this post


Link to post
Share on other sites

Can anyone tell me whether or not there is a restriction on flipping a property via an auction after 2/3 months from when you purchased it with cash?

Hi Michael,

I can't imagine why there would be...

Obviously in an auction situation you run the risk you won't get back as much as you hope, but...if you own it, the auctioneers can sell it!

It's then the responsibility of the purchaser to pay up within the specified time.

Share this post


Link to post
Share on other sites

I am happy to answer a few of the questions raised in this thread...

Andrew and Graham are puzzled why a mortgage lender would restrict you raising a mortgage within 6 months of purchase?

...this applies almost exclusively to BTL lenders. Main res lenders are less pedantic in applying a restriction and commercial lenders don't apply it at all

...BTL lenders apply broad brush T&C's, the 6 month lending restriction is one. Simply, they can't be arsed to differentiate their T&C's according to the method of purchase, so the restriction applies regardless of whether you bought with cash, bridging, another mortgage

...this restriction has been buried in the fine print of the CML handbook for years but it was only post credit crunch that it was fished out by BTL lenders and added to their T&C's. Why? because they saw the mess that Mortgage Express and others got themselves into by lending to a rather small but extremely annoying (from the lenders point of view) bunch of borrowers wanting to do all sorts of creative things buying property. This was diametrically opposed to their ideal borrower who would buy through an estate agent, at market value, put 25% deposit down and be content to leave it there. Lenders put in T&C's that will in their mind protect them from being exposed to practices they may leave them more exposed on properties they have lent on than they want to be

...lenders also have a very simplistic view that the less money a  borrower has invested in the property, the less motivated they will be to maintain the property in a good state of repair

...Damian correctly says that a very restricted number of BTL lenders do not impose this restriction but, while they will lend, they will also be adverse to lending to a borrower who is trying to get most of their cash out of a deal

...it is less about relationships and good deals, it is more about some BTL lenders apply the restriction without exception and others don't apply it at all

Dale wondered if the 6 month restriction applied to flips
...with some lender yes it does

...most BTL lenders extend the restriction of owning a property for 6 months before they will consider mortgaging it to the vendor selling a property also having owned it for 6 months. Why? because they fear that there could be some dodgy dealing going on buying a property for one price then selling it on at a higher price within a matter of weeks. They see possible collusion between vendor and buyer. They probably understand they people buy and sell property to make money but they just see it as a level on increased risk of exposure that they don't need to take

...fewer main res lenders apply the restriction, so it is easier to sell to main res buyers than other investors

...complete transparency is essential. letting everybody in the process know that your business is to buy property, improve it and sell on for a profit...the buyer, the buyers solicitor, the buyers mortgage broker, the buyers mortgage lenders surveyor, your estate agent, your solicitor

 

 

Michael wondered if the restriction applied if you sell a property at auction

...no

...auctions are a caveat emptor environment; it is the buyers responsibility to ensure they have the means to complete the purchase

...most auctions purchases are financed by cash or bridging finance; rarely can mortgage lenders react within the limited timeframe for auction purchases, usually 28 days to complete

...should the buyer not be able to complete you, as the seller, keep the 10% deposit paid by the buyer as a forfeit and just enter it in the next auction to sell again

...there is one trader actively working and teaching this strategy...Paul Ribbons; he buys on the open market, makes the property look worse, puts it in auction and sells it for a profit. Google him to find out more about what he does. he has also written a book explaining how he does this that can be bought on Amazon

...I regularly help investors arrange bridging finance to enable them to buy property and flip it quickly at auction. Some, not all obviously, have made some cracking profits of £50,000+

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

×
×
  • Create New...