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Cash bought flat , renovated and plan to refinance ADVICE


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Hi guys need some advice (sorry it's a long post)

I have begun my property journey with a BMV 1 bed leasehold flat in Birmingham this year, having been able to pay for it cash, I have renovated it after a few months to a reasonable high spec with the aim in letting out. I want to refinance to release some of the cash to invest in further properties and I am waiting to have it valued. I do not have a residential property or Morgage at the moment and never have as I am currently renting myself whilst working self employed. My questions are as follows:

1). Because the Property was bought for less than £40,000 but has definitely added value with refurbishment work( new kitchen, new bathroom and Windows) will I be able to get it refinanced based on original purchase price or is it valued price that matters?

2) how long will I have to wait as it has only been 2 and half months since purchase for applying for refinance?

3) is this a good strategy?

4) does not having a residential Morgage impact on me getting a refinance on this investment for a BTL Morgage?

5) is my self employed status an issue (I have been working over 2years) ?

Lots of questions I know sorry hope they can be answered and what my initial thinking when purchasing this property can be fulfilled. Brokers, property investors and advisors welcomed

Don't want to regret this idea

Thanks again

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  • 4 weeks later...

Having tried something similar, i ended up going down a different route to get results. I did it as a Ltd rather than personal that may have made a difference.my main findings were :

1. many mortgage companies seem to be hesitant in allowing refinancing after only a few months

2. they were not using market value but purchase price plus cost of refurb (not good if you did it yourself)

3. self employed will be an issue unless you have a good accounts and profits for past few years

 

I found that waiting a year after purchase seemed to make life  a lot easier so changed my strategy that way

 

obviously i am not  a specialist but my experience on this sort of strategy was not as good as originally hoped.

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Most lenders will require you to have owned the property for 6 months before you can refinance, although I understand there are some that will offer it I havent had any dealings with them personally. Lender will lend on the basis of the value as it stands as this is their security, not purchase price and refurb. Most lenders will require you to own your own property, before accepting BTL lending. 2 years self employed not so much of an issue. Some lenders have a minimum income requirement as per your SA302 from HMRC, but some have no minimum, only that you have to show an income. BTL affordability worked out on the basis of a stress test on the rental yield, not your own earnings. 

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Hi Dannyd,

I echo the points the others have made. In addition I'll add that I think lots of lenders have a minimum value of property they'll lend on and I think it's around £50k.

Other than that I think your main hurdles will be that you'll need to own it for 6 months before starting the mortgage process (although I echo what Michael said, I have heard of some lenders that will lend before 6 months but also not had any dealings with them) and your main hurdle will be that you don't own your own home, I think it might be a harsh requirement now (EU Mortgage Credt Directive?) but could be wrong. Previously lenders haven't like to lend if you don't own your own home due to people getting BTL mortgages (which were typically easier to get than residential) on a home and then living in it themselves.

Your best bet might be to rent it out right away, then start the mortgage process at 6 months. They should then just value it as it stands and nothing to do with your purchase price or refurb costs.

May I ask which local area of Birmingham you purchased in and what kinda of yield you are hoping to achieve?

All the best

James

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Having tried something similar, i ended up going down a different route to get results. I did it as a Ltd rather than personal that may have made a difference.my main findings were :

1. many mortgage companies seem to be hesitant in allowing refinancing after only a few months

2. they were not using market value but purchase price plus cost of refurb (not good if you did it yourself)

3. self employed will be an issue unless you have a good accounts and profits for past few years

 

I found that waiting a year after purchase seemed to make life  a lot easier so changed my strategy that way

 

obviously i am not  a specialist but my experience on this sort of strategy was not as good as originally hoped.

 

@haf1963 thanks for this, seems like patience is the key

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Hi Dannyd,

I echo the points the others have made. In addition I'll add that I think lots of lenders have a minimum value of property they'll lend on and I think it's around £50k.

Other than that I think your main hurdles will be that you'll need to own it for 6 months before starting the mortgage process (although I echo what Michael said, I have heard of some lenders that will lend before 6 months but also not had any dealings with them) and your main hurdle will be that you don't own your own home, I think it might be a harsh requirement now (EU Mortgage Credt Directive?) but could be wrong. Previously lenders haven't like to lend if you don't own your own home due to people getting BTL mortgages (which were typically easier to get than residential) on a home and then living in it themselves.

Your best bet might be to rent it out right away, then start the mortgage process at 6 months. They should then just value it as it stands and nothing to do with your purchase price or refurb costs.

May I ask which local area of Birmingham you purchased in and what kinda of yield you are hoping to achieve?

All the best

James

 

Thanks James....

 

I am aiming to achieve about 8% yield and its in Aston

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Your best bet might be to rent it out right away, then start the mortgage process at 6 months. They should then just value it as it stands and nothing to do with your purchase price or refurb costs.

May I ask which local area of Birmingham you purchased in and what kinda of yield you are hoping to achieve?

All the best

James

 

I did exactly that and even after 6-9 months tenanted, the lenders were not looking at market value but what I paid - major pain but things got better after 1 year.

 

I am also in birmingham (northfield, stirchly, acocks green) and getting 6-8% - but my strategy is growth rather than yield so I am not buying in the cheapest areas

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Hi Dannyd,

 

My question about lease length may still be pertinent. Lease length can have an enormous impact on value and also on whether a lender will lend.

 

If the lease is short then you could, as time ebbs, be losing capital, even in a rising tide of freehold housing capital growth.

 

I agree with the above comments, if possible have the property let. The actual rent received should help with the prospective lenders decision on whether to lend or not.

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