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Using A Bridging Loan for Right to Buy Purchase


charles d

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Hi All,

 

 

I'm in a unique situation. My wife has been in her residence for sometime through a housing association and has the right to buy. I have lived in the property for 2 years now. We intend to purchase the property which we would get below market value (BMV) but I was thinking of ways to unlock the equity quicker than just waiting for the standard 2 years on a standard mortgage deal.

 

So my question is can I use a Bridging Loan to purchase the property then on completion get a normal mortgage to unlock the equity on the property?

 

Here are some indicative figures just to give you an rough idea of what i'm thinking

 

 

Property Value £250k

Right to Buy Discount: £104k

Right to Buy Purchase price: £146k

 

Bridging Loan 75% LTV: £120k (To Refrub flat)

 

Remortgage property to true value: £250k

 

Repay Bridging Loan and have liquid cash to reinvest

 

I don't know all the figures but could use some help in this area.

 

All answers on a postcard please

 

 

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Im not quite sure how you are arriving at your figures, but you may not need to do this with an expensive bridging loan.

 

Regarding figures. The value is fixed, its £250k, and any surveyor now or in the 6 months after purchase is probably going to stick to that figure, after that point you may be able to justify an increase its value, but you need to be mindful that the value will be judged against other flats. If the others are selling at the same price as yours, it doesn't matter what renovations you do, you will struggle to get a higher figure.

Im not sure where you are getting the £120k figure from. If you bridge (putting aside the fact you are more likely to be getting LTV of 65%-70% max) that's against the value of the property, so 75% of £250k is £187,500, but of that you need £146k to pay the housing association, leaving you £41,500 to refurb the property. 

 

However many lenders will allow RTB applications to include an element for home improvements and legal fees. You will also find some lenders offer tracker deals with no early repayment charges and that is where i would start my research, rather than going straight to a much riskier and expensive bridge option, which might leave you in trouble if the value isnt what you hoped after renovating.

Of course you need to have a conversation with a broker so they can give advice knowing your full circumstances.

043_logo_final_03.png.0cdf828351f81e6097208048ac2d018d.pngStuart Phillips

Independent, Whole of Market Mortgage Broker

AALTO Mortgages Ltd

Web  www.aaltomortgages.com

Email  sales@aaltomortgages.com

Call  020 7183 1101

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1 hour ago, Stuart Phillips said:

Im not quite sure how you are arriving at your figures, but you may not need to do this with an expensive bridging loan.

 

Regarding figures. The value is fixed, its £250k, and any surveyor now or in the 6 months after purchase is probably going to stick to that figure, after that point you may be able to justify an increase its value, but you need to be mindful that the value will be judged against other flats. If the others are selling at the same price as yours, it doesn't matter what renovations you do, you will struggle to get a higher figure.

Im not sure where you are getting the £120k figure from. If you bridge (putting aside the fact you are more likely to be getting LTV of 65%-70% max) that's against the value of the property, so 75% of £250k is £187,500, but of that you need £146k to pay the housing association, leaving you £41,500 to refurb the property. 

 

However many lenders will allow RTB applications to include an element for home improvements and legal fees. You will also find some lenders offer tracker deals with no early repayment charges and that is where i would start my research, rather than going straight to a much riskier and expensive bridge option, which might leave you in trouble if the value isnt what you hoped after renovating.

Of course you need to have a conversation with a broker so they can give advice knowing your full circumstances.

Hi Phil,

 

Apologies there was a typo for the 75% which is £187.5k as you stated. 

I'm  looking to see my broker next week to ask him his view in what he could advise. 

 

By by going with a normal lender as you have suggested, how long would one have to wait to unlock the equity? As it sounds like it could possibly 2 mortgage applications if one is paid off without any early repayment l fees. This would also impact my credit rating?

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Hi Charles 

You may be able to obtain a variable rate mortgage with no tie in meaning you could remortgage without early repayment charges. Or you could look to purchase with a lender who will allow additional borrowing later on. Your broker will advise you on the options open to you. Bridging finance sounds an expensive option to me. 

 

Paul 

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