How can we raise the cash for property development?

27 May 2014

Q

My husband and I own our house outright and would like to start buying property to refurbish and then sell. We would be looking to buy a property up to the value of £35,000 and then hope to sell it within four months. What is the best way to fund the purchase?
From
JK/Northumberland

A

It is possible to take a mortgage on a second home or holiday home, assuming that your income will be adequate to cover the new mortgage plus existing credit commitments. Lenders will typically require a larger deposit on a second home.

However, be aware that some lenders will look on this as commercial development finance and may not be happy to lend for that purpose.

Another potential problem can be the condition of the property. If the mortgage valuation flags up major problems or indicates the property is not habitable, the lender may refuse to lend or retain part or all of the mortgage until the necessary works are completed.

If you are raising the mortgage against the new property, then you will ideally need a deal without an early repayment charge so that there is no cost when you sell the property and pay off the mortgage.

An alternative is to release equity from your current property in order to purchase the new property outright. Again, it will require that there is enough equity and income to support the new mortgage but, as it is against your own home, it will avoid the issues with valuation on the new property.

Short-term funding options from bridging lenders would be another option, although the rates will be higher than standard mortgages.

Finally, it is worth bearing in mind that lenders will often want a property to have been owned for at least six months prior to it being sold on.

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