Buy-to-Sell Mortgages

A buy to sell mortgage is a short term home loan specifically for anyone wanting to buy, do up and sell a property for profit, sometimes known as ‘flipping’. A buy to sell mortgage is essentially a bridging loan – a particular form of finance that can be arranged much more quickly than a traditional mortgage and with a typical term of 1-3 years.

Interest on a bridging loan is normally more expensive than on a long term mortgage and is calculated monthly rather than annually. At the end of the term, when you sell the property, the loan is repaid in full.

There are a few reasons why you would need a bridging loan when flipping properties. Firstly it’s a matter of timing – bridging loans can take days to organise rather than months, making them particularly useful for quick purchases such as buying at auctions.

A buy to sell mortgage also gives you the flexibility you need to repay the loan after a very short amount of time. A traditional residential or buy-to-let mortgage will often include early repayment charges whereas a buy to sell mortgage is specifically for investors looking to sell and repay the loan after only a few months or years.

The condition of the property can also be a factor as standard mortgages can only be used to buy homes that are habitable, either for you or for tenants. Often if you are renovating homes for resale, you may be buying them when they’re not yet in a fit state to live in, including not being secure or not having working kitchens and bathrooms. A bridging loan can be used for a property that isn’t habitable, so gives you a lot more scope in terms of what you can buy.

While the process of securing a buy to sell mortgage will be slightly different for everyone, there are steps that everyone can take to get set up and ready to go.

Find a broker who specialises in buy to sell mortgages

A lot of the lenders offering bridging loans are not usually present on the high street and not easy to find without expert help, so finding yourself a broker who has knowledge of this particular type of finance and existing relationships with lenders is the smart move. They’ll be able to identify the right lenders, plus negotiate rates and terms on your behalf.

Map out your exit strategy

For a buy to sell mortgage your business plan and exit strategy are going to be key in terms of convincing lenders that you’re able to pay back the loan. Renovation schedules, costs and projected profit are all important and any previous experience you have as a property developer can also help lenders to feel confident in your plans.

Check in with your credit file

Although your credit record may be less relevant than if you’re getting a standard mortgage, it’s still important to know where you stand. Get a copy of your up to date credit report, check and correct any inaccuracies and share your findings with your broker. If any potential issues are flagged it’s much better to know about them in advance so that your broker can think about going to a specialist bad credit bridging loan lender.

While it may be possible to get bridging finance through one of the high street banks – the likes of HSBC, Santander or Halifax – this kind of finance is more commonly offered through specialist lenders and it will be these niche lenders that are likely to be the first port of call for your broker.

There isn’t a one size fits all solution when it comes to buy to sell mortgages and you may find, depending on your circumstances, that there is an alternative that’s a better fit for you.

If you know that your goal is simply to make improvements and resell then you wouldn’t qualify for a standard buy-to-let mortgage as you can only get this type of finance if you genuinely intend to rent out the property at least in the short to medium term.

Of course it may be that you really are in two minds about your longer term plans and want either to rent the house or even live in it yourself while you refurbish it, with the aim of then assessing your situation once the work is complete.

In this case you could use a buy to sell arrangement before remortgaging on to a buy-to-let or residential mortgage once all the renovations have been completed.

One other obvious option is to simply buy your investment property in cash if you have it available. This way you’ll incur no interest or product fees, you’ll simply pay for the property up front and then pocket any profits at the end. The only drawback to buying with cash can be the opportunity cost of having that cash tied up and unable to be used elsewhere.

Another possibility if you have an existing property portfolio and plenty of equity is to take out a secured loan or a remortgage against one of your other properties. Again, the viability of this will depend on your unique personal circumstances.

Can I get a buy-to-sell mortgage with bad credit?

Yes, having bad credit doesn’t have to mean you can’t get a buy to sell mortgage, but it may make it harder to find a lender or mean you have to pay slightly higher rates. However, unlike traditional long-term mortgages, credit history can be less important with short-term bridging finance as repayment depends on a robust exit strategy rather than the ability to maintain monthly repayments.