Everything you need to know about buy-to-sell mortgages

The buy-to-sell market is just as buoyant as the buy-to-let sector here in the UK. Delving deeper into the pros and cons of both buy-to-let and buy-to-sell should therefore be your first port of call before making a property investment.

If you’ve discovered that buying to sell is the best option for you, remember, you don’t have to be a cash buyer to get your foot on the ladder. You can secure the finance you need to purchase and renovate a property with a buy-to-sell mortgage.

Also known as bridging loans, these mortgage types are different from buy-to-let mortgages. Here’s how…

What is a buy-to-sell mortgage?

A buy-to-sell mortgage or bridging loan is a shorter-term arrangement than your standard mortgage product. It enables investors to secure the finance needed to purchase and renovate a property, selling it on at a higher price point.

With a buy-to-sell mortgage, you can make the prospect of a quick sale possible, and even access the funds you need to enhance the property and achieve more bang for your buck.

How else does a buy-to-sell mortgage differ from other products?

With their shorter terms, buy-to-sell mortgages ensure a property can be renovated and sold on for a profit much quicker. As an investor, you’ll have the freedom to decide when you can sell your property. Bridging loans don’t have the ‘tie ins’ and hefty early repayment charges of more traditional mortgage products.

Unlike many standard mortgages, you can also use a bridging loan to fund up to 85% of the costs of refurbishment, meaning you can hit the ground running as a first-time property investor.

With terms of between 1 and 24 months, you’ll have the flexibility and finance needed to manage your portfolio as you see fit.

Are there any risks associated with bridging loans?

Bridging loans do have downsides, however. The risk of defaulting on repayments and having the property repossessed is more urgent due to the short term natures of these mortgage types, and the fact that you have far less time to get your finances in order should things not go to plan.

Bridging loans also require a hefty deposit of at least 25%, with the maximum loan-to-value (LTV) ratio being 75% of the property value. In addition to this, bridging loans are particularly costly both in monthly repayments and arrangement fees.

Here Which? explains more about the costs of taking out a buy-to-sell mortgage:

“…you could face fees of between 0.5% and 1.5% per month. That makes them much pricier than a normal residential mortgage. The equivalent annual percentage rate (APR) on a bridging loan is between 6.1% and 19.6% – far higher than many mortgages. There are also set-up fees to consider, usually around 2% of the loan you want to take out, so it is advisable to only take a bridging loan out if you are confident that you won’t need it for a long period of time.”

Exploring all your mortgage options has never been so easy with our comprehensive service. Find a local advisor today and take your next steps as a property investor with complete confidence and clarity.

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