UK Mortgage Advise - UK Property Development i.e auction buy, refurbish and sell.

[Jayman21]

Hello
I need your advise on a situation. A family of four and still saving towards a deposit for their first home.

As a result the man who is the only income earner has decided to use what they have as deposit to go into property development (i.e. buy from auction; 1 or 2 bed properties then refurbish to re-sell in the open market for profit).

Doing this over time, he believes he will be able to raise the deposit required faster for the house they intend to buy (i.e. 4 / 5 bed house to take the size of the family).

They do not want to go the shared ownership route. Plus apart from his day to day job, property development is something he intends to venture into as a second income.

Questions:
1. What are you thoughts on this approach? Good or bad choice?
2. As they are not home owners yet but legal residents in the UK, will he be entitled to a mortgage for the purpose of buy to reselling properties in the UK?
3. Is he best doing this (i.e. seeking mortgage for buy and reselling properties) as an individual or using a LTD company.
4. If he decides to seat on his deposit and keeps saving using all the available options e.g first time buyer ISA, etc, then go for a mortgage to get their first home, how soon can he start seeking a mortgage for the purpose of buy and reselling properties?

Thanks and look forward to your response.

 

[Nicholas Wallwork]

Hi Jayman21,

Firstly I'm not a mortgage adviser so my advice is limited to personal opinion & personal experience. I suggest you (or he) takes specific mortgage advice on some of these points and the mortgage market can be complex and ever changing and there are new mortgage products coming onto the market all the time that might be suitable for your this person...

Here are my replies:
1. I personally think it's an excellent idea. Sometimes BTL (buy to let) mortgages can be easier to get as they go in the income of the deal in question and not on personal income. However since the credit crunch they have looking into personal circumstances more and more so as I said above speak to a good mortgage adviser for specific products that may be suitable. If they are just buying a single property to refurbish and sell on then they may be able to get a residential mortgage (as it will be their only home). If they have the deposit then this might be the best rates and option (again check with mortgage broker!).

2. Yes under certain circumstances and depending on time in the country, track record, assets in their name e.t.c. so many variables you need to give all the info to a mortgage broker and see what products they can find for you.

3. I would say as little (or no) track record they are likely to struggle to get Limited company lending. This gets easier the longer they will be in the UK and the more property deals they can do. If you do get Ltd Co lending you'll likely need a personal guarantee or a 2nd charge over another asset (property) anyway especially starting out.

4. Again check with the mortgage broker if there is a time limit for being in the country, earnings needed e.t.c. once you know this you can plan the return from other forms of investment to see how long it would take to save for a deposit. The reality is though with inflation and rising purchasing costs (increases in stamp duty e.t.c.) unless they can save at a good rate this might be an uphill struggle.

5. Another answer to a question not asked: "You don't need your own money to invest in property. You need education first, deals, money and then investment will come later. You can earn money from deal sourcing, lease options, rent to rent, JV's and many more property strategies so the best thing your friend can do is learn more about property investment. Get his education up in this field significantly by reading all the books out there, attend seminars property shows, property networking events e.t.c. and see what other options are available... knowledge is power and once his knowledge is at a certain level he'll be able to make money from it... I hope we can help you and him over the coming months to build that knowledge and help start him on his property investment career..."

 

[Luke Masters]

I think Nick's advice is great and echo's what I would have said from my prior experience. The only thing I would say from my own personal experience years ago and more recently with a sibling, you will need to investigate the mortgage market with a specialist in detail, as almost all lenders will refuse to lend on a Buy to Let mortgage without the person already being a UK homeowner. That being said there is no reason they cannot get a residential mortgage, they must just tick more boxes in order to qualify for the mortgage.

 

[Jayman21]

Thanks @nicholas and @luke
These are valuable advise which I have shared to my friend and I have learnt as well. I am currently looking into the Peer2Peer property lending Market as a soft start into property investment.

I will start this conversation in a new thread. Thanks once again for your valuable input.
Jay