One unusual type of mortgage that we are being asked to source more frequently is finance for assignable contracts. These tradable contracts, unique to the new-build market, carry an unusual clause which allows the contract (and thus the legal rights to the property) to be sold on again before the current owner has fully completed on the property. Mainstream lenders have shied away from the non-standard contract type, but we have successfully been able to arrange specialist underwriting that allows the final purchase to go through and realise the full property value for both sides.
Using assignable contracts means that investors are able to buy a property, or several units, within a new-build development in phase one, paying only 10% of the purchase price required to exchange but then receiving the full benefit of the property’s increase in value on re-sale some months later.
Naturally, this venture is becoming more popular as developments go up around the city. However, its success relies on a third party being able to purchase the property normally on completion, and therein lays the challenge: the non-standard nature of the contracts leaves mainstream lenders reluctant to offer normal mortgages. The first hurdle for them is that someone else has already exchanged on the property and drawn up a contract. The second issue is that the valuation can go from, for example, £150,000 to £200,000 in a few months, and that jump is too big for a normal lender; they cannot work to that real market value.
Fortunately, funding can be secured without too much trouble by using a product similar to a bridging loan to complete on the purchase then remortgaging off that rate as quickly as possible after completion to a standard residential or Buy-to-let mortgage. The initial ‘bridging’ style finance is secured on the new-build flat as normal, and crucially, at its current market value. Rates vary depending on your situation but typical bridging loan rates for these currently start at approximately 0.59% and the arrangement fee is usually 1% of the loan amount. Only a few lenders will then entertain the residential remortgage step so soon after purchase, so for access to the best rates buyers should wait six months to remortgage. However, if it is necessary to remortgage quickly, it is possible to use a lender that has ‘day one’ remortgage capabilities or offers that niche in their underwriting. The deals are of course subject to arrangement fees and legal costs but, incredibly, some lenders will still offer a free valuation.
By sourcing a mortgage option for non-cash buyers, estate agents are able to sell these properties to anyone again, widening the buyer pool.
If you would like to discuss this, or any unusual mortgage possibilities for your buyers or vendors, please call me on 0844 879 4522 or alternatively email me on firstname.lastname@example.org.
Protection prices and mortgage rates can be withdrawn at any time but are right at the time of publication.
- Monetary Policy Committee voting unanimously to cut Bank Rate - August 1, 2016
- The Impact of Brexit on property investment and mortgage rates - July 1, 2016
- Help to Buy ISAs & First Time Buyers - February 3, 2016