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BTL, loft conversion and the 6 month ‘rule’

THE QUESTION

I am looking to buy a decently priced (BMV) house which also has a value add opportunity to convert the loft to raise the value a bit more. My mortgage advisor says I cannot get a BTL mortgage until I've owned the property for 6 months, but I'm hoping to purchase it in August-September via bridging, get the loft converted in October, and be ready to refinance at the highest value onto a BTL Mortgage when done.

I don't think my mortgage broker is entirely correct in that there may be bridgers/mortgage lenders that would allow me to buy on a bridge but move onto a BTL mortgage product with the same lender BEFORE the 6 months have elapsed.

Has anyone done this with any lenders, or will I have to sign up for 6 months on a bridge before being eligible for a BTL mortgage...?

THE ANSWER

Mortgage lending and underwriting underwent a dramatic revision in the aftermath of the credit crunch just over a decade ago. This was driven by the FCA to eradicate the lending excesses that characterised the late 90's/early 2000's mortgage market.

Out went self-certified and heavy adverse credit mortgages. In came the over-arching ethos of responsible lending and the '6 month rule' - which was never actually a rule, but a voluntary option to restrict remortgage applications until a 6 month period of ownership had been attained. This was a direct push back to the pre-credit crunch same day remortgaging practice championed by Mortgage Express, but also copied by other lenders.

Mainstream BTL lenders were the most enthusiastic in invoking a 6 month ownership restriction, but 100% of mortgage lenders were never on board with this 6 month concept from the outset. Very clearly there have always been mortgage lenders prepared to lend within 6 months of ownership and I was saying so as far back as 10 years ago when I began speaking at property meetings.

Mortgage lenders operate in one of 4 different ways, when it comes to remortgaging within the first 6 months of ownership - 3 of which will lend within 6 months of ownership

  1. They choose to invoke the restriction - these are most likely to be mainstream BTL lenders lending to an individual/s
  2. They will lend from day 1 but restrict lending to the purchase price paid
  3. They will lend from day 1 but restrict lending to the purchase price paid, plus itemised costs incurred i.e. Refurb costs
  4. They will lend from day 1 at open market value

Rates charged will understandably increase as you move through 1 to 4 with 4 charging the highest rates. So yes, you have never been unable to get a mortgage within 6 months.

I find it incredible that, 10 years on, there are still mortgage brokers who remain ignorant of their ability to broker mortgages prior to 6 months ownership. Perhaps it’s time to bring both your bridging and mortgage lending under one roof?

Word of caution when you say "will I have to sign up for 6 months on a bridge" - mortgages are taking longer to process post-Covid (frustratingly), with 3-4 months being common. Given that you cannot begin the remortgage process until work on your property is fully completed, I would question whether a 6 month bridging term is sufficient because if you don't give yourself enough time on the bridge and run over, you will face penalty rates and possibly another set up fee. Go long and repay early is always a sensible mantra to follow.

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