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Buy-to-let mortgage for BRR?

Uncategorized Oct 10, 2021

"I’m starting out in property and I want to do the Buy-Refurb-Refinance (BRR) strategy. I know the correct way would be using cash or a bridge, but I was hoping that I could use a normal Buy-to-Let (BTL) mortgage - is this possible?"

When you say the correct way is to use cash or bridging, then you know that BTL lenders won’t lend if you declare your intent to redeem their mortgage a few months later. In addition, not declaring that intention when you apply is categorised as deception or fraud. 

Is there another way that allows you to use a BTL mortgage without deceiving the mortgage lender as to your intentions? Yes there is, and that is - don’t redeem the mortgage - keep it instead.

How would that work in terms of being able to pull back out some of your deposit cash in line with the principles of BRR?  Quite simply it’s a further advance. 

Once you have made six monthly payments, you become eligible for a further advance with most BTL lenders.  This means you apply for a further advance, citing the value you have added to the property.  They will send the valuer back out and may agree to advance you more money.  A proviso is that the rent would have to be big enough to allow this.

To an extent, that can work but the feasibility is limited. This is because, to get a mortgage in the first place, the property has to be considered ready to rent. In other words, it doesn’t need a great deal of work done before lenders consider a tenant can move straight in. If too much work needs doing to be ready for that, in the lenders opinion, you will be declined a mortgage.

So, if you cannot do much work to increase the value, you cannot uplift the value by much, which means you cannot recycle much of your cash. 

Which leaves us with the only way to really pull out significant amounts of your cash deposit - buy properties in a poor condition, where you can uplift the value significantly.  Then you can pull out more cash when you refinance.  All of which takes you back to the fact that the only profitable way to finance deals like this is cash or bridging finance.

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