Flipping houses in the UK can be an exciting and rewarding way to make money. There are inherent risks to be aware of, but if executed correctly, and assuming there are no prolonged downturns in the property market, it can make for a profitable career or side hustle. As with any type of property investment, one of the most important elements to get right is the mortgage. For flipping houses, you’ll likely need to secure a Buy To Sell mortgage, often referred to as a bridging loan. Having a firm understanding of how these products work will help you plan for a successful property investment journey. In this guide, we explain what Buy To Sell mortgages are, how they work, and how to get one. We also give a brief overview of how to flip a house.
What is a Buy To Sell Mortgage?
A Buy To Sell mortgage is another name for a bridging loan. These mortgages provide a short-term financing option specifically designed for property investors who intend to buy a property, renovate it (if necessary), and then sell it for a profit. For this type of borrower, a traditional mortgage isn’t usually suitable. Instead, Buy To Sell mortgages allow house flippers to repay the loan within a few years, typically at the end of the term and with little or no early repayment charges. These mortgages can also be arranged quickly, allowing property investors to take advantage of time-sensitive purchases like auctions. Buy To Sell mortgages or bridging loans have been designed with these needs in mind, and are therefore the go-to financing option for most people who flip houses.
How Do Buy To Sell Mortgages Work?
Buy To Sell mortgages work differently to traditional mortgages. Let’s take a look at the key features of a Buy To Sell mortgage below.
Loan amount. Lenders will typically lend up to around 80% of the property’s market value, though this can vary depending on the lender and the property itself. In other words, you’ll likely need at least a 20-40% deposit to get a Buy To Sell mortgage.
Loan term. The loan term is usually between 12 and 18 months, although some lenders may offer terms up to 3 years. For a 12-month term, you would be required to pay back the money you borrowed and the interest within 1 year of taking out your mortgage.
Interest Rate. Interest rates for Buy To Sell mortgages in the UK tend to be a bit higher than traditional mortgage rates. Having said that, you’ll likely pay far less interest than with a traditional mortgage overall because bridging finance is usually a short-term commitment.
Exit strategy. You’ll need a clear plan for how you will repay the loan, which usually involves selling the property within the loan term. Some lenders may require an exit strategy in writing before approving the loan.
Fees & Costs. Aside from the interest, there may also be additional fees associated with a Buy To Sell mortgage, such as arrangement fees and valuation fees. Plus, although not directly related to Buy To Sell mortgages, you should also be aware that you may have to pay tax when flipping houses for a profit.
What Are Buy To Sell Mortgages Used For?
In the UK, Buy To Sell mortgages are primarily used to finance the purchase and renovation of a property with the intention of selling it for a profit. However, they are also used by people who inherit property and want to make major improvements before selling it. Other reasons people may turn to Buy To Sell mortgages are when time is of the essence, such as at a property auction, where this type of finance can provide the necessary funds for a quick purchase.
How Do I Get a Buy To Sell Mortgage?
While some high-street banks might offer Buy To Sell mortgages, they are more commonly available from specialist lenders. Getting a cheaper rate can make a big difference to how profitable your property investment ends up being, so make sure you speak to a mortgage broker like us to see what rates are available to you from across the market. We also understand the criteria of each lender and can use our experience with these types of applications to increase your chances of being approved. As mentioned above, you’ll likely need between a 20-40% deposit and you may also need to show the lender how you plan to repay the loan. Having experience can help to put the lender at ease, but if this is your first time, we can offer our expertise to help make your project a success. It’s also a good idea to talk through your product thoroughly with an expert mortgage advisor to ensure you fully understand the risks involved.
What Mortgage Do I Need to Flip a House?
For flipping houses in the UK, the most common mortgage option is a Buy To Sell mortgage, otherwise known as a bridging loan. The benefits of these types of loans have been explained above, but to recap, they have short terms of 1-3 years, allow faster access to funds, and are designed to cover the purchase and any renovations.
However, there are also a couple of drawbacks to consider. Buy To Sell mortgages tend to have higher interest rates compared to traditional mortgages due to them having shorter terms and being higher risk for the lender. They also create an inherent pressure to sell the property quickly to avoid difficulties in repaying the loan and interest.
Traditional mortgages might be an option in some cases, but as these types of loans aren’t specifically designed for flipping houses, they usually present some limitations. For example, they typically take much longer to secure (potentially slowing down the house flipping process) and they usually only cover the purchase price but not any renovations – meaning you may need additional funds to cover those costs.
How Do I Flip a House?
If you’re reading about Buy To Sell mortgages in the UK because you want to start flipping houses, this section is for you. Flipping houses does come with risks, but with the right strategy, it can be very profitable. We recommend doing a lot of research beyond this guide, but to give you a brief introduction, we’ve outlined the key steps below.
1. Finding an undervalued property.
- Scout for deals. Look for properties that are priced below market value, often those in need of renovation. Consider attending auctions or searching for probate sales.
- Location matters. Research areas with good potential resale value. You may also want to consider areas that are undergoing regeneration or have high demand but currently limited stock.
2. Securing appropriate financing.
- Buy To Sell mortgage (bridging loan). These types of loans are ideal for flipping houses because they can usually be arranged quickly and paid off as soon as you sell the property.
3. Factoring in all costs.
- Purchase price. This is the biggest expense. Remember to factor in potential auction fees on top of the asking price.
- Renovation costs. Get detailed quotes from builders and then account for any unexpected issues above those costs.
- Holding costs. Ensure you can cover expenses such as council tax, utilities, and insurance while you own the property.
- Exit costs. Ensure you account for other costs such as estate agent fees, solicitor fees, and potential capital gains tax when selling.
4. Planning the renovations.
- Focus on adding value. Prioritise renovations that will significantly increase the property’s market value. This might include kitchens, bathrooms, or adding an extension (subject to planning permission).
- Don’t overspend. Stick as closely to your budget as possible and prioritise cosmetic improvements over unnecessary structural changes.
5. Selling the property.
- Price it right. Conduct thorough market research to ensure a competitive asking price that attracts buyers quickly. Consider getting a valuation from a trusted local estate agent.
- Presentation is key. Stage the property to showcase its potential and invest in high-quality photos for listings. Again, an experienced estate agent should be able to help you with this.
- Other reasons to use an estate agent. Using an estate agent can ensure that viewings, negotiations, and the legal aspects of selling your property are carried out professionally.
The Bottom Line
If you’re wondering what type of mortgage is best for flipping houses, the answer is nearly always going to be a Buy To Sell mortgage, also known as a bridging loan. These products are specifically designed for property investors or property beneficiaries who want to renovate a house before selling it for a profit. Buy To Sell mortgages have short terms of just 1-3 years, allowing you to pay off the loan as soon as the property is sold. They can typically be arranged quickly, allowing investors to snap up time-sensitive bargains at auctions. There are risks involved with flipping houses, so we recommend you conduct thorough research and speak to experts to ensure you’re fully prepared. A great place to start is to see what financing options you have. Book a chat with one of our expert Buy To Sell mortgage brokers and we’ll search a wide range of lenders, including specialist lenders and exclusive deals, to see what rates are available to you.
At Michael Usher Mortgage Services, we’ve been helping property developers and house flippers throughout Surrey, Hampshire and Berkshire for over 30 years! We’re not affiliated with any particular lender, so we can access a comprehensive range of Buy To Sell mortgages and bridging loans from across the market to find a deal that suits your needs. We’ll guide you through the process and liaise with your lender, estate agent and solicitor to ensure your application goes as smoothly as possible, and we can also help to protect your mortgage with our FREE Insurance Service.
Talk to one of our friendly mortgage advisors for free to get going quickly. Our head office is on Frimley High Street, but we can also help you remotely via phone or video call if you’d prefer. We look forward to chatting with you!
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Your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice. The precise amount will depend on your circumstances but will be agreed with you before proceeding.
