New property finance product targets buy-to-flip market
The launch of a new mortgage product could make it easier for buy-to-flip investors to sell on new-build flats bought while under construction.
The new finance package allows secondary investors in housing developments to borrow the funding needed to buy out the original off-plan purchasers.
This type of finance arrangement was widely available before the financial crash of 2008 but lender Kent Reliance and broker John Charcol have now joined forces to revive so-called assigned contracts.
In an off-plan purchase, the original buyer might put down a deposit on an unbuilt home but want to sell before the building is complete, often to cash in on the development’s rise in value or because they cannot obtain finance for the full amount.
The secondary niche has been dominated in recent years by cash buyers, since most lenders dropped out of the market following the credit crunch.
Kent Reliance says it will take a prudent approach by putting a number of constraints on the product. First, it covers only the first reassignment of a contract, blocking the multiple reassignments that were seen in the pre-crisis years.
It will also lend only on the basis of the original contract price at a maximum loan-to-value ratio of 75%
This means that if the original investor who put down a deposit on an off-plan property valued at £500,000 wanted to sell it on for £650,000, the buyer could raise at most £375,000 in borrowing — bringing the loan-to-value down to an effective 58% sale price. The loan is available only to UK-resident buyers and only on properties brought to the point of completion.
John Eastgate, sales and marketing director at One Savings Bank, under which Kent Reliance operates as a trading brand, says the loan for buy-to-let and residential purchases was restricted to homes in London and south-east England.
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