In This Article
What is a first time buyer renovation mortgage?
When people talk of first time buyer renovation mortgages, they are usually referring to finance products that allow a person that has not owned a property before to buy a property to improve.
The actual product that is used may vary depending on the situation.
Some first time buyer renovation mortgages will include Flexible Mortgage products that allow a first time buyer to buy the property and sell without an early redemption penalty.
If the first time buyer is willing to hold onto the property for a longer period, for example, 2 years, then some 2-year mortgage products may be used instead. This is where professional advice is needed.
It is important that if one of these mortgages is being taken, the lender is happy with the property in its current situation.
If not, the mortgage lender may decline the property meaning that short-term finance is needed instead. Another name for this is bridging finance.
Most lenders offer first time buyer renovation mortgages of some sort allowing the property to be improved and sold in the future.
Very few lenders will not accept properties that need some form of improvement, however, this will depend on exactly how much.
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Do all lenders offer first time buyer renovation mortgages?
Most lenders offer first time buyer renovation mortgages, however, they would not be called this.
It is for your mortgage adviser to allocate a suitable product to you as a first time buyer purchasing a property to renovate.
It may be that a flexible mortgage deal that has no early repayment penalty is best for you allowing you to sell the property shortly once it has been improved.
This may not be the case every time though, and a product with a longer introductory period but with a penalty may be more suitable.
It is for your mortgage adviser to understand your full situation and recommend a product accordingly.
Do you get bridging finance for first time buyers to renovate a property?
Another route for first time buyers needing a mortgage for a property to renovate is bridging finance.
Bridging finance is often used when a property is not able to be mortgaged on a standard product.
For instance, if a property requires significant refurbishment and is not habitable in its current state, or not structurally sound, a surveyor may recommend that a standard mortgage lender does not lend.
In this case, there are bridging lenders that can consider the property.
Bridging lenders offer short-term finance so that a property can be bought and improved before being sold again or refinanced onto a standard mortgage.
Bridging loans are more expensive than regular term mortgages so you would want to factor in all costs when working out your potential profit following the renovation.
It is essential to be very clear on what your exit strategy is to repay the bridging loan.
If you plan to sell the property, you need to be realistic about the price that you will achieve in the future so you are not overly optimistic when calculating your figures.
If you plan to remortgage the property onto a standard term mortgage, you should ask your mortgage broker whether you are likely to qualify for such products.
Bridging finance is a specialist subject so make sure you use an experienced bridging loan adviser.
Many bridging loan advisers will be members of the National Association of Commercial Finance Brokers (NACFB).
Should I use a special type of mortgage broker for a first time buyer renovation mortgage?
When you are looking for a mortgage adviser for your first time buyer renovation mortgage, find out the experience of the mortgage adviser.
if you are only taking a standard mortgage, most residential mortgage advisers would be in a position to arrange such mortgages.
Finding out their background and asking for referrals from people that you trust is still prudent.
If the transaction is more specialist, and it is looking like a bridging loan is required, make sure that your adviser has plenty of experience arranging this type of finance.
You should look for a mortgage adviser that can tell you whether you need a standard mortgage or a bridging loan. As bridging finance is expensive, it is often the last resort.
If you would like I NEED ADVICE to match you with an experienced mortgage adviser that can work this out for you, please complete the contact form.
Would I get a first time buyer renovation mortgage with bad credit?
A first time buyer with bad credit can get a first time buyer renovation mortgage.
Again, it will depend on the type of finance product that the mortgage broker recommends and that lender’s criteria.
It may be that the broker is recommending a penalty-free mortgage product, and often some lenders can offer these accepting some bad credit.
It will, however, depend on what the bad credit was and the level of deposit available.
Bad credit can mean many different things, such as County Court judgements, defaults, debt management plans, arrangements, repossessions or bankruptcies.
Your mortgage adviser will need to understand your bad credit to see if there is a product available to you suiting your needs in regards to the property renovation.
If your mortgage adviser is recommending short-term finance, i.e. a bridging loan, there are bridging loan providers that can also accept bad credit.
Like with a mortgage, bridging loan lenders have their criteria. Your mortgage adviser will need to understand the full situation to make sure that you qualify for the finance that you need.
If you want to find out more about your credit history, you can go to Check My File and sign up for a free trial.
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Would I get a first time buyer renovation mortgage for buy to let use?
If a property needs significant renovation, many buy to let lenders would decline the application.
The reason is, that they expect the property to be ready to let almost immediately following completion.
There are, however, light refurbishment products that allow work to be done to the property before letting it out.
Some lenders also offer ‘bridge to let’ products where the initial advance is on a bridging product which can then switch to a long-term product when the property is in an acceptable condition.
Other bridging loan lenders may consider the application too on the basis that it is refinanced later as a buy to let product.
If this is your plan, you should discuss this with your mortgage adviser so they can tell you whether you would qualify for a buy to let remortgage in the future.
Do you pay capital gains tax when you are a first-time buyer renovating a property to sell it?
If you buy a property that is your main home, it is usually free from capital gains tax in the future.
If, however, you buy a property and never live in it, selling immediately after the refurbishment, you may be liable to capital gains tax.
Tax is a very specialist subject so you should always take professional tax advice for your situation.
To do this, for a tax adviser that can give you bespoke advice.
To find out more about capital gains tax, here is a page from HMRC.
What would be the minimum deposit for a first time buyer renovation mortgage?
The answer to this question depends on the lender, the condition of the property, the applicant’s income and their credit history.
If their credit history is very good, income is strong enough the property meets the criteria for a standard mortgage, some lenders can consider applications with a 5% deposit.
If the property is in an unacceptable condition and bridging finance is required, a common minimum deposit is around 30%.
The reason that it is higher is that interest is usually retained on bridging loans and added to the loan.
It would be down to your mortgage adviser to tell you what you would need to put down based on your scenario.
Conclusion
If you are a first-time buyer looking to renovate a property, some lenders can consider your application.
An experienced mortgage adviser would look at your income, deposit, details of the property and credit history to determine whether you would need a standard mortgage or short-term finance.
If you would like I NEED ADVICE to match you with a mortgage adviser that is experienced, please complete the contact form.
The information on this page is not tailored to any individual readers and should not be considered financial advice under any circumstances.
If you are seeking advice about a mortgage, you should consult a qualified professional.
