Buy-to-sell mortgages are short-term bridging loans for property investors who plan to buy and sell homes quickly; discover how they work and if they work for you.
Thinking of getting into property investment but don’t have bags of spare money? Why not follow the lead of thousands of UK property investors last year who “flipped” homes to make a profit.
“Property flipping” means buying a house, doing it up and selling it quickly. A buy-to-sell mortgage (also called a bridging loan) is a way of financing that flip.
Overall representative example for regulated bridging loans If you borrowed £195,000 over a 1-year term at 8.40% p.a. (fixed), you would make 12 monthly payments of £1,399.93 and pay £211,799.16 overall, which includes interest of £16,799.16, a broker fee of £995 and a lender fee of £3995.00. The overall cost for comparison is 11.6% APRC representative.
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
What is a buy-to-sell mortgage?
Can’t pay for your property flip outright? Then you’ll need a mortgage.
A fast-moving property investor needs a mortgage designed to be taken over months not years like the traditional high street type.
That’s where buy-to-sell comes in. The finance can be approved by the lender and paid back by the investor in a much faster timeframe than a traditional mortgage.
How does a buy-to-sell mortgage work?
A buy-to-sell mortgage is a short-term loan known as bridging finance and, because savvy property investors go to auction houses to hunt for bargains, it’s also called auction finance.
You’ll need a sizeable deposit, at least 25% of the property’s value, and you can apply for a loan from £10,000 to well in excess of £10 million.
The buy-to-sell mortgage is secured on the property being purchased and can be taken out from between one and 24 months. The house does not have to be fit to live in when you buy it either.
The finance is repaid from the sale of the house, which the lender calls your exit route or strategy.
Unlike traditional mortgages, which can carry a hefty penalty for repaying the loan within two years, buy-to-sell loans are designed to be paid back quickly.
You can choose to repay the loan in a way that suits your property flip strategy. For example, if you wanted to avoid making a dent in your renovation budget you can ask to add your monthly instalments to your loan balance. Then repay the whole lot from your property flip profits when you sell. This is called rolling up the interest.
How much does a buy-to-sell mortgage cost?
Given the short-term nature of bridging finance, buy-to-sell mortgage rates tend to be higher than traditional mortgages and monthly interest rates are quoted rather than an Annual Percentage Rate (APR).
The interest rate depends on the value of your loan compared to the value of the property. The lower this ratio the better.
For example, if your loan was 50% of the value of the property, you’re likely to be offered a lower interest rate than if your loan was 75% of the property’s value.
Buy-to-sell interest rates can increase if the work needed to be carried out on the house is considered heavy refurbishment.
You may also pay fees to your broker (if using one) and lender for arranging and agreeing the mortgage.
Who would benefit from a buy-to-sell mortgage?
Buy-to-sell mortgages are best suited to investors who plan to sell/flip the property quickly. Last year, around 23,000 homes were sold within 12 months of being bought generating investors an average profit of £40,995, according to estate agent Hamptons International.
To make profit from a property flip, you need to buy a house being sold at a discount or one that will improve in value after renovations.
Auction houses are ideal places to discover a bargain. Around 20,000 homes went under the hammer in 2020, according to the Essential Information Group.
Families who inherit properties from loved ones or lenders who have repossessed homes often sell at auction and cut the price to get a quick sale. Homes that have fallen into disrepair and have failed to sell through an estate agent could also end up on the auctioneer’s books.
How can I get a buy-to-sell mortgage?
High street banks don’t offer buy-to-sell mortgages so you’ll need to find a specialist lender.
Buy-to-sell mortgage products are unregulated when the property will not be lived in by the person who is taking out the loan, or their close family. This means borrowers who take one out are not protected by the Financial Conduct Authority. A bridging loan is regulated when the loan is secured against a property that is currently occupied, or will be occupied in the future, by the borrower or any member of their immediate family (which probably won’t apply to your situation if you’re planning sell the property on quickly, or if you don’t live in the property while you’re renovating it).
To find a list of reputable lenders, visit the Association of Short Term Lenders’ website. To be a member of the trade body, lenders must adhere to a code of conduct that among other rules states they must disclose all costs and fees upfront and fees cannot be excessive.
What is the difference between a buy-to-sell mortgage and a traditional mortgage?
There are various reasons why you should not or could not use a traditional mortgage in a buy-to-sell situation:
With a traditional mortgage, you may have to own the property for a minimum time period before being allowed to sell it (which wouldn’t be suitable for property flipping).
You would pay big early repayment charges with a traditional mortgage (again, it’s likely you’ll be selling the property on quickly, so that would not be good news).
It may take too long to finalise a traditional mortgage (and often you need to move quickly to snap up a bargain property, or only have a short payment window to pay for an auction property).
You can’t secure a traditional mortgage against uninhabitable property (for example, if you buy a wreck at auction).
Whereas most traditional mortgages will charge fees for early repayment and make you wait at least six months before selling a property that you’ve just bought, a buy-to-sell mortgage doesn’t have these restrictions.
One of the other big advantages is that this type of finance can be secured for both habitable and uninhabitable property. Uninhabitable conditions can range from parts of the roof or walls being missing, to where there’s no working kitchen, bathroom or heating, which can be the case with some auction properties.
These loans can also be finalised quickly – in a matter of days or weeks – and are usually available with or without an end date, giving property flippers greater flexibility.
And rather than monthly instalments, you’ll likely pay off the loan and any interest in one lump sum – either at the end of the loan term of when you come to sell the property.
Given the short-term nature of the borrowing, the interest rates on offer for buy-to-sell mortgages are likely to be a lot higher than for traditional mortgages. In fact, you may see them advertised at monthly rates, rather than as an APR.
You can also expect to pay higher product fees and have to stump up a larger deposit to buy a property. But if you’re looking to flip a property quickly, a buy-to-sell mortgage is still likely to be the most suitable type of loan.
Example of using a buy-to-sell mortgage
An overall representative example for regulated bridging loans
Based on borrowing
£195,000 over 1 year
Interest rate
8.40% p.a. (fixed)
Lender fee
£3995.00
Overall cost of comparison
11.6% APRC
Broker fee
£995
Total amount repayable
£211,799.16 inc. interest of £16,799.16
Do banks offer buy-to-sell mortgages or do I need a specialist lender?
Mainstream lenders and big high street banks don’t tend offer buy-to-sell mortgages. They are quite niche products, so it’s likely you’ll have to go to a specialist lender.
It may also be worth approaching a mortgage broker who specialises in this area of property financing, as they may be able to help you access lenders offering these types of products.
How to increase your chances of being approved for a buy-to-sell mortgage
To be eligible for these types of finance deals, you’ll usually need to already have 25% of the property’s value as a deposit. The larger the deposit, the more likely you’ll be approved for a good interest rate.
You can also improve your odds of getting a great buy-to-sell-mortgage deal by having the following:
1. A strong exit route. You’ll be questioned extensively about your exit route. Typically, this will involve remortgaging or selling the property. If your project involves refurbishment, the lender will usually want to see evidence that your plans are realistic. The more reliable your exit route appears, the easier it will be to get a good mortgage deal approved. 2. A good property. The easier the property looks to sell, the more comfortable a lender will be with approving your loan. If the property is already inhabitable, that will work in your favour. If there are no hurdles to a smooth sale, such as leaseholds or non-standard construction, that’s a good sign too. 3. A good credit score. Lenders will use your credit score to assess how reliable you are when it comes to repaying debt. A good score may allow you to access the best rates. If your exit route involves remortgaging, they’ll be particularly keen to check that your credit score will allow this. 4. Experience in property flipping. If you can demonstrate experience of having successfully used these mortgages to flip properties in the past, the lender may be more comfortable approving your application. 5. A mortgage adviser. A mortgage adviser with specialist knowledge of this market will be able to point you in the direction of the best interest rates from the lenders most likely to approve your application.
Other finance options for buying and developing property or land
There may be particular scenarios where a buy-to-sell mortgage isn’t exactly what you need to finance your property venture.
In those instances, check out our guides to getting a mortgage or loan to buy a piece land or finance a self-build property.
Are there any other alternatives?
If the property is not in need of refurbishment and you plan to rent it out, a buy-to-let mortgage could be a better option.
Pros and cons of buy-to-sell mortgages
Pros
Can be used to buy an uninhabitable property.
Investors can sell the property within six months of buying it, a no-go for traditional mortgages.
No hefty early repayment fees.
Cons
Interest rates can be expensive.
Not available through mainstream banks.
If the property is unsold by the end of the term, the loan is still repayable.
Bottom line
Buy-to-sell mortgages are a type of short-term finance that are also known as bridging loans. They are designed for people who want to buy a property (often, but not always, at auction) and then sell it on soon afterwards. As buy-to-sell mortgages are short-term loans, interest rates are often expressed on a monthly basis and are usually higher than those associated with a traditional mortgage (which come with terms lasting up to several decades). Make sure you work out all the costs involved and have a strong exit strategy for selling the property, repaying the loan, and hopefully bagging some profit.
According to Bridging Trends, annual gross bridging loan lending fell 40% to £455 million in pandemic-hit 2020. Gareth Lewis, commercial director at MT Finance, which compiles the Bridging Trends data, says: “After the first lockdown, we saw the re-emergence of some larger lenders and if you combine this with the stamp duty changes, it is no surprise that there was a stimulus on rates and regulated bridging in the latter part of the year. As the vaccine rolls out… I believe we will see a new transactional flow from renewed confidence in the economy and businesses re-establishing themselves.”
Frequently asked questions
Many lenders have a minimum period of between one and three months after which there is no exit penalty. So if you applied for a buy-to-sell loan with a term of six months and repaid it within three months you could be charged a fee.
You will have to repay the loan from your own funds.
Usually not and you may be charged a higher rate of interest for each month over the term.
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Samantha Partington is a freelance trade and national consumer journalist writing about property and personal finance. Previously she worked for the Daily Mail, Property Week and Mortgage Solutions. Before becoming a journalist, Samantha worked as a mortgage broker and latterly for a mortgage, bridging and secured loan lender. See full bio
Michelle Stevens is a deputy editor at Finder, specialising in banking, credit, loans and mortgages. She has a journalism degree from the University of Sheffield and has been a journalist for 15 years, writing on topics including fintech, payment systems and retail. In her spare time, Michelle likes to travel, explore new foodie experiences and attempt to improve her own culinary skills. See full bio
Michelle's expertise
Michelle has written 127 Finder guides across topics including:
Everything you need to know about commercial bridging loans. We look at when they’re useful, how they work and what to be aware of before taking one out.
In-depth guide to bridging loans if you have had credit problems in the past, including what lenders are willing to overlook and which are the most important factors.
Complete guide to buying at auction with a mortgage. Find out which types of properties could be unmortgageable and how to get your finances in place before the auction.
How to buy a repossessed property and what the risks and benefits are. Plus, where to look for properties, buying at auction and issues to look out for.
If you haven’t sold your house yet, but want to buy your next one before the sale is completed, a bridging loan may be able to help.
2 Responses
JodyMarch 10, 2019
Ok, so my partner and I are exploring the idea of converting a property into flat. The property’s asking price is 1,000,000. We will go in with a lower offer but my question is what would be needed and how realistic would it be?
Finder
JoshuaMarch 12, 2019Finder
Hi Jody,
Thanks for getting in touch with Finder. I hope all is well with you. 😃
Regarding your question, that would depend on your situation and what you and the seller agreed upon. Best is to discuss this with the seller to learn the proper course of action to take.
I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.
Have a wonderful day!
Cheers,
Joshua
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Ok, so my partner and I are exploring the idea of converting a property into flat. The property’s asking price is 1,000,000. We will go in with a lower offer but my question is what would be needed and how realistic would it be?
Hi Jody,
Thanks for getting in touch with Finder. I hope all is well with you. 😃
Regarding your question, that would depend on your situation and what you and the seller agreed upon. Best is to discuss this with the seller to learn the proper course of action to take.
I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.
Have a wonderful day!
Cheers,
Joshua