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Can I use a BTL mortgage for BRR?

Uncategorized Nov 10, 2021

THE QUESTION

I’m starting out in property and I was wondering, is there any way of using a BTL mortgage to do the BRRR strategy? I know the correct way would be using cash or a bridge, but I was hoping there could be another way? I would appreciate any help/advice cheers.

THE ANSWER

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 - equally not declaring that intention when you apply is considered to be deception/fraud. 

Is there another way where you could 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 then, in terms of being able to pull back out some of your deposit cash in line with the principles of BRRR?  Get 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 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 fact that the only way to really pull significant amounts of your cash deposit back out of the property is to buy properties in worse condition, where you can uplift the value more, and pull out more cash when you refinance. All of which takes you back to the only way to finance deals like this - and still have your cash to use on your next deal - is cash or bridging finance.

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