CHL Mortgages has just launched a product that solves an annoyance a lot of investors have run into, so it’s worth a look even if you’re not planning a refurb anytime soon.
Here’s the problem it fixes. Say you buy a tired but sound property, and you’re planning some modest work: a new kitchen and bathroom, new windows and doors, a rewire, maybe turning a house into a small HMO. Nothing structural, nothing needing an extension. But enough that an ordinary mortgage lender won’t touch it until the work’s done.
The usual way round this has been to buy using bridging finance, do the work, then move onto a normal buy-to-let mortgage once it’s all finished. That works, but it means paying for everything twice. Two sets of legal fees, two valuations, two arrangement fees, and the hassle of running two separate applications back to back.
CHL’s new range gets rid of all that. It’s one mortgage that covers you from the purchase, through the work, and out the other side.
Here’s how it works. You get your first chunk of the mortgage based on the property as it is now, before any work. The lender holds back the rest, what’s called a retention, until the work’s done and the property’s been revalued. Once that happens, the rest of the money is released. One mortgage. One set of legal fees. One process, start to finish.
What it covers
This is for straightforward, non-structural jobs. New kitchens and bathrooms, new windows and doors, a new roof, a full rewire, or turning a normal house into a small HMO. All of that qualifies.
If you’re planning a loft conversion, an extension, or anything that needs building regs sign-off, this isn’t the right product. You’d still need bridging finance or a development loan for that.
The rates
Two-year fixed rates start from 4.40% for a single property, and 4.50% for an HMO or a block of flats. Five-year fixed rates start from 6.11% and 6.21%. You can borrow up to three quarters of the property’s value, whether you’re buying as an individual or through a company.
The two-year rates are noticeably cheaper than the five-year ones. That’s normal with this kind of product, because the lender is taking on some uncertainty about what the property will actually be worth once the work’s finished. If you’re confident the job will be done on time, the two-year option is the sensible starting point.
A quick example
Say you buy a house for £150,000. It needs a new kitchen, bathroom and rewire, costing £15,000, and once it’s done it should be worth £180,000. With this mortgage, you’d get your first slice of the loan based on the £150,000 figure, and the rest is released once the work’s finished and the property’s revalued at £180,000.
Compare that to the old way. With a bridging loan, you’d typically pay an arrangement fee of around 2%, monthly interest while the work’s going on, an exit fee when you pay it off, then a fresh set of legal and valuation costs to move onto your buy-to-let mortgage. On a deal this size, that can easily add two or three thousand pounds in fees and interest that this new product avoids. Plus you save the time of running two applications instead of one.
Three things I’d check before using it
First, be honest with yourself about how long the work will actually take. The rest of your loan only comes through once the property’s revalued. If your “eight week” job turns into four months, you’re carrying that cost yourself in the meantime, same as you would with a bridging loan.
Second, ask what the surveyor will want to see when they come back to revalue it. Not every valuer looks at “before and after” evidence the same way, so it’s worth knowing in advance what will get you the number you’re expecting, rather than finding out after the work’s already done.
Third, get your broker to run the actual numbers on this against the old bridge-then-remortgage route, not just compare the headline rate. Doing everything through one mortgage saves you real money and real hassle, but only your broker can tell you exactly how much, for your specific deal.
Speaking of brokers, this is exactly the sort of product where a good one earns their fee. Light refurbishment mortgages like this are still fairly new, and different lenders offering something similar can have quite different rules underneath. Getting the wrong one for your project is an expensive mistake to find out about halfway through a refurb.
It’s also worth saying this won’t suit everyone. If your work is small, a quick lick of paint and new carpets, it’s probably not worth the extra faff and it might be simpler to buy on a normal mortgage. And if you’re the sort of investor who moves fast and refinances often anyway, the saving on fees might be less important to you than it would be to someone doing this for the first time. Like most things in property, it’s a case of doing your own sums rather than assuming a new product is automatically the right answer.
By the way, if you don’t have a mortgage broker, or you’d like a second opinion, I’ll be very happy to put you in touch with my very good mortgage broker.
Just email me: thepropertyteacher@gmail.com and I’ll happily make the introduction.
Here’s to successful property investing.
Peter Jones
Author, property investor & ex-Chartered Surveyor
P.S. If you’d like help thinking through your buy-to-let strategy properly, you might find my Successful Property Investor’s Strategy Workshop useful.
You can find out more here: https://thepropertyteacher.co.uk/the-successful-property-investors-strategy-workshop/
