Repossessed Property – How To Finance It?

It’s a well-known fact within the buy to let industry that buying a repossessed property can save you an average of 35% on the property’s market value. This means that a lot of house repossessions for sale not only have the potential to furnish you with a decent amount of equity from the off, they also provide a possible rental income that easily covers the buy to let mortgage payments.

If this type of property is so attractive how do you go about financing it, and how much cash will you need to get the ball rolling?

 The Buy to Let Mortgage Route

The vast majority of first-time landlords choose to finance their property purchase with a buy to let mortgage. Once they have found suitable house repossessions for sale they approach different mortgage lenders with their figures and wait for a ‘mortgage in principal’. The instant equity common to repossession properties is very attractive to mortgage lenders, and in some cases it can be the factor that swings the approval.

Most buy to let mortgages require you to pay a deposit of between 25% and 40% of the purchase price. Obviously the lower the purchase price the less cash you have to find as a deposit, and so it is worth looking at house repossessions for sale through property auctions. Depending on the number of people bidding in the auction and the popularity of the property, you can sometimes buy repossessed houses for less than 50% of their market value at auction.

It is worth remembering that if you bid on house repossessions for sale at an auction and you win, you can’t back out of the deal at a later date. Your bid is taken as a binding contract. It’s also worth remembering that you will be required to pay a minimum of 10% of the purchase price on auction day, but if you’re planning to finance the purchase with a buy to let mortgage it makes sense to pay the deposit amount required for the mortgage e.g. 25%, 40% etc.

Most auction houses then give you between 14 and 28 days to complete the purchase, so you must have a mortgage arranged in principal before going to the auction.

The Cash Route

Landlords that have been in the industry for a while and have several properties in their portfolio sometimes re-mortgage one or two and use the equity as cash to purchase one of the cheaper house repossession for sale at an auction. First time landlords sometimes choose this route as well, but in their case they use the equity from their residential property as cash.

There is also the option of combining the two routes so that you pay 50%+ as a deposit (using equity from another property or savings) and taking a smaller buy to let mortgage for the rest of the purchase price. Either way, the route you choose to finance the purchase of a repossessed property will guarantee you big savings, instant equity and a rental income to cover your costs.