Stretching Time  

Back in the day during the pre credit crunch era, one could (if done in the right manner) purchase a property with no money down; using the discount as the deposit. 

The way this would work is instead of a mortgage offer for a purchase you would apply for a remortgage at the market level, not the purchase price.  For example, if you were buying a property for £70K and it was worth £100K, you would apply for a remortgage at 85% on the £100K.  Assuming the valuation was confirmed by the surveyor, you would get a mortgage offer at £85K.  With this you can get a day bridge, which is a bridge for one day.  The lawyer would undertake the bridge will be paid back from the mortgage proceeds within 24 hrs.  This would normally cost 1%.  They would lend £70K, the full purchase price for the property.  And you then get the surplus £15K back to you, minus expenses of course.   

I guess the above was partially why credit was ‘crunched’; well, at least it wasn’t squashed into oblivion.   

One cannot do the above in this environment.  The same structure can be followed but not in the same time span.  You can potentially do this, but stretched over a six month period.  

The day one remortgage, which was what it was known as doesn’t exist anymore, not at the market value, but it is possible to remortgage within six months at the purchase price. 

If you wish to extract the full market value, you would need to wait six months.   

We have a case currently which was purchased at 30% below market value.  Due to it being an auction purchase, and other issues, it was purchased on a bridging loan.  The client is now understandably anxious to come out of the bridge.  Several lenders have been approached to remortgage within the six month period.  Due to the client’s profile of being highly geared, a couple of lenders said yes initially and then withdrew.  

One lender however is on track to issue the offer which is expected to come out shortly.  This will be at the lower amount, the purchase price.  Due to the length of time this process has taken, the client is nearly over the 6 month timeline.  Therefore, when the mentioned offer comes through, we may not necessarily pull down upon it.  It might be worth waiting a couple of months in order to remortgage at the higher value, and thereby not leave too much cash in the deal.   

Contrasting the two scenarios, the only thing which has changed is the time period.  One can still remortgage at the higher amount but the time has to be stretched to six months.  This of course has a cost, about 8-10%.  This, however, has the net effect of reducing how much cash is left in the deal.  Instead of about a third, it will be around 10%, which is still a good position to be in.    

Suresh Vagjiani
Suresh Vagjiani
Articles: 23