Together reports ‘noticeable rise’ in property flipping amid high property prices

Together reports ‘noticeable rise’ in property flipping amid high property prices

 

Scott Hendry, auction finance director at Together said: “We’ve seen a noticeable rise in property investors flipping property. Whether it’s an unusual property or in disrepair or you’ve got a very tight deadline, securing a bridging loan against the property for up to 12 months might be useful.

“This would allow you to complete the work they need to do and exit the short-term loan by selling the property – with investors expecting returns of up to 20 per cent on the most successful renovations.”

 

Bridging loans on the rise

At the beginning of the month, Mortgage Solutions revealed that investors were turning to bridging loans to flip houses and maximise on rising prices.

Sundeep Patel, director of sales at Together, said although flipping had always been around, he had noticed an increase recently.

He added: “ Most, if not all, property investors seek a bridging loan for up to 12 months to ensure they can snap up a property, quickly refurbish it, before turning a profit via their cash buyers.

“Invariably property investors opt for specialist lenders to make this process as slick as possible. This need for quick decision-making on approvals to secure the best deals can however be a struggle for high street lenders.”

He added: “In addition, the high street has strict lending criteria and won’t offer finance on dilapidated properties – limiting the options for potential investors. In comparison, specialist lenders can grant financing for more complex properties – offering property investors even more choice when thinking about properties that can be transformed into homes. These include HMOs (houses in multiple occupation), old retail parks and disused office spaces.

“Whether we continue to see investors large and small seek quick profits – successful projects can accrue returns of up to 20 per cent – or whether this is just a minor trend in the post-pandemic market is not yet clear.”

 

Seeking the correct advice

Brokers said it was important for investors to get the right advice when flipping to make sure they were not left with a half-finished job and no exit.

James McGregor, director Mesa Financial said: “The key thing at the moment is to make sure there is a big enough contingency built in for increased material and labour costs. Although asset values have increased, the cost of material has also increased around 40 per cent in some reports we are receiving.
“Make sure you have enough cash or funding in place to cover this type of disruption. It’s quite hard to sell a half built asset at a profit that’s for sure. Get advice from the correct advisers from the outset and make sure you work with the correct lenders that won’t leave you in the lurch if costs do start to creep up.

David Hollingworth, associate director at L&C Mortgages, added: “The demand for property has been sky high and prices have been driven higher as a result. That will do little to dampen the enthusiasm of those looking for a bargain property that can be improved and sold at a profit. That in turn could only underline the need for flexible finance options on property that may otherwise struggle to qualify for mainstream mortgage finance.

“Of course it’s not something to enter into lightly and those new to renovation of any kind will need to plan carefully so that they have a tight handle on the costs that they will incur, the gains they can expect and the time to turn it round to make a success of it.”

However, some warned that flipping could have a negative impact on property prices, potentially causing an inflation and pushing out those with less cash or borrowing power.

Siobhan McAleer at The Mortgage Shop said: “Flipping is always going to feature in a buoyant market and the stamp duty advantage was a booster rocket. It’s never a positive – the foreseen consequence is that it inflates the market and as most ‘flippers’ are cash-rich they push out those in need of high loan to value (LTV) mortgages.
“The unforeseen consequence is that properties usually lie empty while being flipped impacting on housing stock.”