Buy-to-let mortgage specialist Paragon Mortgages has designed its buy and refurbish to let mortgage in response to incentives for property renovation that were announced in the March 2001 budget.
The mortgage allows borrowers to buy run-down properties and develop them to let. The finance for development is granted up to 70 per cent of the original purchase price up to a maximum of £500,000. The interest rate will remain at four per cent above the Libor rate for up to twelve months. There are no early redemption penalties.
After refurbishment, the mortgage can be converted to any of Paragon's buy-to-let mortgages, which are available for loans of up to 85 per cent of valuation of the refurbished property.
In this year's budget, the Chancellor announced a series of measures to encourage landlords to develop run-down properties for residential use. Value added tax was reduced to five per cent for conversions and renovations in a number of circumstances and there will be 100 per cent capital allowances for the conversion of office space to residential dwellings. The Paragon mortgage could be useful for landlords who want to take advantage of these incentives.
According to Moneyfacts on March 26, 2001, there are no similar mortgages on the market. This means that Paragon has created a niche for itself in the buy to let market. However, it may be possible to negotiate a loan for property development with other existing buy-to-let lenders, which some borrowers could prefer to do.