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How to recoup building costs on house purchase

Hi all,

My OH and I are just about to exchange contracts on a house purchase. The Homebuyer Report highlighted a few "Urgent Matters", and we have received quotes from building companies to rectify these matters. After lengthy discussions, the vendors have agreed to pay 50% of the building costs by way of an allowance payable on completion. :T

However, our solicitor has just called to say that our mortgage company want to revise our mortgage offer if we accept the allowance, because it alters the LTV ratio. Their revised (lower) offer would mean that nearly all of the 50% contribution would be lost. We have therefore decided to stick with our current mortage offer and will not receive the allowance. The mortgage company is happy with this.

This obviously means we now need to find more cash for the building works. :mad:

Are there any ways that people know of by which the vendors can still contribute 50% to the building works without it affecting the mortgage offer? We're not interested in doing anything fraudulent!

Thanks in advance!

Comments

  • Getting the work done before completion would be ok with the lender.

    The alternative would be to reduce the purchase price, this means you will put less deposit down, borrow less and therefore save on interest though you would of course need to find some money to do the work.

    If the work is "urgent" I would personally be aiming for the full amount to be knocked off the purchase price but that's a personal thing. Think about it though as if the scenario you mention means that nearly 50% would be lost then if they knock the full amount off the purchase price you will be quids in, so to speak.
    Happily an ex mortgage broker!
  • luckyfool
    luckyfool Posts: 1,683 Forumite
    errrr.... surely better to pay the lower amount for the property (and have the slightly smaller mortgage) than otherwise.

    If the works are such that they can be done in a week or two you could exchange based on the higher price, contribute your 50% and have the work done prior to completion.

    If the lender has a retention you would need a reinspection by the valuer to lift it before completion but this definitely gets round any reduction in the loan offered.

    The lender has an issue because the "allowance" is effectively a reduction in the price you are paying. i.e. you were previously borrowing 75k on 100k (75%) as an example, with an allowance of £5k you are now borrowing 75k on 95k which is 79% .... hence the lender reduces their offer to 75% of 95k which is £71,250.
  • luckyfool puts it much more clearly than I, it's been a very long day!
    Happily an ex mortgage broker!
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