Best way to fund a purchase and renovation

Thundercat_2

Hi to all you mortgage experts...

My husband and I are currently hoping to buy a bungalow and turn it into a two storey family house for us to live in for the foreseeable future. We're struggling to decide on the best way to fund the purchase whilst also leaving enough cash to spend building and refurbishing the property.

We will have approximately 33% - 35% of the purchase price of the property in equity from the sale of our current house. The options we can see are as follows:

1. Take about £100k of the money we get from the sale of ours and put it aside in a savings account to fund the majority of the renovation costs. This would mean we would have to take out a larger mortgage on the property and that the interest rate would be higher due to having a greater LTV percentage.

2. Put all of our money towards the sale of the house in order to get a better interest rate due to a lower LTV % then once we've got the planning permission and are ready to start the work take out some kind of loan to fund the renovation costs, at whatever interest rate necessary.

These are the main ways we can think of but I'm sure there are loads of combinations of account types, mortgages, loans etc we could choose from. I have looked at renovation-specific mortgages, but these seem to involve high interest rates and we won't be ready to start the renovations for about a year. Until then we'll just be living in the bungalow as it stands and getting our plans drawn up and planning permission in place.

We'd be hugely grateful for any advice anyone can give as to the best way of funding this plan - we're getting a little dizzy thinking of all the possible permutations and combinations!!

Thanks in advance and sorry for the long winded description!

Thundercat

CLAPTON

get as much as possible on a conventional mortgage; this is likely to be by far the cheapest option.

getmore4less

One option to look at is an offset,

Get as much as you can at a decent rate on the offset

Offset the excess funds so they cost you nothing till you need them.

Save until you find another way to borrow the funds or just save them all up.

Depends how much spare money you will have each month

Some of the money could be funded on a 0% credit card if you could pay it all of in the interest free period there are a fey 12 month deals some times longer.

What about phasing the build.

edit:
Missed the bit about another year to save so the offset makes even more sense allows you to overpay and get the money back.

Have a look at First direct they are usualy competative and a decent benchmark for other offsets.

Bearmoney

This is also of great interest to my partner and I.

henrysprings

then you can transfer the balence to another credit card a year later and have another intrest free year to pay the card off

Thundercat_2

Hi there!

Thanks for the replies - we're currently looking at a First Direct offset mortgage as a means to do what we need.

The plan is potentially to borrow £460k of the £615k purchase price (keeps us below 75% LTV so competitive rate) We would then put the £55k of savings we would have from our sale in an account to offset against. We would also take the offset mortgage out on a 2 year fixed interest rate and go "interest only" for the two year period. This would allow us to save nearly £2k per month to add to the £55k in the savings account. Once we have the plans drawn up and the planning permission in place we'll either look to borrow the extra money we need (perhaps another £75k) to add to the £75k we will hopefully have in the savings account by then. This money will fund the work. Hopefully we'll be nearing the end of the development work by the time the 2 year fixed rate comes to an end, at which point we hope to get the house revalued and obtain a new mortgage which will encompass all of the costs incurred so far in one new mortgage against the new value of the house (which at a conservative estimate would only be approx 65% LTV).

Phew - did any of that make sense?? Can anyone see any problems with doing the above? We've been pretty bamboozled by figures, rates, LTV, terms etc over the last couple of days, but at least our offer has been accepted so we know our exact figures now!

redlady_1

I would say your biggest hurdle is not the actual funding of the renovation but the lack of reliable tradesmen - and yes, I speak from painful experience! Do you already have these in place? Whatever you think the renovation will cost I would suggest you make sure you have a hefty buffer.

Conrad

redlady_1 wrote: »

I would say your biggest hurdle is not the actual funding of the renovation but the lack of reliable tradesmen -

I have found paying people a decent income more or less guarantees good service. Taking shopping around to the enth degree and expecting others to work for low amounts is in my experience counter productive - afterall would you work for less than you are worth?

Some let thier ego get in the way of good decision making and feel their status is undermined if they do not pin trades people down to the lowest possible sum. The same type in my experience always expect thier own employers to pay them top dollar of course!

My brother is a lendscaper and says there is type of client that generally undervalues other peoples time and does not appreciate the true extent of a job - for example they dont factor in those trips to the tip and dumping fees, or all those trips down the side alley with wheelbarrows of sand.

Conrad

Thundercat - make sure you get in writing up front from your lender that they are in principle ok with your plan to alter THIER asset as some lenders are less then helpful.

Thundercat_2

Thanks all!

redlady_1 - Good point - we haven't looked into this at all at the moment. I was hoping that once we have plans in place and we've started the planning permission process we would then start to look for a suitable builder. I was hoping to ask around people we know and also ask our architect if he's come across anyone who's done a good job on other projects he's been involved in. I'd much rather pay a bit more to get someone reliable, trustworthy and who will do a good quality job, than scrimp on the cost and end up with a cowboy! Thanks for the reminder though!

Conrad - Thanks for this - I hadn't even considered letting the mortgage company know about the proposed work, so will definitely follow this up when we actually start the mortgage application process - good idea!

I'm very excited about the whole thing as I've been dying to get my teeth into a project on this sort of scale for years (no doubt by the time it's finished I'll never want to buy a project house again!! ha ha). Not sure how it's all going to work with two children, one aged 4 and the other 8 months, but hey we'll figure that out as we go along!!