First-time buyer, borrow more than the purchase price

SebaRawno

Hi everyone, happy new year to one and all!

I'm a would-be first time buyer and wondered if you good people could give me some advice. I'm looking to buy a property but would like to buy somewhere that needs some degree of renovation.

I have around £60,000 for a deposit and having had initial discussions with an independent mortgage advisor I believe I can borrow up to £190,000 and be able to comfortably cover the monthly repayments. I have a good credit history and no outstanding debts.

The property I have my eye on is set within a 1930s mansion block but is essentially a shell (bare floorboards, half a kitchen, old bathroom, no fixtures and fittings etc etc.) which is reflected in the sale price of £190,000. This is ideal for my situation as I'm an architect by profession and would like to be able to design the interior myself. I believe that should the flat be renovated fully it would be worth £230,000.

I would like advice on what the best way to approach this would be. Would the mortgage provider consider lending the value of the finished property (I could provide drawings and visuals to support this) or would I have to hold back a chunk of my deposit to finance the refurbishment and have my mortgage rate suffer as a consequence? Is there another option?

Any advice, tips or good web links would be appreciated!

Thanks

Sean

kingstreet

You'd have to to hold back a portion of your deposit. The amount you'll need to hold back won't be apparent until the valuation is done and you know the size of any retention.

For example, a £10k retention means you'll have to increase your deposit by £10k to be able to complete the purchase, then bridge the cost of the works until you can get the retention lifted and the money drawn down.

You won't be able to remortgage into the improved value until you've owned the property for six months as well...

Thrugelmir

No surveyor can value a vision. What happens if you don't complete the renovation?

betmunch

Sean, you have given me a great big smile with your innocence and for that I thank you.

Currently one of the major problems Mortgage Advisors face is Surveyors valuing a house less than what a client is willing to pay/think their house is worth. I now have a vision of me arguing a value by showing a surveyor your vision on presentation cards and explaining how it would look.

The advice above is sound, keep some money back from your deposit to fund the renovations and you will be fine

Good luck to you buddy

SebaRawno

I'm glad that I've at least made people smile!

I had a suspicion that may well be the case, I wasn't so much thinking that the bank would buy in to my 'vision' but more along the lines that at the moment the flat is uninhabitable and the plans would be more to prove that I am serious about completing the works and making it habitable again.

So whilst you're all charmed by my naivety , could somebody explain what would happen in the case of the lender valuing the property higher than the purchase price? If the sale was agreed at £180,000 and the lender valued it at £190,000 would you have to borrow against its 'value' or what you paid for it?

Thanks

Sean

beecher2

SebaRawno wrote: »

So whilst you're all charmed by my naivety , could somebody explain what would happen in the case of the lender valuing the property higher than the purchase price? If the sale was agreed at £180,000 and the lender valued it at £190,000 would you have to borrow against its 'value' or what you paid for it?

Thanks

Sean

Whichever is lower, so in your example LTV would be calculated by using the amount you paid.

kingstreet

SebaRawno wrote: »

at the moment the flat is uninhabitable

Is it mortgageable? A 100% retention would be a disaster for you.

SebaRawno

Thanks for all of your replies, it's been extremely useful to hear from you all.

When I say 'uninhabitable' I don't mean that its structurally unsound or anything drastic just that you wouldn't be able to move in without doing some renovation work as the kitchen is half finished (eg. cupboards but no appliances) and there are bare floor boards etc. I therefore believe it to be mortgageable but not ready to move in to.

jamesd

Don't argue that the flat is uninhabitable! If it is you won't even get a residential mortgage. Habitability requirements may include any of these:

1. working water supply and sink for kitchen and washing use.
2. working heating system.
3. working toilet.

If any of this is missing you should check that your mortgage lender is willing to lend at an early stage. It's OK if after completing the purchase you then break all of those as part of refurbishment work.

If retaining more deposit and borrowing at higher LTV isn't sufficient for your needs you may need a construction type of loan. Those are more expensive but can include things like staged payments to cover the cost of work.

Just the bare floorboards and no appliances is fine and won't be a problem.