FAO Mortgage People!

sparkstertom

Afternoon all... please bear with me, as I imagine this will be quite a long post!

Long story short, I'm now debt free, except for my car - which in all honesty, I don't really class as a debt.. certainly not a bad debt in any case.

Myself and my other half are both living back at home, which has enabled us to save £30k which will be our deposit and solicitors fees etc... I'm now saving for our wedding which is not until 2014.

Between us, our combined salary is not far short of 70k and we've been looking at houses to a maximum of 250k, as quite frankly, stamp duty above that is ridiculous!

I own a flat, which is currently on a buy to let, and my sister and her husband are the tenants.. making it somewhat easier.

My intention is to sell this to them.. and more than likely just break even after paying my dad back for his half of the deposit, possibly a small bit of negative equity - but nothing too horrific, and I'll be able to cover that with savings.

One particular house needs a LOT of work doing to it, new roof, heating and electrics, and then obviously all the making good afterwards.. I expect that we're looking at a maximum of 40k for all the repairs.

Assuming that our offer is accepted at 200k, we'd pay 20k deposit, meaning an LTV of 90% at 180k... with full repayments at about 1k a month..

We have no other debt between us (surprising I know... but it's taken me a good while to really nail it!) and I have recently, last month paid off my loan.. With a couple of PPI claims awarded, I''m effectively back in the same position.. with a little bit more between us saved.

In terms of paying for the work... I imagine the only way - would be one of the following...

a) get a loan
b) add it on to the mortgage somehow? But I don't know how practical this is... and I imagine that this would rely on the house being worth more than we paid for it??
c) be very upfront with the company and explain the situation, and hopefully they'd allow us to transfer onto interest only for the first 18 months.. freeing up a little bit more cash to throw towards the repairs?

I'm not financially naive, and I know times are hard - but our careers are public sector (not civil service) and despite the current situation, are extremely stable. My income is currently frozen for two years, and hers will rise yearly...

I would imagine that we'd be 'good for it!'

Any ideas?

Thanking you!

kingstreet

a) possibly
b) no - not until the work is done and the value has risen
c) highly unlikely at 80% LTV.

A lender won't advance into an "improved" valuation until after the work is done, perhaps via a remortgage or additional borrowing. This isn't an option at the outset with a purchase mortgage. However, you'll fall foul of the 6 month rule most lenders use which says no remortgage until at least 6 months after you purchase.

Additional borrowing may be an option with the existing lender, but the rate may not be great.

Most lenders won't do interest-only on 80%. Many cut-off at a LTV of around 50%.

sparkstertom

Hi Kingstreet - thanks for your quick reply!

I'm beginning to realise that the loan is probably going to be the most appropriate..

The problem we have is that all of the major things are happening within 1 year!

Might just be better to pay full 250k for a house that is fully renovated!

I'd thought that was the case - and I'd read about LTV of approx 50% for interest only, I suppose I thought it might be taken on merit - but I understand that there a guidelines!

Thanks again,

kingstreet

No lender wants to be the first to get an FSA tag of "irresponsible lender", so policies like interest-only have hardened considerably over the last twelve months.

Purchasing a property ready to move into is probably your best bet. A doer-upper is a good subsequent purchase when you have both equity and savings to call-on.

sparkstertom

I'm beginning to see that!

Thanks again for your advice!

Tom

kingstreet

I'm sure if any of the others have any ideas for you they'll post later. I'd look back at the thread and see if anyone else has replied.

GMS

A property which in your own words needs a lot of work on it runs the risk of having a retention imposed on it whereby the lender would hold back some or all of the mortgage until works were completed. If you didnt have the funds in place to call upon then you couldnt complete on the purchase.

Needing a new roof could well be a full retention.

Much easier to go for something ready to move in to.

Thrugelmir

Living at home with a combined income of £70k should mean that you can very rapidly build up a sizable deposit.

Is the BTL making taxable profits or losses?

sparkstertom

GMS - you're quite right, and perhaps I should have explained myself in a bit more detail. I previously trained as a building surveyor, but have kept up my ticks. The house is in a saleable state of repair - but I know that the roof, although passable at the moment - will need to be replaced fully as well as the roof furniture, soffits, guttering etc. I'd also like, at some point to replace the windows, which are probably the first incarnation of UPVC.. and re-render the external walls.. As for the internal, there is an old floor standing boiler. I doubt very much that a gas safe engineer / tester has even looked at it in the last 10 years and I know just by looking that the flue is in completely the wrong place. All of the plug sockets are the old type, and the consumer unit is older than I am!

I know there are ways and means of doing this as we go along - but I can only imagine, from past experience, helping out family/friends that it's MUCH easier to get this work done, when the house is gutted. Much easier to cut chases, lay conduit etc!

I am however, beginning to see that my intentions MAY not be possible..at the present time anyway.

Hi Thrugelmir - my buy to let, is a zero profit. The monthly payment is met EXACTLY by my tenant, in this case my sister.

I'm aware that most lenders would want to see a return of about 50% on top of this to effectively call it a zero expenditure?? - but the intention is to sell this prior to moving in.

Our salaries ensure that we are financially viable, and at the present, we are saving in excess of £2500 per month.

We've decided that we wouldn't live together in our first bought house until after we were married.

I think I'm coming round to the refurbished option!

edit// or... it might just be that we wait until we have enough saved to cover the most expensive of the repairs...

There would be nothing to suggest that the house is not saleable following survey that I can see..

sammyjammy

Why save up lots of money to get married? Put the savings towards a bigger deposit or use it to refurbish said house.

If you are buying a house and not living in it you may have insurance issues.

dimbo61

Do you want to live on a building site?
It can take years to do a property up a bit at a time IF you dont have the cash to get the work done all at once.
So the £200K property needs a total rewire, complete replaster after the new rewire, new central heating, new windows, new floors and other building work ?
After all this you get a building surveyor in to value the property and he/she looks at recent sales !!!!! only sale in the last 18 months was yours for £200K so why is it now worth £250/275!
Better to save up 20/25% deposit and buy a modern house with modern insulation and boiler, double glazing ETC