Is the house I want to buy considered habitable?

Firsttimebuyer2013_3

I am a first time buyer looking to purchase an empty 3-bed semi that needs money spending on it upfront - namely on a full rewire, new central heating system, guttering and completing an outside extension. We have had a builder inspect the property and have been quoted £10,000 for the work that is needed and we are unsure whether the current hearing system and wiring is even legal.

We have a 10% deposit for the house only, and so would likely need to borrow the money needed to carry out this work once we had bought it. My question is are we likely to get a mortgage given the nature of the work needed? It has been suggested to me that we may not get a 90% mortgage with the rewire and heating system outstanding...

I understand that mortgage lenders will not factor extra money into a loan for this work to be carried out and in fact there may be a 'retention' on some of the mortgage - I'm not sure what this means?

Should we be putting in a much lower offer than the asking price or simply asking the vendors (who inherited the property from a relative) to be carrying out this work before the sale is completed?

Any advice would be much appreciated, to put it simply we aren't sure how to proceed!

Many thanks....

kingstreet

The surveyor valuing the property will establish the current value and if any mortgage money should be held back for essential repairs. That is the retention.

If a retention is held, you would need to increase your deposit to cover the shortfall, then you'd have six months to get the work done before the money was released.

Chances are this property is not going to suit your circumstances. If there is no functional kitchen or bathroom, or any structural problems are found, the property may not be mortgageable, in which case a 100% retention would be levied, making it impossible for you to purchase.

You could spend money on fees and be unable to proceed. Be careful.

Firsttimebuyer2013_3

Thank you, the kitchen and bathroom are functional, there is plumbing / running water etc. It's just the rewire and heating system are outdated and possible not in line with current regulations.

We may have the option to borrow money from a relative in order to carry out the work once we moved in - in which case would you suggest that a mortgage lender may simply hold back the £10,000 and then revalue the property once the work had been carried out? If the work was up to scratch the bank would then give us the £10,000 we had spent back? I'm not sure how it works -

i.e. the house is up for £130k - we put down a £13,000 deposit and in normal circumstances would take out a mortgage of £117,000....
if £10k needs spending on the house before the lenders consider it habitable and that money was retained, would we only get a mortgage of £107,000 and have to pay the other £10,000 upfront as part of a deposit? would they then add £10,000 to the mortgage or refund it?! I'm confused, sorry. And thanks in advance...

kingstreet

Yes.

You agree a purchase price. The surveyor values the property and suggests a £10k retention. On completion, the lender releases the mortgage funds, less the £10k retention.

You increase your deposit by £10k to enable completion to take place. Once you purchase the property, you get the work done and the £10k is released on reinspection or evidence being submitted to the lender. The mortgage is then the amount you requested originally.

Often, the problem is how to increase the deposit and pay for the work upfront, as the retention is only lifted and the money released after it is completed. The surveyor may suggest the value is less than the purchase price and the lender bases its lending on the lower of purchase price, or the valuation.

Once the work is done, the maximum will be (eg) 90% of the value of the property after essential repairs are completed, so you'll need the vendor to reduce the price and accept the valuation in present condition as the agreed figure.

HappyMJ

Is it habitable? Having no heating does not make it uninhabitable. You could use electric heating instead. Does the wiring currently work although it doesn't meet current regulations? If it hasn't been disconnected from the mains then it's likely that it is still OK.

Normally a valuation is done by driving by the property. It's rare they actually go in and look at the quality of the fixtures and fittings. They'll just measure the outside of the property and compare it with others that have recently sold that are the same dimensions and value it that way.

If you want it then I wouldn't mention what your builder has said and just let them value it. The valuer's aren't builders and are not gas safety experts so if they see a boiler they will assume it is in reasonable condition whether it really works or not or is dangerous.

Thrugelmir

HappyMJ wrote: »

Normally a valuation is done by driving by the property. It's rare they actually go in and look at the quality of the fixtures and fittings. They'll just measure the outside of the property and compare it with others that have recently sold that are the same dimensions and value it that way.

I've never had this experience in many years of house buying.

kingstreet

In my experience, a property is n early always inspected in a purchase transaction. It is remortgages and very low loan to value cases where a drive-by is used.

holly_hobby

Drive bys and desk top are typically only for remortgage business - at least in all my yrs of experience.

The re-wiring requirement will result in a retention, and may be a full retention if its still the old 2 core (given the obvious age of it and fire risk).

Having a dated/sparse kitchen and bathroom that wouldn't get featured in Beautiful Homes isn't a retention issue, BUT they must be functioning - ie there must be cooking and sink facilities in the kitchen, and washing and functioning toilet facilities in the bathroom.

Decoration, dated isn't an issue, evidence of recent movement, damp (and any timber issues to wooden window casements etc is) and no modern DPC, which can be seen with an unloved house, will cause a further, possibly full, retention.

Your mortgage applied for is representative as a % of the actual purchase price (even if thats reduced following survey to account for the works reqd) OR the valuers assessment (if lower), which will be further reduced by the noted retention for essential works. (kings has explained how you manage a retention either pre or post completion, so I won't go into that).

If you only have the 10% deposit, the vendor won't do the works per completion, and you have no capital to fund the works yourself - then simple maths says that this isn't for you.

Hope this helps

Holly

dimbo61

£2500/3000 for a full rewire, £3000/3500 for a new gas central heating system.
Does the house need new double glazed windows ? Another £4000
Forget the extension for the time being
Doing up an old run down property is very expensive and time consuming.
Do you really want to come home to a building site every night ? Are you good at DIY or have family and friends who can help you out ?
My first house was a small modern 2 bed semi which I enjoyed living in for 3 years while overpaying the mortgage.