Borrowing for renovation- how does it work?

firsttimeforeverything_2

Hi all,
This may be a stupid question, but I can't find the answer anywhere!
I'm looking to buy my first home and the one I'm interested in needs some remedial work doing to the roof. If I borrow more than I need to buy the house (but less than the value of the home, I'm thinking of borrowing 85% rather than 82%), how does that actually work? How do I actually pay for the work to be done?
Thank you!!

maninthestreet

You will pay for it out of your savings.
If you borrow 82% of the property value, you will need 18% of the property value as a deposit. If borrow 85% of the property value, you will need 15% of the property value as a deposit.
So you will have 3% of the property value to spend on renovation if you put down a 15% deposit.

sally0101

maninthestreet wrote: »

You will pay for it out of your savings.
If you borrow 82% of the property value, you will need 18% of the property value as a deposit. If borrow 85% of the property value, you will need 15% of the property value as a deposit.
So you will have 3% of the property value to spend on renovation if you put down a 15% deposit.

That confused me a bit. I thought you couldnt get mortgages like that anymore. I looked into buying a property that needed work done (boiler, radiators and bathroom) and was told you can no longer add these costs onto a mortgage. Have I been mis-informed?

Perelandra

If it's remedial work (and not just "doing it up"), it would probably be handled by using a "Retention".

Example:

Property is value at £100k, but only if the roof is "good".
Mortgage is £80k
Purchase price agreed at £95k.
Lender may retain £10k on the loan, until the roof has been fixed.

At completion, the purchaser will need £25k deposit, plus enough additional funds (or bridging loan, or big credit card!) to pay for the remedial work on the roof. After the work has been done, the lender will then re-inspect and if done adequately will release the remaining £10k.

At least, I think that's how it's done!

kingstreet

As Perelandra says, it depends if this is serious repair work requiring a retention, or something the lender will be happy for you to do on an "undertaking" after completion.

R_P_W

Well you are paying less deposit by having 85% than 82% so that difference you will keep back. Is that enough to do the work?

firsttimeforeverything_2

maninthestreet wrote: »

You will pay for it out of your savings.
If you borrow 82% of the property value, you will need 18% of the property value as a deposit. If borrow 85% of the property value, you will need 15% of the property value as a deposit.
So you will have 3% of the property value to spend on renovation if you put down a 15% deposit.

But how does this actually work? When you say you will 'have' 3%, how will I actually have this?

firsttimeforeverything_2

I forgot to mention on that reply, thanks everyone for taking the time to respond!

We could hold it back from the deposit, but I need to look into exactly how much this would affect the value I'd get on repayments. I think if this is my only option I'll have to lump everything I have into the deposit (to keep the repayments down as low as possible) and then use a new 0% credit card for as much as possible to spread the repayments over the next year, only doing urgent stuff straight away.

firsttimeforeverything_2

sally0101 wrote: »

That confused me a bit. I thought you couldnt get mortgages like that anymore. I looked into buying a property that needed work done (boiler, radiators and bathroom) and was told you can no longer add these costs onto a mortgage. Have I been mis-informed?

I think it may be that you can't get 110% mortgages anymore. You can, however, get 90% mortgages rather than 80% that would be all you needed if the house needed no work. I hope!

Perelandra

If you can give us some figures on the buying price of the property, your savings, and (if you have it) the estimated cost of the work, we can probably give you a clearer steer.

firsttimeforeverything_2

Ok, thanks!
We have up to a £50k deposit and £10k for all the rest (including stamp duty, legal fees, etc), which will clean us out completely.
The house we're looking at has just been reduced from £285k to £275k (though I'd be looking to pay no more than £265k).
It looks like the work will cost up to £10k- though on closer inspection it appears that nothing has to be done on the day we move in, but we'd want to do it in the first 6 months.

Thoughts?

Thanks again, this is fantastic!