120% Mortgage to fund development

Shmed

My family and I are looking at buying a house and then developing it by way of a large rear extension, adding 2 bedrooms, 1 reception, en-suite, utility and a large kitchen. The house is for us to live in for the next 10+ years (hopefully).

The problem is, we don't have enough capital to do the work, so I'm researching ways to make it happen.

My loose plan is:

1. Get mortgage on house costing £400,000
2. Put down minimum deposit to allow 85% LTV mortgage rate (~£60,000 leaving ~£340,000 mortgage)
3. Pool all our savings (~£10,000 post moving)
4. Generate finance for development - I reckon we need ~£80,000
5. Get work done in 3-6 months, whilst managing repayments of finance, be it credit cards, family loans, unsecured loans, or other sources of finance
6. Once work is complete, get house revalued (target value is £575,000 minimum), then agree new mortgage with lender to pay off finance (outstanding debt ~£410,000, house value £575,000, LTV ~70%)
7. If all works out ok, that works out at us having £165,000 equity, and a nice affordable monthly payment as the interest rate is pretty low for 70% LTV (or better)
8. Overpay to become MF :T

So, the questions:

1. What are my options for raising the additional £80,000 for a short period?
2. Am I mad for gambling on the house price at the end? (Note that I have researched the area, and there are other houses on the road that have sold for significantly more money than £575,000, so there isn't a ceiling on the area)
3. Are there any mortgage lenders that will do 120% mortgages for this purpose (rather than for negative equity sufferers)?
4. Do secured loans count towards your LTV?

Cheers

Paul

amnblog

You are saying you need £400000 + £12000 (purchase costs) + £80000 (build costs) and you have £70,000 total from your own funds.

For this type of project you can expect to have to provide something more in the order of £120,000 to £130,000 yourself.

Shmed

Essentially, yes, but I had factored the £12k stamp duty into the equations. We have about £90k in savings/equity.

So, you'd suggest that we wait until we have £120k to start the redevelopment?

amnblog

on simple overview you have no where near enough cash.

If there is other property that can be used a security you may get some specialised lending.

Shmed

I know we have a cashflow issue in that we'd need to borrow the money to actually do the development, that's what my initial post is about really. I was hoping to generate the cash to finance the development, then add all that debt onto the mortgage once the house is revalued.

Are there no channels that would fund this kind of project? I was thinking about a £75k loan taken over 25 years, but then settled before the end of yr 1 (obviously this would attract some fees).

Shmed

I'm guessing that the issue here would be that the loan would need to be secured against the house, which would make my cumulative LTV over 100%, which I guess wouldn't be favourable with the lenders.

amnblog

you are a master of understatement Shmed

Shmed

Sorry, not sure which bit is the understatement?

Am I missing something very obvious here? I only want to know if anyone lenders would lend £75k for a short period of time.

Note i have very little patience and don't like saving....

Shmed wrote: »

Are there no channels that would fund this kind of project? I was thinking about a £75k loan taken over 25 years, but then settled before the end of yr 1 (obviously this would attract some fees).

amnblog

It appears you do not have sufficient security for the lending you require Shmed.

StuC75

Would think this is very unlikely - typical mortgage isn't really what you need.

Lenders will always want to maintain a healthy LTV, and they can only lend on what Physically exists. Have you never watched the plethora of Grand Design Style programs..

Afterall it may only be in your mind that the property when finished would be worth £570k.

Shmed wrote: »

Sorry, not sure which bit is the understatement?

Am I missing something very obvious here? I only want to know if anyone lenders would lend £75k for a short period of time.

Note i have very little patience and don't like saving....

Shmed

Fair enough, that makes sense.

What about unsecured loans? Could my wife and I take out a couple of unsecured £25k loans, and maybe another family member act as guarantor on a third?