Additional Borrowing Dilema

georgerobinson02

We have hit a brick wall with Santander in terms of releasing additional borrowing to complete the renovation of our new house and need some advise please.


A bit of background.......


We sold our old home, for £360K which we had a mortgage with Santander with for 10 years. The sale released equity of £130K. We then purchased a house for £300K with a view completely renovating and extending to create our dream house. We put down a 25% deposit (£80K) and had a total of £80K to start the work. The total build and renovation costs are planned at £160K, leaving us with a funding gap of £80K. As we purchased for a bargain, we knew the work that we are carrying out will add considerable value (adding an extra bedroom, extra bathroom, family room, trebling size of kitchen,doubling the footprint of the whole property etc).


While we didn't have the full funds to complete (some may say this is naïve) we took the calculate risk to commence building on the understanding that if we were unable to gain extra funding, parts of the house extension / renovation could be stalled until a later date.


Having gone through a full affordability test we were told we could easily release capital to the value of 85% of the property ahead of works starting and then re-value and release further additional borrowing at water tight stage (where the valuer would taking in consideration the bricks and mortar value of the extended property). As we had already put £80K of our own funds in we only needed the property to be worth £380K on completion to ensure we qualify for additional borrowing. We have been quoted a rough value in excess of £480K once completed.


Anyway to cut a long storey short, despite passing affordability tests, having enough expendable income to cover a rate rise to 7%, having no other credit or outstanding debt and having had a mortgage with Santander for 10 years (where our monthly cost exceeded what our anticipated mortgage monthly cost would be post additional borrowing and having an Experian credit score of 999, the idiots have refused additional borrowing. This is forcing us to put a halt to the works.


My parents have stepped in and said that rather than halt the project they will lend us the difference and we can pay back when our mortgage deal comes to an end and we can re-mortgage.


This raises a few questions. Given that I expect to have a property worth c.£480K with a mortgage of £230K and a bank of mum & dad loan of £80K (i.e c.65% loans to value), how easy will it be to release this £80K loan at remortgage time to pay them back. OR are there any alternative suggestions anyone has to overcome this issue. I really don't want to have to halt the progress of the build.


Any advise welcomed and apologies for length of post but thought it best to cover all details...

kingstreet

What was the reason for the decline and what makes you feel it won't happen again when you try to remortgage?

Let_Us_See

I assume lack of equity due to the request for an additional loan?

Not many lenders are prepared to base LTV on perceived value at build end as too many projects never get completed or add sufficient actual value.

georgerobinson02

Santanders mortgage advisor cannot provide any reason. It was underwriter decision. She cannot understand why it has been rejected. The only reason they gave was credit score and the fact that we are not on the electoral role (which we are and have provided proof). As I said, both myself and my partner have 999 Experian credit score and Excellent Equifax score. We have no credit cards, have never been in arrears, and have salaries that will allow us to qualify for a £440K mortgage.


In terms of Equity, we have 25% and were asking to apply for additional borrowing in advance to start each stage of the work. The first to take us to 85% of the actual value as the house stands (in line with their criteria for lending) and the second to fund kitchen replacements etc once the main work is complete and house re-valued - this would not exceed 75% LTV at this stage.


Any advise as to whether funds can be released at remortgage stage when my fixed term deal ends to re-pay my parents (subject to the bank approving / valuing etc)

betmunch

If you remortgage at the end it will depend on the lender you go to at that point and what there criteria is for paying back family loans.

I would get a good broker involved now so you can be sure you can do it when the time comes to remortgage