First Time Buyer and funds to renovate

ActionDanS

Hello All,

I have a question as me and my girlfriend are a bit undecided as to which plan is best.

We recently had a nice change in situation which means that we can finally think about getting our first house. :beer:We're fortunate in that we think we can buy a house as high as £300-350,000. However, we would really like a "project" house which needs work and allow us to grow our equity.

The issue is, we are unsure how we would fund any refurbishments if we bought at the top of our price range. Surely we would struggle to have approval of credit cards with such a large mortgage?

It's a concern that we would buy a house with big potential but no ability to gain the money to improve it!

Is it more wise to buy something a little less expensive and hold back some of our deposit for the renovationsn?

Should we buy at the top of our budget, but buy a house which requires no dramatic work?

Or, would we be able to borrow assuming reasonable credit rating?

For an idea, we both have salaries of £40,000.

If anybody can point us in the right direction, it would be great.

G_M

You work out a budget.

1) How much can you raise - savings plus mortgage etc?

2) How much will purchase cost - Stamp duty, survey, legals etc?
3) How much will any given property you're considering cost?
4) how much will that property cost to renovate?

If 2 + 3 + 4 =/< 1 then you're fine
If 2 + 3 + 4 > 1 then you're in trouble

ActionDanS

Thanks.

Please assume any house we buy falls into the former.

My question is more about the likelihood of securing the necessary borrowing to carry out the renovations.

In general, is it likely we could borrow if we take a mortgage at the top of our range.

After deposit, we wouldn't have a huge reserve to do it otherwise

csgohan4

ActionDanS wrote: »

Thanks.

Please assume any house we buy falls into the former.

My question is more about the likelihood of securing the necessary borrowing to carry out the renovations.

In general, is it likely we could borrow if we take a mortgage at the top of our range.

After deposit, we wouldn't have a huge reserve to do it otherwise

Lenders will lend you the money for the house, not the money for future renovations generally


What would your LTV for the money your borrowing?


You could try and Raise the LTV to say from 70 to 80% for example, so you can use your deposit for renovations if you so wish at the cost of a higher interest rate.

Pixie5740

It's impossible for us to say. It comes down to affordability and credit history. We don't know how large your mortgage will be or what financial commitments you have. How much you would want to borrow and what constitutes renovation in your eyes?

Some people can obtain loans after getting a mortgage it's completely down to the individual's situation though.

Davesnave

It can be a trap, thinking it a good idea to buy a doer-upper and "grow equity."

For a start, the equity will usually increase over time anyway as a result of house price inflation. The people who felt they did well in historic episodes of house improvement TV programmes typically forgot that.

Secondly, unless extra space is added, the money spent on refurbishment may add insufficient value to show a profit if a house is sold-on quickly. The spend might make the house easier to sell, but unless the refurbisher has skills and mates with skills, the value added may only match what's spent, or worse, the project will bog-down and cost more than intended.

Further, every road or type of house has a ceiling value. Go through that, and it will become hard to convince others that the architectural gem created is worth paying so much extra for, especially if the developer's taste is questionable.

So, by all means buy a doer-upper if you enjoy that sort of work, but if you have little experience and few connections with trades, tread warily. It can be a fun and satisfying activity for a minority, but living in a building site really isn't fun for most people.

LittleDutchgirl

There is a lot of difference between a structurally solid but decoratively tired house and a fixer upper. If you don't have friends/family in the trade then I'd suggest you stay away from the wrecks. Going through the rooms and decorating can be hard work (and time consuming) if you both have busy jobs. Don't worry too much about growing equity - this is your home!
Good luck
LDg

gadgetmind

LittleDutchgirl wrote: »

If you don't have friends/family in the trade then I'd suggest you stay away from the wrecks. Going through the rooms and decorating can be hard work (and time consuming) if you both have busy jobs.

True, but if you're not forced to live in the property, you can "blitz" it. We did up a house for daughter, including totally new kitchen and bathroom, lots of plastering and painting throughout, lots of work on floorboards, nearly all carpets, new electric board, all new gas piping, moving lights, new sockets, all appliances, all furniture, and completed in just over four weeks. We had builders in to do a whole load, but we also put in a lot of hours despite working and it being a 1.5 hour drive away.

Budget for everything was just over £15k, but this took a three bedroom house from not much more than a knackered shell to a very nice property.

We'd do it again, but not with the combination of limited budget, absolutely immoveable deadline, and a long way away.

Have we added value? No idea yet, but intend to have valued soon. The house was £125k, so we'd hope value north of £140k, but not a crazy amount more.

ActionDanS

Thanks all. There's some useful stuff in here.
Davesnave, there's some food for thought there.

It seems to be the case that the only reliable way to gain an ROi on renovations is to ad more space? i.e. extension.

Doozergirl

ActionDanS wrote: »

Thanks all. There's some useful stuff in here.
Davesnave, there's some food for thought there.

It seems to be the case that the only reliable way to gain an ROi on renovations is to ad more space? i.e. extension.

Really, yes.

You might get a subjective valuation that you puts you up a bit, but people always underestimate the spend and overestimate the impact of shiny fittings. You can only increase the price per square foot by a certain amount and I'd argue that the things that need doing are detracting from value, not the renovations adding to it.

If you add space, you add square footage. And the actual addition of square footage can have genuine impact if the cost to create it is less than the value of space locally and the house is not overdeveloped for the plot.

Davesnave

Even adding square footage can be somewhat marginal if it upsets the balance of the house.

We extended our last house in a way that suited us, but when we came to sell, several people commented that the property was 'bottom heavy.' In normal times this might not have mattered so much, but this was 2008.

The people who purchased went on to use the house very much as we did, so the balance was OK for them.