Mortgages and renovations

LKbiplet

We're first time buyers and have a mortgage agreement in principle with a lender. We've seen a property we're intersted in but it needs some renovation before the lender will give us the mortgage. We're looking at taking out a private loan equal to the value of the mortgage offer we have, we'll then to do the work neccessary out of capital and contribute to the cost of the purchase partly out of capital also. We're then hoping we'll then be able to get a mortgage on the property a few months later, once it's renovated, and pay back the private loan. By that time I guess we won't be first time buyers anymore. Can anyone tell me if that would be considered a 're-mortgage product'? and would we need a deposit? we'll have spent all our capital on the house purchase and renovation so we won't have any capital funds left - but by that time we should have at least 40% of the value of the property as equity. Would that be enough to satisfy the mortgage lenders? how does this work? any advice gratefully received, we are at sea with it all at the moment.

glasgowdan

Try a different lender?

LKbiplet

I think other lenders will have the same issues, it definitely needs work before it's habitable.

eddddy

It will be classed as a remortgage. You can generally have to own the property for 6 months before you can remortgage.

I think you're confusing yourself about the concept of a deposit. It might be easier to just think in terms of 'Loan to Value' (LTV). Each mortgage product has a maximum LTV.

e.g. If you own a property, and the bank values it at £200k and you want to borrow £120k - that's an LTV of 60%. (There is no concept of having to pay the bank a deposit.)


But beware of over-estimating the eventual valuation of the property.

If you buy a property for £200k and spend £20k on it - you might believe it is worth £250k. But the bank is very likely to rely on the purchase price, and still value it at £200k.

LKbiplet

Thanks Edddy - so the main hurdle will be having to wait 6 months before 'remortgaging'. Maybe we'd be better off asking them to agree the mortgage with 'rention of funds' and the take a personal loan to cover the cost of purchase until they revalue it?

Doozergirl

LKbiplet wrote: »

Thanks Edddy - so the main hurdle will be having to wait 6 months before 'remortgaging'. Maybe we'd be better off asking them to agree the mortgage with 'rention of funds' and the take a personal loan to cover the cost of purchase until they revalue it?

Long time ago now, but we had a mortgage with a full retention until we'd fixed the house. Eventually they valued the house at the right price and released the funds.

I'm not sure how the loan will affect your affordability prospects, so double check that with the broker.