Mortgaging a renovation project

Uncle_Ted

Hi, I'm looking to get a mortgage to buy my dream home although it needs serious renovation work and will stretch my finances. Got a few options and not sure of the best approach - would really appreciate any advice.

I'm looking to buy a £630k property that needs £200k work. I have £340k equity in my current property. So, firstly, do I take the £200k from the equity in my current house so put forward a £140k deposit and borrow £490k or will lenders accept the value of the property will increase to minimum £830k following £200k of work so let me put the full £340k deposit, borrow £490k and benefit from the better LTV.

Second question is my wife is a sole trader with 2yrs trading history. She runs a small lifestyle business that generates circa 1k profit per month. The property we are considering has outbuildings that could be used as business premises. Is it possible to jointly purchase the property between me and her business e.g. 80/20 split or is that too complicated - what would be your advice in this situation?

Many thanks

ted

glosoli

The lender can only go by the properties worth in it's current condition, not what it may be worth in the future. Therefore you are on the right lines of buying the property at £630,000, putting down a £140,000 deposit, and retaining £200,000 for your home improvements, and borrowing £490,000, obviously all subject to affordability and having funds available for other costs that will be incurred as part of the process.

It wouldn't really be possible to enter a joint application for yourself and the "business" as a legal entity, it would just be a regular joint application with yourself and your wife. Unless I have misunderstood something. You would need to check your lenders criteria about an element of the property being used for business purposes, as different lenders will give you different responses on it.

ACG

You can buy a property on a split, but not if you need a Mortgage. Thats not quite true, but the rates would be pushing double digits, so you would probably not want to do it.

I would be reluctant to mention this to a lender as they would not be very open to you running a business from a residential premises.

Even if you could do it, you are opening yourself up to CGT, when you are looking to increase the value by £200k, I think you would want to avoid that.

Some lenders may have issues with out buildings I think - so it is worth checking up front with the lender.