Looking to buy a renovation - need a home improvement loan

danielhoworth

Hi all,

I've joined with the hope of gaining some advice. I have just sold my property and have seen another house I would like to purchase.

The purchase price is £165k, however the property requires heavily renovating.

I have £40k equity from my previous home and I estimate I would require <£60k total to make the renovation everything I want it to be.

What are my lending options / best ways forward to deal with this? I haven't yet made an offer on the property, and lenders are unable to quote/grant me a loan until I have purchased the property. My worry is that I buy the property and am unable to raise the funds required to renovate quickly.

My budget will be roughly £1000 per month to repay the mortgage & loan combined.

Any advice appreciated.

Regards,

Dan

DrEskimo

How much are you looking to borrow on a mortgage?

Do you have any other savings to go towards the renovation work?

Nebulous2

Is it liveable / mortgageable as it stands?



It's one thing being tired and needing updating, but if it needs major work then you may find that you cannot get a residential mortgage on it. That could scupper your plans before you get to the loan to refurbish.

foxy-stoat

So after spending £60,000 on a property bought for £165,000 - will it make the realistic value in excess of £220,000? If not then just buy a property for around £200,000 and do less work.

danielhoworth

The property is a good deal at £165,000. Fully renovated it should be worth in the region of £300,000, although this will be my home and is not something I am looking to turn a profit on.

Another option would be to do some work to the house, in the region of 20k, then have the house revalued and take money from the value of the home under a new mortgage? Is this a feasible idea?

DrEskimo

The problem is that £20k won't get the property to state where the valuation will suddenly soar.
I would try to do it without borrowing more. Depending on the work, it will take a year to get architect drawings, planning permission and find a builder. That will take up some of the £20k, and then you have mainly ground work.

If you can get approved for a mortgage at 90% LTV (£48,500), then that will leave £16,500 + ~£2,500 in fees (stamp duty/estate agent fees/solicitor fees) to come from your £40k equity.

So that's about £21k to start.

The mortgage over 30years would cost about £500 per month, so that's an additional £6k a year (based on your 'I can afford £1,000 per month) + any savings/additional income you can save.

But that will only leave you with about £30k, so still £30k short of your probably underestimated costs (if the house truly could make £135k from just £60k worth of work, then it would be snapped up by developers as cash buyers...!).

Having just finished a large renovation myself, trust me, the costs are much much higher than you anticipate, particularly if there is additional building work involved.

How bad is the house, and how much work is involved? If you can't live in it, you also have to factor in living costs while the work is ongoing (unless you have nice family willing to take you in!).

danielhoworth

DrEskimo wrote: »

The problem is that £20k won't get the property to state where the valuation will suddenly soar.
I would try to do it without borrowing more. Depending on the work, it will take a year to get architect drawings, planning permission and find a builder. That will take up some of the £20k, and then you have mainly ground work.

If you can get approved for a mortgage at 90% LTV (£48,500), then that will leave £16,500 + ~£2,500 in fees (stamp duty/estate agent fees/solicitor fees) to come from your £40k equity.

So that's about £21k to start.

The mortgage over 30years would cost about £500 per month, so that's an additional £6k a year (based on your 'I can afford £1,000 per month) + any savings/additional income you can save.

But that will only leave you with about £30k, so still £30k short of your probably underestimated costs (if the house truly could make £135k from just £60k worth of work, then it would be snapped up by developers as cash buyers...!).

Having just finished a large renovation myself, trust me, the costs are much much higher than you anticipate, particularly if there is additional building work involved.

How bad is the house, and how much work is involved? If you can't live in it, you also have to factor in living costs while the work is ongoing (unless you have nice family willing to take you in!).

The majority of the renovation work will be done by myself and my dad - retired electrician, in order to keep costs down. The house is on the market for £210k and has been for some time. The owners are going through a divorce and have said an offer above 160k may be considered. Before I make my offer I'm just trying to work out how to get the funds to renovate.

With my 40k deposit I can have a mortgage for a house of a value up to 250k, however I can't have a house of a lesser value and then raise the required funds to renovate, even though the end cost would be less .

Also, my parents are ~2miles from the property, which is where I'm staying at the minute after selling my previous home.

Herzlos

Can you live in it now and mortgage it as is? Do that, then the renovations as you can afford them.

DrEskimo

danielhoworth wrote: »

The majority of the renovation work will be done by myself and my dad - retired electrician, in order to keep costs down. The house is on the market for £210k and has been for some time. The owners are going through a divorce and have said an offer above 160k may be considered. Before I make my offer I'm just trying to work out how to get the funds to renovate.

With my 40k deposit I can have a mortgage for a house of a value up to 250k, however I can't have a house of a lesser value and then raise the required funds to renovate, even though the end cost would be less .

Also, my parents are ~2miles from the property, which is where I'm staying at the minute after selling my previous home.

I see, that makes sense.

Yea my father-in-law is a electrician and plumber, and me and my partner took on a fair amount of the work, but it still adds up to a fair whack. I guess it depends on the quality of the fixtures and fittings. The Bathrooms/Tiles/Wooden Floors/Carpets/Kitchen we fitted were not extortionate, but certainly weren't on the cheap side.

The main thing is whether there will be any structural work. If not, then you'll probably be OK. Although if you can take a lot of that on, then you might keep costs reasonable.

If we assume that £60k is how much it will cost, and you can secure the property for £165k, then you still are struggling to get the necessary funds together. I assume you don't have additional savings (as you haven't listed them yet), but with just £40k to buy a £165k property, and to do £60 worth of work, it just isn't feasible IMO. Well...not without taking on a large amount of what I imagine will be high interest debt for the amounts you need. It just isn't worth the risk for when/if life happens...

I would probably agree with foxy above. If your borrowing capacity allows you to buy somewhere for £250k (so a 85% LTV mortgage with £40k down) then that would be the way I would go.

danielhoworth

DrEskimo wrote: »

I see, that makes sense.

Yea my father-in-law is a electrician and plumber, and me and my partner took on a fair amount of the work, but it still adds up to a fair whack. I guess it depends on the quality of the fixtures and fittings. The Bathrooms/Tiles/Wooden Floors/Carpets/Kitchen we fitted were not extortionate, but certainly weren't on the cheap side.

The main thing is whether there will be any structural work. If not, then you'll probably be OK. Although if you can take a lot of that on, then you might keep costs reasonable.

If we assume that £60k is how much it will cost, and you can secure the property for £165k, then you still are struggling to get the necessary funds together. I assume you don't have additional savings (as you haven't listed them yet), but with just £40k to buy a £165k property, and to do £60 worth of work, it just isn't feasible IMO. Well...not without taking on a large amount of what I imagine will be high interest debt for the amounts you need. It just isn't worth the risk for when/if life happens...

I would probably agree with foxy above. If your borrowing capacity allows you to buy somewhere for £250k (so a 85% LTV mortgage with £40k down) then that would be the way I would go.

Thanks for the advice and taking the time to reply. It's appreciated :beer:

I'll look at my options over the next week or so before I make a decision.

Dan