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Renovation, how does it financially benefit you without selling?
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ShawUK
Posts: 47 Forumite
Hi,
Simple newbie question here,
I do wonder how you financially benefit from adding value to a property that you plan to not sell.
For some simple numbers and ignoring factors of price changes, fees etc,
A house is worth 300k that needs some work,
You put down 30k deposit and keep 20k to renovate. Your mortgage is 90LTV.
That 20k renovation adds 40k to the value of the house. (You hope!)
The house is now worth 340k, so your equity is 70k, making your LTV nearer 80LTV.
Would the lender survey and revaluate the property and then on your next product application they consider you to have X amount of equity? Bringing the interest rate lower due to lower LTV?
If so, a long fixed term wouldn't be a good idea if you think you could get the value of the property up in 2 years? I ask this as we would normally go 5 year fixed, but if we added value in 1-2 years then we wouldn't see that benefit until the end of the fixed term?
Or am I completely wrong and someone can explain it much better to me!
Thank you
Simple newbie question here,
I do wonder how you financially benefit from adding value to a property that you plan to not sell.
For some simple numbers and ignoring factors of price changes, fees etc,
A house is worth 300k that needs some work,
You put down 30k deposit and keep 20k to renovate. Your mortgage is 90LTV.
That 20k renovation adds 40k to the value of the house. (You hope!)
The house is now worth 340k, so your equity is 70k, making your LTV nearer 80LTV.
Would the lender survey and revaluate the property and then on your next product application they consider you to have X amount of equity? Bringing the interest rate lower due to lower LTV?
If so, a long fixed term wouldn't be a good idea if you think you could get the value of the property up in 2 years? I ask this as we would normally go 5 year fixed, but if we added value in 1-2 years then we wouldn't see that benefit until the end of the fixed term?
Or am I completely wrong and someone can explain it much better to me!
Thank you

0
Comments
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Renovating a house doesn't have to be about financial benefit and financial gain.
You can renovate a house to make it how you want it to best suit your lifestyle and needs from a property.0 -
If you buy a property and renovate it, assuming the value goes up you will benefit from a lower LTV usually. However the savings of that will not outweigh the cost of the renovation. Depending on what renovation work you have done, you may also benefit from reduced bills - double glazing/thicker insulation/more energy efficient boilers etc can all help.
But from a purely financial point of view if you do not plan on selling then there is probably no benefit.
However, you will probably live in a bigger/nicer house after the works are done. So there is more than just the financial gain but if that is your sole priority then just sit in squalor instead, it will probably be cheaper.I am a Mortgage AdviserYou should note that this site doesn't check my status as a mortgage adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.0 -
One of my first houses had an outside khazi and no central heating.
I installed a bog indoors and installed heating - frankly at the time I did not give a monkey as to whether I was adding any value in excess of the monies spent - worth it just to avoid a freezing butt in January!0 -
Depends on what interest rate bracket you are in and what the benefit is for trying to reach for the next one.
If i see someone and they are sitting at like 7% or 8% deposit it might be worthwhile doing a shorter deal and trying to get to the 10% equity on the next remortgage. Some dont see the benefit of taking the risk of not hving along term deal to save £50 a month.
It used to be more attractive when 5% deals were 4.5% and 10%'s were high 2%. Now a lot of the bandwidths have been compacted and contracted and the difference in interest rates isnt as dramatic
Interest rates bandings tend to be at 5%, 10%, 15%, 20% (a few lenders but not many), 25%, and 40%.
The difference between 10% and 15% is usually miniscule. The difference between 25% and 40% is also quite small.
It really depends on whether the potential gain of a lower rate is enough to offset the potential loss of the longer term security.
There isnt one answer, thats what advice is for0
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