Hoping to buy a house that needs renovation. Advice about revaluing to achieve lower LTV rate

Wkmg

Hi. We’re hoping to buy a house that needs quite a lot of work doing. It hasn’t been modernised in 60 years and needs some walls moving to give it a more modern floor plan (the kitchen of this 4 bedroom detached family home with 3 reception rooms is smaller and more basic than the utility room in out current 3 bed semi), rewiring, hot water system changing, front garden being dug out to make space for second car, 2 new bathrooms and a new kitchen commensurate with the house etc... It’s on for 775,000. We’re hoping to get it for 750,000 or ideally less. Knowing the area and what homes go for if the house was renovated and in it’s best possible state we think it would be worth about 900,000. Our estimate for works is somewhere in the region of 100,000. If we get an offer accepted obviously we’d then do our serious due diligence to back up our assumptions.

To make all this achievable we would want to get a 90% LTV mortgage (already have AIP) so we have the money to do the work from the start. My question is, if we get all the work done, when we’re at the end of our fixed rate can we get the home revalued and get a mortgage based on a 70% LTV (assuming it’s then worth 900,000 and that our mortgage is for 675,000)?

I know this is all hypothetical but we love the house, can afford the 90%LTV mortgage and not being able to get the revaluation taken into account by a lender would not be a deal breaker.

ACG

At the end of your deal the lender will give you a valuation which probably won't stack up as it will be based on rpi.

At that point you have 2 options:
1) pay for an actual valuation with the current lender or
2) go to a new lender who may offer a free valuation.

Just on a side note, I have renovated 2 properties. Making £50k profit on a £750k investment does not seem like money well spent. Problems can arise and easily make a dent into that £50k.

I made £65k on a property I bought for £85k.


Appreciate yours will be more of a family home than an investment, but the risk of not making a profit seems quite high on the figures you are talking.

Wkmg

Completely agree it wouldn’t be a good business investment but we’re buying it to be our home for at least the next 10 years so even if we made 0 profit we’d be happy.

Wkmg

... having said that, we will be using your logic to try and get as low a price as possible.

ACG

Just another thought on this, costs can easily spiral and not even due to problems arising. You go in to the kitchen shop to buy a new kitchen and the salesman does his job and up sells fancy taps, integrated coffee maker and before you know it you have spent an extra £2k on the £15k you planned on spending... New carpets...new underlay - for an extra 50p per sqm you have the luxury underlay, theres an extra couple of hundred pound... but it was only 50p!

I suppose the point I am making is that you should probably weigh up what you are paying, what it will cost including contingency and buying things you did not plan on buying (also bare in mind if brexit happens, costs may increase) and you have to wonder whether or not just buying a property already done is better value.

I am not trying to talk you out of it by any means, just playing devils advocate from my experiences.

The first house I renovated I overspent because I got giddy happy and had money in the bank (it also didnt help that I bought in 2006 and by the time I was ready to sell the recession had hit) - I broke even on that after renting it out for 12-18 months. The second house I did I made quite a bit from because I did it with a business head on.

Wkmg

Thanks for all the advice. We know that the renovation will cost a lot and are smart to all the tricks salesmen try to pull. We really aren’t seeing it as a chance to make money. For us this is the right size and style house in the right location for us and the only reason it is affordable for us is because it needs the work doing. If we were to buy a ready to move in property it would either not be in as ideal a location or not as large/architecturally pleasing as this house or we would need a mortgage that we would be uncomfortable with. All in all, it’s the house we want. Having said that, we have no pressure to move and will walk away if we can’t sell our house for what we want, or if we can’t buy this house for what we want or if the survey shows some unforeseen disaster. We’re also in the fortunate position that both are salaries are on a good projection to rise rapidly and consistently. We both work in recession proof and Brexit proof industries that have nationally negotiated pay and conditions plus a national shortage so whilst you can’t predict the future, we’re in what we feel is a relatively good position.

Having said all that, if we decide it’s a better bet to wait even a few years, that’s fine to.