Home Improvements Loan Options?

magicdust

Hello,

We're considering buying a house which would need extensive renovations.

We have £80,000 in cash available and would be looking to use £40,000 of that on deposit and other associated costs of buying the house. (£10,000 of this would be a buffer for emergencies like losing jobs etc and so would not be available for house renovations).

Our combined income is £85,000 per year.

House value will be £360,000. We think the works will cost £75,000 after talking to various people to get ball park figures.

We have access to £31,000 on credit cards - currently unused. And £30,000 in savings which could be used on the home improvements.

Judging by other properties in the area, once the works are done the house value should be around £500k so we would be looking to get a mortgage that we could re-mortgage in a year or so to pay off any debt from the home improvements.

What would be the best way to fund it? Our mortgage would not be stretching our salaries, so we do have additional funds to pay off a loan, We are fortunate that we do not need to move out of where we live instantly so ideally we would like to do the bulk of the work before we move in so we aren't living without a kitchen/bathroom etc.

I've never had a loan before nor owned a house... so I don't really know what our options are. Do we just get a loan from a bank? Or is there a better way to fund home improvements?

foxy-stoat

If you have £80,000 cash + £30,000 savings then you dont really need a loan.

Buy the £360,000 house and take out a mortgage of £320,000 and use £40,000 for the deposit. You will have a 89% LTV which isnt bad.

Use the other £40,000 + £30,000 savings you have to do the work. Build up your savings again with the money you would of used for a loan for £30,000.

If your valuation after the improvements is correct you could remortgage and reduce your LTV to 65% with another lender, getting you into the lowest interest rate bands.

magicdust

Thanks so much

I mis-explained myself though. The £30,000 and £40,000 are the same. We have £80,000 total available for buying and renovating a house in cash terms, but I want to keep £10,000 of that as a safety buffer for if we lost a job, or became ill etc. so there is £30,000 left in cash terms.

foxy-stoat

Maybe build up more in savings before starting all of the work then, or do it in 2 stages, spend the cash on a few areas then save up for the rest.

For me, spending £360,000 on a property on a 89% LTV mortgage then instantly committing £30,000 cash plus £35,000 unsecured borrowing with a repayment plan of remortgaging and drawing out £35,000 to clear credit cards etc on the basis that you can add an additional £70,000 of value after the work has been completed is a little risky.

If the valuation comes in at say £450,000 when you remortgage in a couple of years time then you would been in a 79% LTV mortgage area. A nice reduction but if the worst came to it and the lender doesn't allow you to draw out equity then you would be stuck with £35,000 on unsecured borrowing/rates/repayment amounts for a while.

magicdust

Thank you Foxy, interesting POV and will put it to OH. We're thinking we might do it in stages, so we don't have to max out credit cards etc. We just want to see if there is a risk-adverse way of doing it when we buy so that we don't have to live in a house that is having lots of work done to it as we're in the very lucky position of not needing to move out straight away. But equally, I don't particularly want to get myself into lots of debt (well, other than the mortgage!).

Clive_Woody

Unless you are doing the work yourself then labour will be a decent chunk of the costs and most labourers will not accept credit cards as payment, so keep that in mind with your planning.