Renovation mortgages 29 April 2021 at 10:12AM in Mortgages & endowments 5 replies 144 views

tommyedinburgh

Does anyone have any experience of securing and making use of a renovation mortgage?

A rural property has been listed for sale in our area which needs extensive renovations. Quite simply, we wouldn't have the funds to carry out what is needing done.

However, there is significant scope to dramatically increase the value of the property following renovations, does anyone have any experience using a renovations mortgage?

[Deleted User]

What do you want to know?

tommyedinburgh

Deleted_User said:

What do you want to know?

How they work? The property purchase would likely be around £200k. Not overly ambitious to suggest that it would be valued around £350-£375k is the existing house and attached outbuildings were converted into habitable space. What realistically would be the amount we could borrow etc in relation to those values (we have enough income to secure a mortgage up to and around £440k on the high street lender mortgage calculators for example, so affordability shouldn't be an issue). 

[Deleted User]

Last one i did the lender was happy to go up to 85% of purchase price and 85% at various points for stage release.   You would effectively set out an agreed renovation plan with the lender and apply to them as you are completing each stage to have them revalue the property and release further funds

K_S

@tommyedinburgh This is a fairly common scenario though each specific case is very different from another. The main questions which will determine how straightforward it is are

- are you planning to sell/let the property after renovation/development or live in it

- this sort of finance is likely to be significantly more expensive that mainstream residential mortgages, what will be your exit. It's usually a remortgage to a more mainstream mortgage

- how much cash you have in hand as deposit. Most of it will go as a purchase deposit and the lender will typically want to see something left over for you to contribute towards beginning the work

- Once the works has reached a specific standard as per the schedule of works, the lender will revalue the property and release further funds to complete the works.

- one of the key requirements of the lender is usually that the contractor hired is an experienced one and is able to demonstrate that they have carried out similar works in the past.

Once again, this is not going to be anywhere close to Santander/Halifax type residential interest rates, so if that's what you are expecting then perish the thought

tommyedinburgh

K_S said:

@tommyedinburgh This is a fairly common scenario though each specific case is very different from another. The main questions which will determine how straightforward it is are

- are you planning to sell/let the property after renovation/development or live in it

- this sort of finance is likely to be significantly more expensive that mainstream residential mortgages, what will be your exit. It's usually a remortgage to a more mainstream mortgage

- how much cash you have in hand as deposit. Most of it will go as a purchase deposit and the lender will typically want to see something left over for you to contribute towards beginning the work

- Once the works has reached a specific standard as per the schedule of works, the lender will revalue the property and release further funds to complete the works.

- one of the key requirements of the lender is usually that the contractor hired is an experienced one and is able to demonstrate that they have carried out similar works in the past.

Once again, this is not going to be anywhere close to Santander/Halifax type residential interest rates, so if that's what you are expecting then perish the thought

We would be intending to live in the property. I totally understand re getting the renovations completed and transferring back to a High Street lender etc. I think (obviously just an educated estimate), that we currently have around 23-24% of the total purchase and renovation cost in savings - not an overly strong starting position.

These types of properties come up in our area once in a blue moon, we would probably be in a much better position to do something like this in 18-24 months from now, it is just a pity that the property has marketed this week. Such is life eh?

We both think we should at least look into it.