Mortgage to include renovations? FTB

bigleblowski

Hi all. I am a first time buyer but my circumstances are a little different.
I currently have my eye on a fixer upper house. I know the seller is only accepting offers from cash buyers, which I couldn’t do myself. 

Fortunately, my parents are in a position to buy the property cash for me, on the understanding I would then secure a mortgage to buy it from them.

 What I’m wondering is, would it be to my advantage to do the required renovations and then secure a higher mortgage to factor in the cost of improvements? If that is even possible?

 From my perspective, it would mean I would have a larger budget for furnishings, appliances and decor etc.
& I’m sure I’ve read on MSE before that a mortgage is the cheapest way to borrow larger sums long term? 

For me it would represent a long term investment, and seems to be similar as if I’d bought a property already renovated to my requirements at a higher price on the open market?

Obviously a lender has to agree that the relevant improvements add value to the property which as I’m talking mainly new kitchen, new bathroom - it should.
Also, I assume that even though I would buy it for a higher price than my parents bought it for, (but only adding on the cost of improvement) as it would then be worth more on the market, they can demonstrate that they have no capital gains as a result of the sale and should not suffer any tax penalties?

i have a healthy deposit amount and know i can secure a mortgage for the price as is, as well as what it would be, with 10-20k worth of improvements.

 If any one could advise on the main points raised, I would really appreciate it.

MovingForwards

If a property is a cash sale only, it usually means there's some defect preventing a mortgage.

Lenders also don't tend to offer mortgages where a property hasn't been owned for 6+ months.

Why don't you ask your family to set up a private mortgage, acts like a normal mortgage as it's secured on the property. You do the place up and remortgage, then repay your parents.

Oh yeah, don't forget the property is currently unmortgagable eg there's probably something structurally wrong. Having an old kitchen or bathroom doesn't make a property unmortgagable provided water runs, toilet flushes and there's a sink in both, maybe a couple of cupboards in the kitchen.

user1977

As above, I would have a think about why it's cash-only at the moment, and whether it's a reason which would be easily solved by normal levels of "fixing up".

lonibra

It seems like a complicated way to do this unnecessarily exposing yourself to two sets of stamp duty, potential tax implications for your parents and the complications of "buying" it from a related party at a significantly higher price in the near future.

They could lend you the money to buy the house outright, perhaps with a charge on the property to protect their interests.

But before all this you need to find out WHY it's a cash sale. You could just ask the vendor for the reason (may or may not get the truth) or if you share the Rightmove ad, a bit of snooping around can often give the answer.

bigleblowski

Thanks for the replies, just a bit more info for those that asked.

It wasn't always a cash only stipulation, it had been on the market for a few weeks without this in place, at a higher price previously. Was on for around 175k open to all, now looking for cash only offers around 160k

My sense of it would be that they've likely had a few offers previously only to have pull out at the last second, which is something I'm hearing is happening more often at the minute - from friends who are selling.

Either that or they had no interest at all at the higher price, and now need to move quickly.
It is habitable as is, it's just that the bathroom and kitchen are in dire need of 'modernisation'.

The price of it would not trigger stamp duty for myself or them under current thresholds.

lonibra

If it's clearly habitable, and buyers are pulling out after having an offer accepted or prior to completion, there might be an issue with the mortgageability of the house.