Remortgaging after home improvements

takay9

Hi - we are due to buy a house which is in need of home improvement and bought at a price that takes that into consideration. My idea was that we would take out a 2 year fix whilst we do all of the work (new central heating, kitchen, bathrooms and general modernisation etc) and figured in 2 years time we would benefit from a significant increase in equity as the house value would increase roughly to the value that we spend, therefore bringing mortgage costs down. Does that theory work?

Taking change of mortgage rates out of the equation, this would rely on the valuation taking into account the home improvements. However, someone said to us that many lenders won't necessarily do this and will just look at the price the house was bought at and apply CPI or whatever calculation they use to track house price levels. Is this correct and, if so, do you think that is just during covid times and that lenders will send valuers out again to do a more comprehensive valuation?

Thrugelmir

The amount you spend is unlikely itself to warrant the same increase in value. You'll be dependent on other factors to achieve that. 

takay9

Fair enough - but let's say we spent £50k on updating the whole property and installing new kitchen, bathroom etc - the value of the property would increase fairly significantly. My question is whether this would get factored in to the remortgage application after only 2 years at the property?

K_S

takay9 said:

Hi - we are due to buy a house which is in need of home improvement and bought at a price that takes that into consideration. My idea was that we would take out a 2 year fix whilst we do all of the work (new central heating, kitchen, bathrooms and general modernisation etc) and figured in 2 years time we would benefit from a significant increase in equity as the house value would increase roughly to the value that we spend, therefore bringing mortgage costs down. Does that theory work?

Taking change of mortgage rates out of the equation, this would rely on the valuation taking into account the home improvements. However, someone said to us that many lenders won't necessarily do this and will just look at the price the house was bought at and apply CPI or whatever calculation they use to track house price levels. Is this correct and, if so, do you think that is just during covid times and that lenders will send valuers out again to do a more comprehensive valuation?

@takay99 Generally speaking, replacing/mordernising work on the property rarely adds value proportionate to the money spent. The things that do are those that add/increase living space - extensions, additional rooms, etc. It isn't clear from your post whether the rooms mentioned are simply being redone or added.

With regard to the valuation, some lenders will indeed perform desktop/automatic valuations based on comparables and indexation, but applicants will usually have the option of paying for a physical valuation.

jord411

I have just switched products with NatWest . We brought our house for under asking in July 2019 and got it was about £20K lower than similar size houses to use. ( due to various reasons)

Natwest came out and did a new valuation for us and now it’s in line with houses in our area with a £70k increase . 

I was told by the surveyors that’s the decoration / moderation of a room wouldn’t make a difference. It’s what the market is doing right now for our house size. ( we haven’t finished doing all the rooms yet). 

However my friend brought around the same time as us and just did a mortgage switch with Halifax who only used the HPI based on what they brought the house for. 

MWT

takay9 said:

Fair enough - but let's say we spent £50k on updating the whole property and installing new kitchen, bathroom etc - the value of the property would increase fairly significantly. My question is whether this would get factored in to the remortgage application after only 2 years at the property?

Did you buy the house for £50k below the achieved sales price of comparable properties very close to yours?

If so then you have a chance, but you will probably have to pay for a revaluation...

getmore4less

What LTV bracket would you move from/too if the improvements did bring it in line with the ready to go properties.

takay9

We have bought the house for £280k at an 85% LTV - to keep money back for the work needed. A similar house a few doors down recently sold for £383k which is more up to date but still not high spec. 

Realistically we think this property could be worth up to £360k in the current market once modernised, but I just wasn’t sure if the valuation would account for the kind of work we would do to it. I appreciate this kind of work wouldn’t add as much value as an extension but surely a new central heating system, kitchen, bathroom, insulation, windows etc would add fairly significant value?

It’s useful to know you can pay for a physical valuation if required. Thanks all for your opinions.

Thrugelmir

takay9 said:

We have bought the house for £280k at an 85% LTV - to keep money back for the work needed. A similar house a few doors down recently sold for £383k which is more up to date but still not high spec. 

That's a considerable difference between the two properties. Must be more than simply doing some upgrading to the property.