Estimating/Providing refurbishment costs

se2020

I'm looking at purchasing a property that requires refurbishment that is beyond the scope of a normal residential mortgage. 

The only option I have found so far are bridging loans or refurbishment mortgages. 

Now, most of the "refurbishment mortgages" I have found are basically bridging loans under another name.

Some genuine refurbishment mortgages are available however they seem to be structured more like self-build mortgages 
Ie, they want to see costs for the refurbishment (and proof of funds/lending ability for these costs)

1, my original plan would be to use my own funds just bring this property back to a standard where I could get a normal mortgage then fund the remaining renovation from my own income over a longer period of time. Would this approach be acceptable to a lender?

2, if I have to provide costs for renovation what would they be expecting to see and how would I produce these costs?
For example,  one product guide I looked at stated they would expect the cost of a "basic" kitchen to be £18-20k for a 3-bed home.
The reality is, my parents have upgraded their kitchen and the previous, 5yr old, perfect good with all appliances is free for the taking. I already have a van to move it and the skills to fit it. I'm fairly accurately estimating a cost of £750 to cover fitting.

The majority of the jobs will be diy/or the use of various qualified mates. Ie. I am capable of running all the electrical cables and mounting all the sockets and a qualified electrician mate will connect up and sign off. Hence my cost for re-wiring the complete property will be around £7.5k rather than £20k+

Same for the roof that has some rot in it, my dad is a builder so he would come over, tell me what I need, show me how to do it, help out at weekends etc.

Would an approach like this be acceptable?
Or are they just going to want to see quotes from registered builders, electrician's,  kitchen fitters etc for professionals to do the job?
I see several lenders have example prices, if my figures differ vastly is that going to be an issue?

K_S

@se2020 Sorry I'm not entirely sure what the question is but in essence, what you are planning is fairly common.

You need a loan (call it whatever you want - bridging loan, refurb loan, etc.) secured against the property, would require a large deposit (30-40% generally speaking, unless you have another property it can be secured against) and meet the lender's criteria (will differ).

There is a distinction between doing the above to buy a property to live in and doing the above to buy a property to let out or sell. The first makes it a 'regulated' loan so the lender has a lot of boxes to tick, you have the protection of the FOS, etc. So you planning to live in the property makes it harder to qualify for a loan, if that makes sense.

As a regulated loan the lender (or more likely a broker, as lenders in this space don't want to take on the risk of advice or the hassle of dealing with direct leads) needs to make sure that the exit-plan (re-mortgage to standard resi mortgage) is viable, and the refurb plan is viable. If they didn't do that, you could complain that they were irresponsible in giving you a high-interest loan secured against the house you live in. I hope that makes sense.

As a broker, I personally would not be able to recommend a regulated bridging loan to a client based on the assumption that work that ordinarily requires 80k would only cost them 40k but that's just me, perhaps other brokers or lenders will be willing to go into the detail to assess how plausible your plans are. 

se2020 said:

I'm looking at purchasing a property that requires refurbishment that is beyond the scope of a normal residential mortgage. 

The only option I have found so far are bridging loans or refurbishment mortgages. 

Now, most of the "refurbishment mortgages" I have found are basically bridging loans under another name.

Some genuine refurbishment mortgages are available however they seem to be structured more like self-build mortgages 
Ie, they want to see costs for the refurbishment (and proof of funds/lending ability for these costs)

1, my original plan would be to use my own funds just bring this property back to a standard where I could get a normal mortgage then fund the remaining renovation from my own income over a longer period of time. Would this approach be acceptable to a lender?

2, if I have to provide costs for renovation what would they be expecting to see and how would I produce these costs?
For example,  one product guide I looked at stated they would expect the cost of a "basic" kitchen to be £18-20k for a 3-bed home.
The reality is, my parents have upgraded their kitchen and the previous, 5yr old, perfect good with all appliances is free for the taking. I already have a van to move it and the skills to fit it. I'm fairly accurately estimating a cost of £750 to cover fitting.

The majority of the jobs will be diy/or the use of various qualified mates. Ie. I am capable of running all the electrical cables and mounting all the sockets and a qualified electrician mate will connect up and sign off. Hence my cost for re-wiring the complete property will be around £7.5k rather than £20k+

Same for the roof that has some rot in it, my dad is a builder so he would come over, tell me what I need, show me how to do it, help out at weekends etc.

Would an approach like this be acceptable?
Or are they just going to want to see quotes from registered builders, electrician's,  kitchen fitters etc for professionals to do the job?
I see several lenders have example prices, if my figures differ vastly is that going to be an issue?

ACG

Im a bit different to K_S, I can do what I like as I run my own directly authorised business so I can take a view on if something is plausible I can crack on - I only say this just to basically show different brokers can do different things. 

As you say, development finance is just a bridging loan with a different name. 

Bridging/Development finance is not my bag so in terms of navigating the pitfalls and finding the best products, I can probably do it but I am far from the best person to speak to. 

However, when I have done them in the past, they have just asked for a breakdown of cost of works. I think so long as it sounds reasonable they would be fine. From what you have said they are expecting £16-18k but I think that is far too simplistic. In a £150k house, £16-18k is probably a bit OTT and likewise in s £800k house its probably not really enough.

Have you considered using a broker? Someone to do the donkey work as its not really straightforward. 

simon_or

I've done bridging loans to buy and refurb run down properties in the past.

As long as you have a chunky deposit (I don't know if things have changed now with higher rates but a few years ago it used to be at least 30% due to how interest is rolled up in the loan) and enough cash in the bank to complete the work with some spare, a broker that does bridging (usually not the same as the brokers who will get you your normal residential mortgages) should be able to make it work.

Since you know so many trades, you can do quite well out of this.

se2020

K_S said:

@se2020 Sorry I'm not entirely sure what the question is but in essence, what you are planning is fairly common.

You need a loan (call it whatever you want - bridging loan, refurb loan, etc.) secured against the property, would require a large deposit (30-40% generally speaking, unless you have another property it can be secured against) and meet the lender's criteria (will differ).

There is a distinction between doing the above to buy a property to live in and doing the above to buy a property to let out or sell. The first makes it a 'regulated' loan so the lender has a lot of boxes to tick, you have the protection of the FOS, etc. So you planning to live in the property makes it harder to qualify for a loan, if that makes sense.

As a regulated loan the lender (or more likely a broker, as lenders in this space don't want to take on the risk of advice or the hassle of dealing with direct leads) needs to make sure that the exit-plan (re-mortgage to standard resi mortgage) is viable, and the refurb plan is viable. If they didn't do that, you could complain that they were irresponsible in giving you a high-interest loan secured against the house you live in. I hope that makes sense.

As a broker, I personally would not be able to recommend a regulated bridging loan to a client based on the assumption that work that ordinarily requires 80k would only cost them 40k but that's just me, perhaps other brokers or lenders will be willing to go into the detail to assess how plausible your plans are. 

se2020 said:

I'm looking at purchasing a property that requires refurbishment that is beyond the scope of a normal residential mortgage. 

The only option I have found so far are bridging loans or refurbishment mortgages. 

Now, most of the "refurbishment mortgages" I have found are basically bridging loans under another name.

Some genuine refurbishment mortgages are available however they seem to be structured more like self-build mortgages 
Ie, they want to see costs for the refurbishment (and proof of funds/lending ability for these costs)

1, my original plan would be to use my own funds just bring this property back to a standard where I could get a normal mortgage then fund the remaining renovation from my own income over a longer period of time. Would this approach be acceptable to a lender?

2, if I have to provide costs for renovation what would they be expecting to see and how would I produce these costs?
For example,  one product guide I looked at stated they would expect the cost of a "basic" kitchen to be £18-20k for a 3-bed home.
The reality is, my parents have upgraded their kitchen and the previous, 5yr old, perfect good with all appliances is free for the taking. I already have a van to move it and the skills to fit it. I'm fairly accurately estimating a cost of £750 to cover fitting.

The majority of the jobs will be diy/or the use of various qualified mates. Ie. I am capable of running all the electrical cables and mounting all the sockets and a qualified electrician mate will connect up and sign off. Hence my cost for re-wiring the complete property will be around £7.5k rather than £20k+

Same for the roof that has some rot in it, my dad is a builder so he would come over, tell me what I need, show me how to do it, help out at weekends etc.

Would an approach like this be acceptable?
Or are they just going to want to see quotes from registered builders, electrician's,  kitchen fitters etc for professionals to do the job?
I see several lenders have example prices, if my figures differ vastly is that going to be an issue?

I didn’t ask the question very well but I think you have answered it!

Basically I want a bridging loan for a year and my exit strategy is to pay it off by taking a normal residential mortgage. 

I was confused as some loans needed to see costs for refurbishment and some didn’t. 
That's the difference between regulated and unregulated. 
I'd be living there so would need a regulated loan.

I suppose my question is,
If the exit strategy is a regular mortgage would they accept my estimate of the costs needed just to bring the property back into a mortagable state rather than the costs for complete refurbishment?

Ie, If I only had £20k available and fixing the roof and fitting a kitchen would cost me £18k would that be fine or would they want to see I had £150k available at the start for a complete refurbishment?

se2020

ACG said:

Im a bit different to K_S, I can do what I like as I run my own directly authorised business so I can take a view on if something is plausible I can crack on - I only say this just to basically show different brokers can do different things. 

As you say, development finance is just a bridging loan with a different name. 

Bridging/Development finance is not my bag so in terms of navigating the pitfalls and finding the best products, I can probably do it but I am far from the best person to speak to. 

However, when I have done them in the past, they have just asked for a breakdown of cost of works. I think so long as it sounds reasonable they would be fine. From what you have said they are expecting £16-18k but I think that is far too simplistic. In a £150k house, £16-18k is probably a bit OTT and likewise in s £800k house its probably not really enough.

Have you considered using a broker? Someone to do the donkey work as its not really straightforward. 

See my reply to K_S,

I have used a regular mortgage broker, he's basically confirmed what I thought (it's unmortagable & I'd need a bridge)

He's passed me onto a bridging loan broker who's given me prices on a loan.

This was all done Friday PM and final offers are wanted by 10am Monday hence me asking on here over the weekend!

The cost of the bridging loan itself is taking a major chunk out of my refurbishment budget.
Hence I will only be able to show funds required to get this property back to a mortagable state rather than a refurbished state.

se2020

simon_or said:

I've done bridging loans to buy and refurb run down properties in the past.

As long as you have a chunky deposit (I don't know if things have changed now with higher rates but a few years ago it used to be at least 30% due to how interest is rolled up in the loan) and enough cash in the bank to complete the work with some spare, a broker that does bridging (usually not the same as the brokers who will get you your normal residential mortgages) should be able to make it work.

Since you know so many trades, you can do quite well out of this.

The bridging broker I have spoken to is saying I need 25% deposit, plus the fees for the loan plus the funds for refurbishment. 

After covering the first 2 I have enough funds to make the place mortagable (I think) but not much more than that.

There is also the 1yr time frame of the bridge loan to contend with. I do know pretty much all the required trades as reliable friends, I'd be happy to belive they would make sure the place was mortagable within the year but most of this would be "weekend work" so I couldn't really expect to do much more than that.
Realistically,  even if I had endless funds to pay regular trades I don't expect I'd have the time to do much more than make it mortagable within 12 months.

It would be a long-term home so I don't really need to do well out of it.

The issue is, I'm not going to be able to afford a 2nd bridging loan in a years time if I can't get a normal mortgage on it.

My only exit strategy in that case would be to start advertising the property at the 8mth stage if it didn't look like I could get it done before sending it to auction at the 11th month if it didn't sell!

Im not even sure if it's possible to sell a property with a bridging loan secured against it but I presume that would just be like a regular sale with me being liable for any shortfall?