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Take a higher mortgage to improve an house

Luke451
Luke451 Posts: 156
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edited 10 January at 8:57PM in House buying, renting & selling
Hi,

what if I take an higher mortgage (around 5-10% more) to improve the house I'm going to buy?
I see online that it's possible, but it seems related only to remortgage, not for a first time buyer or first mortgage with the lender, is it the case?
As far as I know, my deposit goes to the solicitor, which then pays the owner or their solicitor, then the bank sends the money to the owner/solicitor and the transaction is closed. I wonder how it works if I get more than I should be paying, assuming it's possible as a first time buyer.

On the other side, I wish to take a better deal elsewhere because I received a few offers (in principle), anything I should be aware of?
I did an application 3-4 months ago, but I see lenders offering around 4.5%, which is much better than mine.
I think I just need to apply, trash the previous one, maybe get some refund from the broker, then provide the proof to my solicitor, or is there any other step?
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  • bobster2
    bobster2 Posts: 444
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    Luke451 said:
    Hi,

    what if I take an higher mortgage (around 5-10% more) to improve the house I'm going to buy?


    5-10% more than what?
  • housebuyer143
    housebuyer143 Posts: 3,173
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    You just put in less deposit so you have money in the bank to do the work.
  • eddddy
    eddddy Posts: 16,156
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    Luke451 said:

    As far as I know, my deposit goes to the solicitor, which then pays the owner or their solicitor, then the bank sends the money to the owner/solicitor and the transaction is closed. I wonder how it works if I get more than I should be paying, assuming it's possible as a first time buyer.


    Do you mean, for example, if you pay a 10% deposit on exchange and then get a 95% mortgage?

    If so, you would get the extra 5% back after completion (less fees).

    Or you might be able to negotiate only paying a 5% deposit.



    And/or are you asking about a 100% or 105% or 110% mortgage. If so, I believe that one lender (Skipton) might offer 100% mortgages, but I don't think anyone has offered 105% or 110% mortgages for the last 20 years or so. They caused financial problems for lots of people.


  • Luke451
    Luke451 Posts: 156
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    eddddy said:
    Luke451 said:

    As far as I know, my deposit goes to the solicitor, which then pays the owner or their solicitor, then the bank sends the money to the owner/solicitor and the transaction is closed. I wonder how it works if I get more than I should be paying, assuming it's possible as a first time buyer.


    Do you mean, for example, if you pay a 10% deposit on exchange and then get a 95% mortgage?

    If so, you would get the extra 5% back after completion (less fees).

    Or you might be able to negotiate only paying a 5% deposit.



    And/or are you asking about a 100% or 105% or 110% mortgage. If so, I believe that one lender (Skipton) might offer 100% mortgages, but I don't think anyone has offered 105% or 110% mortgages for the last 20 years or so. They caused financial problems for lots of people.



    I would be widely able to afford that mortgage, the only question was if it's possible, but it seems not, thank you.

    What about the better deal instead? Are the steps mentioned the correct one? 

    I think I just need to apply, trash the previous one, maybe get some refund from the broker, then provide the proof to my solicitor, or is there any other step?
    I think I shouldn't need more than a week.
    bobster2 said:
    Luke451 said:
    Hi,

    what if I take an higher mortgage (around 5-10% more) to improve the house I'm going to buy?


    5-10% more than what?

    250k.
    You just put in less deposit so you have money in the bank to do the work.

    Thanks but this has many implications, and it's never gonna be the same amount of cash in hand.

  • eddddy
    eddddy Posts: 16,156
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    edited 11 January at 7:07AM
    Luke451 said:
    eddddy said:
    Luke451 said:

    As far as I know, my deposit goes to the solicitor, which then pays the owner or their solicitor, then the bank sends the money to the owner/solicitor and the transaction is closed. I wonder how it works if I get more than I should be paying, assuming it's possible as a first time buyer.


    Do you mean, for example, if you pay a 10% deposit on exchange and then get a 95% mortgage?

    If so, you would get the extra 5% back after completion (less fees).

    Or you might be able to negotiate only paying a 5% deposit.



    And/or are you asking about a 100% or 105% or 110% mortgage. If so, I believe that one lender (Skipton) might offer 100% mortgages, but I don't think anyone has offered 105% or 110% mortgages for the last 20 years or so. They caused financial problems for lots of people.



    I would be widely able to afford that mortgage, the only question was if it's possible, but it seems not, thank you.



    The issues tended be about negative equity following a drop in market value - as well as affordability.

    For example...

    • You buy a property that's currently worth £250k
    • You get a 110% mortgage = £275k
    • Property prices slump by 10%, so the house is now worth £225k

    So maybe you can still afford to pay your mortgage - but you can't afford to sell your house (at £225k), unless you have £50k in savings to pay off the mortgage (£275k).

    Plus you cannot remortgage, because nobody will lend £275k on a house worth £225k (a 122% mortgage) - so you might be stuck on a really bad deal.

    And if 'something happens' and you can't carry on with your mortgage payments, so you need to sell  - you're in a very big mess.


    (You say you'd use the money to do work on the house, which you probably think might increase its value. But mortgage lenders typically don't believe that.)



  • ciderboy2009
    ciderboy2009 Posts: 1,144
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    Something else to bear in mind - it's always worth living in a house for at least a few months before you make any major changes.  It will give you a better idea of what you would really like to change.

    As an example of this, when we bought this house we were originally going to fit a new kitchen and bathroom before moving in.  We decided against it and, after living here 3-4 months realised that a) we wanted to knock through the kitchen into the dining room to make better use of the space and; b) the bathroom would be better in a different room altogether!

    If we'd spent out the money at the outset sticking to original thoughts/plans it could have become very expensive.
  • caprikid1
    caprikid1 Posts: 2,113
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    "I think I just need to apply, trash the previous one, maybe get some refund from the broker, then provide the proof to my solicitor, or is there any other step?"

    Just go back to the broker, they can help you with the vast majority of the questions you are asking here, if not find another.

    Your ability to borrow more money will very much depend on the deposit you are putting down.

    You are most likely going to never be able to borrow more that 90 - 95% of the properties value in normal circumstances.
  • kingstreet
    kingstreet Posts: 38,616
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    Remortgage or purchase, a lender will only lend based on the current value, not the value taking into account future planned improvements.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
  • Albermarle
    Albermarle Posts: 21,225
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    I think I just need to apply, trash the previous one, maybe get some refund from the broker,

    Mortgage rates generally have been coming down, so some adjustment to your current offer may be possible. Worth asking anyway.

  • EssexHebridean
    EssexHebridean Posts: 20,905
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     A week would be very optimistic for taking up a new mortgage offer, getting all the admin to do with that sorted out, and getting an offer to your solicitor. If time is of the essence then you may be better sticking with the offer you were already moving forward with. What does your broker say about the possibility of the existing lender being prepared to amend the rate? Some will let you do this - although again it causes a delay while the paperwork is done. 

    As for the lending - the best route forward would be the one you have already had presented - to use some of the cash amount you have for any subsequent works and enable your mortgage to remain at a lower percentage. I’m not sure why you think this would leave you with less cash, unless you are saying that you only have the 5 or 10% deposit that lenders usually demand, and nothing else saved? That doesn’t seem to tie in with your comments made on previous threads though about your affordability position.
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