Having Problems Obtaining A Mortgage On Damaged Property.

dasvictim

I am buying a property that is in a very poor state internally (damp, kitchen and bathroom need replacing, extensive decorating and cosmetic work needed).

It is a 1 bed garden flat valued at £125,000 in its current condition and I have applied to borrow £40,000 on a BTL mortgage as I can cover the rest. The valuation survey has come back saying that they are unwilling to lend the money until various works have been completed and the flat revalued.

Considering that the Loan to value is so low I find this incredible.......

Can anyone suggest a better route to go to obtain a mortgage for a damaged property/property that needs to be redeveloped?

There is an existing long term tennant who is happy with the current state of the flat and has insisted on it staying the way it is. So its just a case of obtaining a mortgage.

Any help greatly appreciated!!!!

Cheers

DasVictim

Incisor

dasvictim wrote: »

I am buying a property that is in a very poor state internally (damp, kitchen and bathroom need replacing, extensive decorating and cosmetic work needed).

It is a 1 bed garden flat valued at £125,000 in its current condition and I have applied to borrow £40,000 on a BTL mortgage as I can cover the rest. The valuation survey has come back saying that they are unwilling to lend the money until various works have been completed and the flat revalued.

Considering that the Loan to value is so low I find this incredible.......

Can anyone suggest a better route to go to obtain a mortgage for a damaged property/property that needs to be redeveloped?

Loan to value is not the issue here

There is an existing long term tennant who is happy with the current state of the flat and has insisted on it staying the way it is. So its just a case of obtaining a mortgage

That's exactly why you can't get your mortgage. The long term tenant, and his desire to keep the place the way it is will mean that if the bank has to foreclose, they might find it difficult to get their money back.

maninthestreet

Incisor wrote: »

Loan to value is not the issue here


That's exactly why you can't get your mortgage. The long term tenant, and his desire to keep the place the way it is will mean that if the bank has to foreclose, they might find it difficult to get their money back.

But from the OP's post, the lender hasn't made reference to the tenant, and only requires certain repairs to be made to property before re-considering the mortgage application.

Doozergirl

Could you get a £40,000 unsecured loan or borrow on your own property until the works have been carried out? Or approach the business advisors at your bank, if it's a real deal they might lend on it until you can remortgage.

Incisor

maninthestreet wrote: »

But from the OP's post, the lender hasn't made reference to the tenant, and only requires certain repairs to be made to property before re-considering the mortgage application.

Think into it a little more deeply. The lender will not release funds until the repairs are done, so the OP must bridge with other finance. Bridging finance might be OK if the tenant will allow the repairs to be done, but because he won't, the OP cannot take up the mortgage offer. Therefore, what I said, the tenant precludes the property from being good collateral.

SquatNow

The property is worth £125k empty.

With a sitting tennant it is worth between 20% and 70% of that value depending on the age and health of the tennant and how much rent they are paying.

If it's an old geezer in his 70s with a heart condition paying £1000pcm it's worth a lot more than if it's a young bloke in his 20s who spends all his time down the gym and pays £280pcm rent.

dasvictim

Thanks for the replies.

A "loan" is something I've considered but would much prefer to secure a mortgage.

Can anyone suggest lenders/companies that might lend on properties in a poor state of repair?

Cheers

DasVictim

Doozergirl

The problem is that mortgage companies want security, therefore they won't lend on properties that don't provide that security. The best you will get is a heavy retention of funds, in some cases, the full amount so they open your mortgage account but it has a zero balance. The only thing that happens is that you run down your discounted period by not owing them anything :wall:

Not doing the work isn't really a viable long term option. The worse condition properties are in, the faster they will deteriorate. You should protect your investment and Lenders will absolutely insist that their investment is protected. A valuers job is to ensure that a property is in good condition. They don't make mortgages for houses that are in a particularly bad state. It doesn't fall into a safe business model.

Nothing wrong with unsecured debt, it's not like it's a bad option, just might be more expensive in the short term, but that's one of the ways you make money on property that other people can't afford without a mortgage. You get it to mortgageable condition just as quickly as you can and then remortgage or sell.

Not sure I like the idea of regulated tenants at all though. It does seriously devalue a property and there's no guarantee of when or if you will see pay day.

dasvictim

Thanks Doozergirl,

When people/developers buy run down properties to renovate and re sell surely not all of them are either cash buyer or using loans? There must be lenders with mortgages out there for this type of situation?

The tenant is actually related to me and is in arrears. I have agreed to bail the relative out and allow them to remain in the property for the rest of their natural life. In return they have offered to sign over the equity in the property to me. They will never be paying "rent" as I will cover the small mortgage myself and pay it off in time.....

Even if we defaulted on the mortgage later down the line they would still have a property in a prime location worth at least £125,000 for only a £40,000 outlay. The Lender has said its not in a lettable condition, but as we already have a tennant and have agreed to pay the mortgage I would have hoped that would be enough.

In terms of protecting my investment, I agree. However as the relative has lived this way for so long and in reality is likely ruin anything we put in over the course of the next few years, it would seem like pouring money down the toilet.

The situation is frustrating as we need to take the property off my relatives hands asap to prevent it being repossessed.

Very Frustrating,

DasVictim

Doozergirl

When this developer buys run down properties to renovate , we present full details of the property and our plans to our business relationship manager at the bank.

Presented with those details he will happily lend against properties with issues or 'potential' provided we put up enough cash ourselves. The issue you are faced with again is the fact that you plan to do nothing with it. You just want a loan to pay off over a long period of time. A regular developer will seek to improve a property and can present the benefits of lending to the bank ie. the property will appreciate in value and their investment becomes more secure, it's not left to depreciate further.

No, there is not a commercially available mortgage product out there that will allow us to borrow on a properly run down property. A BTL mortgage company need the property in a lettable condition for when they need to repossess. They could not care less whether your tenant lives in a hovel if you're paying the mortgage, but frankly, they're thinking about the next owner and their tenant. Also, the conditions of the tenancy you are offering your relative will not sit with a BTL mortgage. It has to be an Assured Shorthold Tenancy to keep the value of the property up and the tenant able to be evicted.

If you have no intention of doing anything to the property then you land yourself in the situation where you can only borrow at higher rates than a mortgage whether that be with a loan secured against the property or an unsecured personal loan.

You have to choose whether making adaptations will see you better off in the long term. I suggest it would, not only because of lending rates but because a stitch in time really does save nine, even if he lives like a pig.

The other issue is that you seem to be saying that the property is worth £125,00 without a sitting tenant because your relative currently has a mortgage? If you give him an assured tenancy then you will dramatically affect the value, by about 50% in a downward direction. If you default, the next owner is lumbered with a sitting tenant - not desirable properties at all.

Also consider that a £40,000 mortgage over 25 years will cost you £120,000 in interest - add the capital and you've spent £160,000. A shorter term loan is well worth considering with such a small amount

Conrad

YES THERE IS A LENDER, IN FACT THERE ARE TWO. I sometimes wonder why people dont ask the experts who do this every day!

The rates are high though at around 12%, but repututable lenders and no questions ask.

Developers use these typically short term and with the aim of remortgaging to a better deal asap.