Mortgage refused on valuation of old property - what are the options?

Synonymous · 20 June 2018 at 11:55PM

Hi Everyone,

We are facing the challenge of trying to buy a very dated house through an EA to do up as our future family home. We had a mortgage approved subject to valuation, but after citing damp, possible timber decay, possible vermin, and mentioning the need for a kitchen and bathroom refit, they have said it doesn't meet the lenders policy. No retention offered, just advised not to approve so the application has been cancelled. Seems what they are saying (without actually saying it) is that they do not deem it to be habitable.

The property has hot water, a limited but working kitchen (sink, oven, worktops) and a dated but complete bathroom including electric shower. The decor is circa 1975 and they've done a house clearance. We didn't expect this outcome and the broker says as the lender is one of the most lenient, it is likely others will say the same.

Despite this we still want to buy, we are handy people with a helpful family and some trades, and the long-term gain would be substantial. Has anyone successfully appealed a valuation? We will definitely have a Building Survey but have put it on hold to get more advice as it would be the first big expense.

I've looked into rennovation mortgages, but the rates are around 5% with high application fees, whereas remortgaging my house could be done at around 2% with no/low fees.

Alternatively, is it possible to remortgage with increased borrowing to buy the second property outright? Do lenders allow increased borrowing for this reason? I have enough equity in my house, plus our deposit and some savings to cover the new house. The plan was to keep my property anyway for ~2 years whilst we worked on the new one. If we bought the second house outright, then we could get a mortgage on the new house when we have done enough to satisfy the lender, which would release our savings to do the rest of the renovation. Then sell my house and move over within 3 years of purchase to get a refund of the second property stamp duty.

I'll start posing these questions to the broker and my current lender tomorrow, but I wanted to see if this kind of thing is possible and/or common as a short-term solution. Am I missing something that would scupper this approach?

Thanks in advance for any insights!

stator · 21 June 2018 at 12:58AM

Well, you could pay for proper damp surveys (not a company that sells damp treatment), timber surveys (vermin survey?) and then appeal the valuation. If it's a marginal case this might get you through
But the lack of modern bathroom and kitchen might scupper your chances. In order to sell a house quickly upon repossession, the bathroom and kitchen are quite important.

Who is selling the house? Is it a repossession?

amnblog · 21 June 2018 at 7:12AM

If the property is not suitable as mortgage security (and it appears it is not) in its current condition you would get a standard mortgage on it.

If you buy the house then do not pay the mortgage the lender will struggle to get their money back unless the property can easily be sold.

This sounds like a property for a cash purchase. Or for a specialist form of short term lending designed to cover the period whilst you renovate.

That lending is likely to cost you around 8/9% over a 6 month period.

Using your current property as security for borrowing, or a mixture of the two, is an avenue to explore.

ACG · 21 June 2018 at 7:56AM

You can remortgage your current place and withdraw money from that property subject to credit score, affordability, there being enough equity in the property.

If there is now enough equity for the full value, you could withdaw some of it and then also take out a bridging loan for the difference whilst you bring the property up to scratch.

I bought a property 5 years ago, which sounds like it was in a similar state to yours. The only major difference was that there were no vermin or timber decay...I got that through with a normal lender. But I imagine the vermin combined with everything else is the issue. If there is vermin in the house, it is not really habitable. You are not going to move in tomorrow with whatever crawling over you whilst your asleep.

I understand what you are wanting to do - I was in the same boat 5 years ago and you can make a small fortune doing what you plan to. But this is probably not the property for that without using a bridging loan.

As amn says, I think rates will likely be closer to 8% (rather than the 5% you mentioned). But if you pull some of the money out of your home and a bridge for the remainder, atleast you are only paying higher rates on a smaller Mortgage rather than the full amount required.

Speak to your broker. You need to be quite experienced I think to navigate your way through this.

Synonymous · 21 June 2018 at 9:47AM

Hi, thanks for your responses.

stator wrote: »

Who is selling the house? Is it a repossession?

It is part of the estate of the person who has passed away, the vendor is a family member. Empty since Christmas I think

ACG wrote:

As amn says, I think rates will likely be closer to 8% (rather than the 5% you mentioned). But if you pull some of the money out of your home and a bridge for the remainder, atleast you are only paying higher rates on a smaller Mortgage rather than the full amount required.

The buildstore rennovation mortgages are 5-5.5% - is that classed as a bridging loan? Not clear on the terminology. Because we are going to do as much of the unskilled work as we can I'm not sure this would be ideal as it will be slow going.

I'll look at bridging loans - standard mortgage and 0% credit cards are my only experience with borrowing so will need to read up and speak to the broker. Definitely unfamiliar territory. Our current broker is L&C - should we be looking for someone more specialist?

If I went up to 85% LTV on my current house, it would release about 50% of the purchase price of the new house, after putting our existing money towards it we would probably need £30-40k more to buy it so bridging might be the answer.

Thanks so much for your thoughts.

amnblog · 21 June 2018 at 10:05AM

A typical route here would be get a bridging loan to do the essential work, then replace it with a permanent mortgage - all with the help of a sensible broker with the time and patience to handle the tricky stuff competently.

TamsinC · 21 June 2018 at 10:07AM

I would imagine Buildstore is the way to go - I did a lot of research at one point and they seemed the only decent alternative, it's not a bridging loan - and the money is released in stages as you need it which helps to keep costs down.

Synonymous · 22 June 2018 at 6:02PM

Thanks again everyone for your replies.

The broker is looking for deals to remortgage my current home.

We are considering having my partner added to my deeds and mortgage so that we can borrow at 90%LTV as my income alone gets me to about 80%. The broker cryptically said we should get independent legal advice about adding someone to the mortgage as there might be stamp duty implications. Is he likely to be referring to if this would be a second home for my partner? My partner doesn't own anything else so that wouldn't be an issue (and is not a first time buyer), and when we buy the second house together we are already expecting to pay the higher stamp duty as a result, and then claim it back by selling my original house within the time limit.

The fees involved in a Build Store mortgage are quite eye-watering if we will only end up needing a small amount to make up any shortfall, so I don't think that would be the way to go.

London and Country don't advise on renovation mortgages or bridging loans so we will have to seek advice elsewhere on that score.

Mortgage refused on valuation of old property - what are the options?

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