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    Borrowing on mortgage to renovate house?
    • #1
    • 14th Apr 09, 12:17 PM
    Borrowing on mortgage to renovate house? 14th Apr 09 at 12:17 PM
    Hi all - hoping someone has got experience of this. We are looking to purchase a property that needs quite a bit of work doing to it.

    Asking price is 140k.

    We have been told by our mortgage lender that with our deposit they will lend us 166k total (this was before we had found a house that needed doing up).

    Does anyone know if they will lend us the 166k maximum amount, then we can use that money (the difference) to do the work on the house? Is this widely done?

    No experience of this kind of thing, and any cash we have is going towards the deposit on the mortgage.

    many thanks
Page 1
  • poppysarah
    • #2
    • 14th Apr 09, 12:23 PM
    • #2
    • 14th Apr 09, 12:23 PM
    They will want to look at the property and offer based on the value they see.
  • Manual_Reversion
    • #3
    • 14th Apr 09, 1:07 PM
    • #3
    • 14th Apr 09, 1:07 PM
    No chance. If you agreed to buy for 140k then a mortgage of 166k would represent a LTV of ~119%, and that's if the lender agreed that your agreed price was 'fair value'. 90% LTV has only just become do-able at a sensible interest rate!

    Presumably the 166k maximum mortgage is simply based on earnings and takes no account of a particular property? If the place needs tens of thousands spending on it then it may not even be mortgageable, particularly if there's no kitchen to speak of. I think what's more likely is that the lender would put a 'retainer' on the mortgage, i.e. only release the full agreed amount as and when the house is put back into proper order. The net result of all this is that you will need piles of cash, or relatives with piles of cash!

    Sorry if this is not what you want to hear. I did a similar thing in 2005 and the only way it worked was due to a 25k unsecured loan which gave me the cash to sort the place out. No chance of that now I'd imagine.
    • m_13
    • By m_13 14th Apr 09, 1:30 PM
    • 919 Posts
    • 617 Thanks
    • #4
    • 14th Apr 09, 1:30 PM
    • #4
    • 14th Apr 09, 1:30 PM
    Depending on how much renovation is needed, you could go for a staged renovation mortgage. It lends based on the final value of the house after renovation not the value now.

    There's good advice on the Homebuilding and Renovation Magazine website and forum and they also do their own renovation mortgages.
    • mlz1413
    • By mlz1413 14th Apr 09, 2:10 PM
    • 2,824 Posts
    • 3,405 Thanks
    • #5
    • 14th Apr 09, 2:10 PM
    • #5
    • 14th Apr 09, 2:10 PM
    Your mortgage company will only loan the LTV % against the house valuation, so if 140k is the purchase price AND valuation price, then assume 85% LTV means a mortgage of 119,000.

    So you would need the 21,000 difference in cash plus the renovation costs in cash. (don't forgot fees etc too).

    When you say all the cash you have is going on the deposit is that because you only have enough cash to cover the deposit or because you wanted the smallest mortgage possible? If the latter then you would be better having a larger mortgage until the work is done and then when the house is finished paying any left over cash off the mortgage.
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