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  • FIRST POST
    kunid
    Adding renovation costs to a mortgage?
    • #1
    • 14th Jun 10, 10:49 PM
    Adding renovation costs to a mortgage? 14th Jun 10 at 10:49 PM
    Hi all, first time poster (and buyer )

    My fiance and I have found a flat which we're looking to put an offer down on. Having spoken to the owner directly, I'm fairly confident that it should be accepted.

    It's on the market for 375,000 and I'll be offering 365,000. It's in need of a bit of modernising, although one could argue that it's in a livable state for sure.

    Now I'm not sure if this is possible, but I'd like to add 15,000 to the mortgage/value of the property (I'm putting down 15%, so getting a 323,000 mortgage instead of 310,250) so that I can complete all the refurbishment work up front. I'm just not sure how to go about doing this! I have a mortgage agreement in principal for a much larger ammount (383,000) than what I'll actually be asking to borrow, so I'm hoping it won't be a big sticking point, bearing in mind that the improvements I'm planning will add value to the property.

    Does anyone have any experience of doing something like this?

    Thanks for your input!
    Last edited by kunid; 14-06-2010 at 10:52 PM.
Page 1
    • Wh05apk
    • By Wh05apk 15th Jun 10, 6:27 AM
    • 2,913 Posts
    • 1,322 Thanks
    Wh05apk
    • #2
    • 15th Jun 10, 6:27 AM
    • #2
    • 15th Jun 10, 6:27 AM
    yes you can but the mortgage LTV increases from 85 -89+% so the rate will rocket (if the lender does a 90% deal) on such a large mortgage your monthly cost could easily rise by 300 per month! so better to take the lower rate, and possibly even get a personal loan for the difference? just ensure you don't overstretch yourself.
    I am a mortgage adviser.

    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.
    • beecher2
    • By beecher2 15th Jun 10, 7:58 AM
    • 3,631 Posts
    • 4,653 Thanks
    beecher2
    • #3
    • 15th Jun 10, 7:58 AM
    • #3
    • 15th Jun 10, 7:58 AM
    yes you can but the mortgage LTV increases from 85 -89+% so the rate will rocket (if the lender does a 90% deal) on such a large mortgage your monthly cost could easily rise by 300 per month! so better to take the lower rate, and possibly even get a personal loan for the difference? just ensure you don't overstretch yourself.
    Originally posted by Wh05apk
    I thought that personal loans weren't allowed to be used as a deposit?

    Wouldn't it be more sensible to do the work as and when finances were available, rather than adding the cost to the term of the mortgage. Presumably the OP has a high income if they're looking to get a 323,000 mortgage.
  • kunid
    • #4
    • 15th Jun 10, 9:13 AM
    • #4
    • 15th Jun 10, 9:13 AM
    What about if I tell the mortgage provider the property is 380,000 instead of 365,000? I know the lender sends someone to confirm the value of the property, but I'm hopeful they'd still agree to the 380k valuation as the prices in this particular area are quite buyont (close to zone 1 London).

    Or is that a no no - i.e. do I need to tell them the agreed to price and handle renovations as an addon to negotiations?

    I had originally planned my finances around a much dearer property (around the 400k mark selling price) so in terms of the monthly repayments I can handle the difference between the 310k and 323k mortgages.

    I agree that I could just go for the lower 310k mortgage, then spread the cost of renovation over time, that's always my backup. I'd just quite like to do it all in one go

    Thanks for your replies so far, appreciated!
    • Wh05apk
    • By Wh05apk 15th Jun 10, 9:22 AM
    • 2,913 Posts
    • 1,322 Thanks
    Wh05apk
    • #5
    • 15th Jun 10, 9:22 AM
    • #5
    • 15th Jun 10, 9:22 AM
    The mortgage is based on valuation or purchase price whichever is LOWER, so it will be based on 365k.

    Beecher2 you are right lenders will not normally lend for deposits, I was meaning to get the loan after completion to pay for home improvements, although you are right if the OP can save and pay for the work as they go it would be better, although from the tone of the original post it sounds like work is needed fairly soon after completion.
    I am a mortgage adviser.

    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.
    • beecher2
    • By beecher2 15th Jun 10, 9:23 AM
    • 3,631 Posts
    • 4,653 Thanks
    beecher2
    • #6
    • 15th Jun 10, 9:23 AM
    • #6
    • 15th Jun 10, 9:23 AM
    The bank will know how much you've paid for the property and so you can't tell them that you're paying more than you are. LTV is calculated by using either price paid or valuation price - whichever is lowest.
  • kunid
    • #7
    • 15th Jun 10, 1:13 PM
    • #7
    • 15th Jun 10, 1:13 PM
    Thanks all. I think I'm going to go for the best deal I can find based on the 365 value, then deal with any renovation work separately.

    Just wanted to double check there wasn't a mechanism I wasn't aware of.
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