How to buy a renovation property with a mortgage

How to buy a renovation property with a mortgage

If you are looking to buy a house that needs some renovation work doing to it and you want to obtain a mortgage on the property then you may find that the mortgage provider will not lend on the house until certain works have been completed.

You then have three options:
1. Complete the works yourself (if the vendor will allow)
2. Ask the vendor to complete
3. Obtain a renovation mortgage

Bathroom Mess

Bathroom Mess (during renovation)

Depending upon the vendors position and the type of work required they may be able to complete the work themselves, however it is often the case that if large scale work is required, they are not in a position to complete the work otherwise they would have done so prior to putting the house up for sale.

If you decide to do the works yourself along with the vendors permission then you will need to exchange contracts, but the house sale wont complete until the work is complete and the bank issue a mortgage offer on the house. This is called a conditional contract.

Your solicitor will draft the conditional contract and will ask for your input as to its content. The contract is likely to be conditional upon you obtaining a mortgage on the house and it will allow you to enter the house to complete the work.

Floor Joists

Installing Floor Joists

It will also be subject to a time period – this will need to be agreeable both to the vendor and to yourself. When deciding on a timescale obtain quotes and opinions from different builders and use google to find out the average timescale for completing works. You will also need to factor in some additional time to account for any delays and allow time for re-inspection. We estimated it would only take 2 months to complete the work but we doubled it to 4 months and we were glad we did – time felt tight and we were working on the house 24/7 but managed to do the work and complete within 2.5 months of exchange.

Once you exchange contracts you will be bound to buy the house once you obtain a mortgage offer and if you can’t obtain a mortgage offer to buy the house then you will loose all the money you have spent renovating the house.

This is a good method to buy a house that needs renovation work if the bank won’t initially lend, however you have to be aware of the risks.

When you start the renovation work you may discover there is more to do than you initially anticipated, or it may take you longer than you thought which means you are unable to obtain a mortgage offer and complete within the given time period. Therefore you should only go down this route if you can afford to loose the money you spend on the property.

Another and possibly safer method is to approach the lenders that offer renovation mortgages which will release money in stages. This will at least give you the piece of mind that you own the property, however there are only a small number of lenders out there including Buildstore and N&P. We were unable to obtain a renovation mortgage due to Ben’s visa status (he’s a Kiwi!)

I hope this article is helpful to others thinking of buying a renovation property.

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