Will I get a mortgage on a house that needs renovation? | Renovation Mortgage

Will I get a mortgage on a house that needs renovation? | Renovation Mortgage

This will depend on what type of mortgage you are looking at and what work is required.

You will need to consider the following questions:

1.Is the house ‘liveable’ i.e does it have a kitchen/bathroom with running water? Does it have mains electricity?

2. Does the house have any structural issues i.e are there any bulges/cracks showing in the interior or exterior? Is there ‘sinking’ in the area/does the house need underpinning?

3. Does the house have any significant damp patches i.e are any parts of the ceiling collapsed which could indicate the roof is leaking, or is there damp on the ground level around the walls which could indicate rising damp?

If you have answered yes to any of the above questions, when the mortgage lender carries out their valuation survey they may not be able to place a value the property without certain further reports being conducted by a specialist company i.e damp/timber survey, or a structural survey.

Once you have had these additional surveys carried out, then depending on their contents, the mortgage lender will either place a value on the property and state that they will withhold a certain percentage of the money until certain remedial works are carried out, or they may completely refuse to release any money until all recommended works have been completed.

The latter actually happened to us when we tried to buy our first home – you can read more about how we bought a renovation property with a mortgage in this post.

Knocking a wall down

Traditional ‘buy to live in it’ mortgage

If you opt for a traditional ‘buy to live in it’ mortgage then assuming you have the necessary deposit and can afford the repayments, you will need to consider how much the mortgage lender could sell the house for in its current state (relatively quickly and easily) if you default on your payments – less selling expenses? The mortgage lenders valuation may be different from the current ‘market value’ and they will not look at what it ‘may’ be worth once it has been renovated.

Buy to let mortgage

If you are opting for a ‘buy to let’ mortgage then the lender will perform a calculation based on the purchase price of the property and how much they consider you will be able to let it for per month unfurnished. This will be based on the current state of the property, not its rental value after renovation.

Typically, the rent needs to be 125% of the mortgage interest only payment (say 5%). For example, if you borrow £75,000 then the annual rental needs to equal or exceed £3,750.

Renovation mortgage

There are fewer lenders in the market place that provide specialist renovation mortgages, however, here are a selection:

http://www.buildstore.co.uk/

http://www.themelton.co.uk/our_mortgages/self-build-renovation-mortgages/

http://www.ecology.co.uk/mortgages/

Renovation mortgages typically require a larger deposit and more ‘paperwork’ up front – for example, you may need to submit copies of builders estimates to substantiate how much the work will cost and also architectural plans. I found that some lenders also have a minimum age, and also a minimum salary.

A lump sum is released to allow you to purchase the property, then the remaining money is released in agreed stages as work is completed.

 

I hope the above was helpful – if you have any questions please leave me a comment or drop me an email.

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