Q We’ve found a property that is under our current budget of what we can afford monthly (and how much the banks will lend us, which is £650,000). The problem though is that the property needs renovating and could do with an extension.
So as the property we have found is on sale for £550,000, and would probably need another £100,000 spending on it to do the extension and other renovation work, could we get a mortgage of £650,000 to cover the renovation or is that not possible? If not what would the best route be? RR
A No lender will give you a £650,000 mortgage to buy a property whose value is £550,000. The most you’ll be able to borrow for the purchase is 90% of the price which is £495,000 meaning that you’ll need a cash deposit of £55,000 irrespective of whether you then renovate the property and build an extension. And while most mainstream lenders are prepared to lend money for building works they will not do so until the building project is complete and the property can be re-valued.
To be able to pay for the building works before they are totally complete as well as the purchase price, you’ll need a specialist renovation mortgage such as those available through Buildstore Mortgage Services where rates are typically 5.5%-6%, and from the Ecology Building Society although the latter’s mortgages are specifically for renovation projects where you are extensively improving the energy efficiency of a property.
You still won’t get a mortgage for the full £650,000 you need to fund the purchase and the building works straight away. You’ll still need to find a cash deposit of £55,000 to buy the property and you’ll also need to have sufficient cash to pay for at least 10% of the cost of the build. After that, the funds of £90,000 to pay the remaining building costs are lent in stages either after (most typically) or – in the case of the Buildstore Accelerator mortgage scheme – before clearly-defined stages of the building works. The advantage of having stage payments made before building work takes place is that you don’t have to find money upfront – apart from for meeting the first 10% of costs – but there are fees to pay for this sort of finance. If you have the cash to pay the deposit on the property as well as the early stages of the building work, stage payments made after sections of work are complete may be more suitable.
