Ok, so you’ve found a property with great potential and you’re looking to get the money together to finance it. Thanks to an estate agents in Brixton who have listed some simple tips as to the next steps to take…
Most high street lenders will offer a mortgage only on a property that is considered ‘habitable’ which means that you may have to approach a specialist lender (see below) if you want to buy a property that doesn’t fit this criteria – if it’s derelict, in need of conversion etc. Most lenders will offer from 80-95 percent of the value, but may withhold some funds to ensure that the most essential repairs are made, as advised by a surveyor. The rest of the money will be released once the property has been inspected again. Things that need to be considered include roof repairs, changes to central heating, rewiring, roof repairs etc.
For properties that are not habitable, you’ll have to find a specialist lender. Try self-build mortgages and lenders that will fund renovations or conversions. It’s important to understand that there will be costs when you start renovation workto keep it progressing between the releases of payments. These stages can be funded through savings and bridging loans. Or you could try approaching specialist lenders that offer the stage payments in advance, such as Build store, which offers self-build, renovation and conversions products and services in the UK. You could also try approaching High Street Banks that may be willing to fund a renovation project on a commercial basis, usually they advance limited funds. Once you’ve completed, the property can be re-mortgaged for up to 90 percent of its market value and pay off the other debts you may have incurred.
Tip: Keep your own funds available by taking out as much funding as possible to purchase the property and so you can fund the renovation work yourself. This is more cost-effective than stage payments as they often take some time to arrange and incur a fee.
What can I borrow?
The amount you can borrow is calculated by your income. Often lenders will assess the disposable income after all your basic needs have been met. If you are self-employed, it could be worth approaching a broker to see how much you can get. If you don’t have a good credit history, it can also be worth finding an advisor – same if the property is unusual or at risk in some way.
You will likely need some 15-20 percent of the overall cost upfront to get the project off the ground. This includes the deposit for the house as well as money for surveys, architects and lawyers. You could re-mortgage your home, borrow oruse savings. Remember you may pay charges and penalties for repaying the loan early.You could also get a bridging loan or an accelerator mortgage, using a renovation mortgage product with an advance stage payment facility. You can borrow in stages to fund renovation work this way. These products can also improve your cash-flow position, but they tend to have a large arrangement fee. Credit cards and overdraft facilities tend to be an expensive way to borrow, so best avoided. If you’re buying at an auction, you may require special financial arrangements, as most auctions are announced 4-6 weeks in advance, so you’ll need to act fast and consult a broker to identify the regular lenders who are ready to process a mortgage application. Always remember to shop around to find the best deal!
Remember that some renovation work is eligible for VAT relief, especially on empty homes and conversions. Make sure you consult an expert to find out exactly what you can claim.