You’ve found a great property at a great price but the problem is, it needs a ton of work doing on it. From rewiring to a new roof, renovation can be an expensive business. You may be wondering if your mortgage will cover the cost of renovation work and if not, what the other options are.
Mortgages and renovations
A lender will lend your money to buy a property based on the value of the property. And so, if your do-upper property is currently valued at £200,000 they will lend you a percentage of this, either 90% or 95%. 100% mortgages are rare.
No matter how hard you try and convince them that after renovations your property will be worth double that value, no lender will take a gamble and lend more than the property is worth in its current state. For your renovation project, that could spell disaster. Luckily, there are other financing solutions.
A renovation mortgage
This type of mortgage product is offered by specialist lenders who do see the value in a property once it has been renovated. Applying for this kind of product is similar to a mainstream mortgage. You will need a deposit, usually around 20% to 25% of the purchase price and you must also meet their lending criteria.
But you don’t get the money upfront which can make this product a no-go for some homeowners. Instead, funds are released as milestones in the renovation project are completed:
– When the property is made safe
– When the property is watertight
– When services and utilities have been installed
– And second fix happens
This makes financial sense because as the milestones are met, the value of the property increases. As with all mortgages, there are different products with varying terms and conditions, but if you are eligible for a renovation mortgage, they can certainly help to manage your cash flow – but arrangement fees can be high.
Other renovation finance options
There are other renovation finance options but finding the right means of funding improvements is important and varies considerably from one person and property to another, as highlighted by @MyHomebuilding.
For example, remortgaging could be an option, especially if you own another property. If could mean you get a cheaper mortgage deal, but the arrangement fee can be high.
Home improvement loans could be an option, especially as they are secured against the property, and if you put more value into the property than the cost of the loan, you are in a great financial position in the long run.
Finding your dream renovation project is the first step in an exciting project but it can soon turn into a stressful situation if you don’t have the right financial product to see you make the renovation, repairs, and home improvements you need.
Clearly, getting the right advice is essential – so why not book an appointment today with one of our mortgage advisors to turn your renovation project into a reality?
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Written by: Cambridge Web Marketing