Buying a property in need of renovation and doing it up is increasingly popular – whether it’s for investment or to create your dream home.
The problem is that most mortgage lenders require a property to be ‘habitable’ before they will secure a mortgage on them.
What’s Habitable?
Habitable means that a property is fit to live in. This is defined as:
- Watertight – roof in good repair
- Has running water & mains electricity
- Has basic kitchen and functional indoor bathroom (outdoor toilets don’t count!)
The ‘habitable’ requirement leaves many buyers in a catch-22 situation – they can’t renovate without a mortgage, and they can’t get a mortgage before the renovation is complete.
Renovation Mortgages
Fortunately, some lenders do offer mortgages designed specifically for people who are renovating.
These renovation mortgages are similar to self-build mortgages and work by releasing your mortgage funds in stages. Typical payment stages are:
1. Initial purchase (just enough to allow you to buy the property)
2. Property structurally sound and watertight
3. All services and amenities in place – e.g. plumbing, wiring, heating, bathrooms
4. Property decorated and finished
When each stage is complete, your property will be inspected by your mortgage lender’s valuer, who will approve the payment for that stage. Stage payments are normally made in arrears – although there are a few lenders who will pay them up front.
Renovation mortgages normally require a deposit, although this can be as small as 5% – 10% of the initial purchase price.
Remortgaging for Renovations and Home Improvements
When you already own a property and want to have an extension or other improvement remortgaging to raise the required capital / money is a common way to fund this.
The first step is to have a word with your current mortgage lender.
See what they are prepared to offer you. Then compare this with what you could get by remortgaging with a new lender.
What you are looking for is the interest rate on the new mortgage, plus any fees involved in cancelling your old mortgage and / or arranging the new one.
An easy way to compare the different mortgages will be to get the lender to tell you what the monthly payments will be.
Ideally you should be going for a limited term mortgage eg 2 or 3 years – paying a fixed rate of interest. That way it should be easy to see what the total monthly cost of the payments will come to.