Can we bor­row the cash both to buy and re­fur­bish a prop­erty?

Yorkshire Post - Property - - PROPERTY - Franz Muelthaler

Q: We are first-time buy­ers and are look­ing to buy a prop­erty that needs some ren­o­va­tion work. Is there such a thing as a mort­gage that cov­ers the cost of buy­ing the prop­erty as well as ba­sic ren­o­va­tion work? We only have a de­posit saved up. A: Cer­tain len­ders cur­rently of­fer what they re­fer to as a “light re­furb” mort­gage, which can fit the bill per­fectly. This al­lows you to bor­row a pro­por­tion of the value of the prop­erty which, with the de­posit that you have al­ready saved, should be enough to en­able you to buy your home. The big dif­fer­ence is that this type of mort­gage also al­lows you to take a fur­ther tranche of bor­row­ing once the works have been com­pleted and cer­ti­fied by the lender.

Please re­mem­ber, how­ever, that you will need to show suf­fi­cient earn­ings to sup­port the full amount that you bor­row. Q: I’m a first-time buyer and plan­ning to buy my first home. I also hope to go trav­el­ling and rent myproperty out while I am­away. As the prop­erty will be my home rather than an in­vest­ment prop­erty, can I still get a first­time buyer’s mort­gage or would I have to get a buy-to-let prop­erty? A: You would be ad­vised to take the mort­gage out now on a res­i­den­tial ba­sis then, when you plan to let the prop­erty, sim­ply in­form the lender that you wish to do so. The lender will then de­cide if they will give con­sent to let, sub­ject to their own in­di­vid­ual cri­te­ria. This could – but by all means will not al­ways – lead to an in­crease in the rate of in­ter­est charged on the out­stand­ing bal­ance.

Ul­ti­mately you could also re­mort­gage the prop­erty on a buy-to-let ba­sis, sub­ject to a suit­able loan to val­u­a­tion ra­tio and rental in­come po­ten­tial. The im­por­tant thing is to ob­tain in­de­pen­dent ad­vice from a qual­i­fied mort­gage bro­ker, who will be in a po­si­tion to rec­om­mend whether this route is worth con­sid­er­ing in the longer term. Q: I am look­ing to pur­chase a flat, and have been given help to­wards the de­posit from the builders. How will len­ders treat this? I own my own home and I am self-em­ployed. The prop­erty is not to rent out but for our own use. A: Vir­tu­ally all UK based len­ders will nowa­days ac­cept a builder paid de­posit, but the prop­erty must value up to the ask­ing price, and that the pur­chase price must also be re­al­is­tic. This pre­cludes builders from in­flat­ing the pur­chase price purely for val­u­a­tion pur­poses, just to lower it again on the ba­sis that they are cov­er­ing your de­posit.

Some len­ders may re­quire that you have avail­able the same amount in sav­ings or eq­uity that you would or­di­nar­ily be putting to­wards the de­posit, while many len­ders will only ac­cept an in­cen­tive up to a max­i­mum of five per cent of the pur­chase price.

Your bro­ker should be able to as­sist you in ap­ply­ing to a suit­able lender which will ac­cept the de­posit that you are re­ceiv­ing from the builder. Q: My hus­band and I own our own prop­erty out­right and have never had a mort­gage. We would like to buy an ad­di­tional prop­erty to use for hol­i­day lets but seem to be strug­gling to find a mort­gage. The main prob­lem seems to be that it would not be a buy-to-let with a ten­ancy agree­ment and al­though we could buy the house based on our in­come it would not be our main res­i­den­tial prop­erty. A: Any mort­gage on your pro­posed hol­i­day home would not be as a buy-to-let, and nor would it be classed as a main res­i­dence. As such, the best op­tion would be to raise the cap­i­tal by re­mort­gag­ing your ex­ist­ing prop­erty, to en­able you to pur­chase the hol­i­day home with cash.

The ad­van­tage is that, pro­vided that your main res­i­dence of­fers suit­able se­cu­rity for a mort­gage, you would be able to ben­e­fit from the lower rate deals that are avail­able. Of course, this de­pends on the value of your main res­i­dence, your in­come and out­go­ings, as well as the eq­uity avail­able in your home.

Al­though you do not cur­rently have a mort­gage, some len­ders will still of­fer you a loan based upon their re­mort­gage terms, al­though some len­ders will class the trans­ac­tion as a pur­chase, even though you al­ready own the prop­erty, on the ba­sis that it is cur­rently mort­gage free. In those cir­cum­stances you would there­fore be re­spon­si­ble for the stan­dard val­u­a­tion fees and le­gal costs.

Franz Muelthaler is Mort­gage Ad­viser at Wake­field and Dews­bury-based prop­erty spe­cial­ists Hol­royd Miller. Tel: 01924 465 671.

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