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