Mortgage for purchase + renovation

aprilfool16

My wife and I are FTBs and have found a property we wish to buy. The location is perfect for us and affordable but it is on the small side however. We would like to make a considerable extension (going from 1200 to ~2100 sq.ft) along with renovation/refurbishment of the existing parts of the house. We estimate the works would cost ~120% of the actual property price. We're certain that when the works were completed the new property would be worth in excess of the total expenditure.

We had previously received approval in principle from BOI for an amount that would have well exceed what we need for the above project, however they (like most banks) are more interested in turn-key type sales and turned us down.

Can anyone suggest lenders who might be more willing to entertain our mortgage proposal?

athtrasna

Do a search on here, it has come up very recently

aprilfool16

My apologies, I have searched for various terms and can't seem to find anything recent and relative (my google/boardsSearch-fu is usually strong).

I had been followed this forum loosely over the past month and I've just scanned through the last 7 pages of threads and again I don't really see much directly relative to this. Again I'm genuinely sorry if I've completely missed it but if someone could direct me that right way I'd appreciate it.

Del2005

It'll be difficult to get a mortgage for 120% of the value, the central bank won't allow them. The only option is to buy now and try to remortgage or get a loan for the extension.

aprilfool16

The main issue we have with the remortgage option is that the extension would almost certainly involve going-up as a dormer bungalow. This would mean we would have to vacate to temporary accommodation during the works. The existing roof pitch is not suitable so would need to re-roof. It's also possible that we may have children by that stage so while it is not impossible it would really make the whole thing very difficult.

What I don't understand is that if we were purchasing this property (for the very same price) but treated it as a site and then planned on knocking and rebuilding on it for 150%+ of the purchase price I think we'd actually have much better chance of getting approval. But in this case I feel like we would end up with a bigger mortgage and less of a house. Is there any lenders that would look at it from more of a purchase and rebuild perspective even if we're not knocking the existing place?

seamus

What you're talking about it is a self-build mortgage, which is structured differently. In general a bank won't give you a mortgage to buy a site *and* build on it. You have to buy the site first, get your planning permission and costs, and then apply for a self-build mortgage. The bank then hands out the payments in phases to ensure that the money they're lending is actually being backed by equity.

The fact that you don't own the property at all means that you have nothing to go on for the bank. You're asking them to give you more than the property is worth on the promise that you'll go ahead and extend later on. What if you can't get planning permission to extend? What if the property is unsuitable to extend and would need to be knocked to achieve what you want?

And so forth.

As said above, the only real way to proceed is to buy the property and source finance for the works later on. The fact that you're mortgage approved for amounts well in excess of what you'd need is a good thing. It means you have plenty of scope to put away significant savings, which reduces the amount you'd need to borrow for the works.

On a practical level, it can also be worthwhile moving into a property for six to twelve months to get a feel for the place and have a proper think about the kind of works you'd like to do.

Dardania

seamus wrote: »

On a practical level, it can also be worthwhile moving into a property for six to twelve months to get a feel for the place and have a proper think about the kind of works you'd like to do.

Totally agree with Seamus, and the above point is perfect - you can really get the feel for sunlight etc. and also perhaps refine your plans.

Is the house liveable at the moment?

Can you structure the works so that you can move around e.g. build ground level extension, move in to it. Then renovate existing.

riclad

unless you are on a large income its very hard to do what you say.
Eg buy a house 1000sq ft and double the size with an extension.
Banks give loans based on the value of a house,
say its worth 100k, they,ll lend you 80 k plus.
The simplest thing to do is buy a house in good condition with a large garden and save as much as you can .
then apply for another loan to build the extension .
say you are approved for 200k ,borrow 120k .
Banks do,nt normally lend for a building project ,
buy house x and put extension on it to double the size.
IF bank lend to investors ,landlords they charge at least an extra 1 per cent.

aprilfool16

Sorry folks, just getting back to this now.

Firstly I just wanted to say thanks for your replies, all very helpful info even if much of it wasn't exactly what we wanted to hear.

We've spoken to a mortgage broker who suggested we have some hope of securing this type of mortgage. however we'd need architect plans and estimates to proceed so we're arranging a consultation ASAP.

yellaghbelly

I'd be really interested to get a report on how this went ?

myself and the missus are very close to considering going the same route, we seem to fit very similar criteria as you did and are also finding the banks are not in a position to back the proposed development initially but may be in the future after we've purchased a house which in small, in poor condition and completely unsuitable, but is a considerable more affordable then the rubbish on the market at the moment