change LTV mortgage rules?

FLC

Hi, applying for a mortgage very shortly, renovation of an existing house.

House value as it stands is about €200k (no debt on it). Borrowing €200k, expected resale will be about €300/€350k. So LTV of say 66%.

One bank suggested today that they will only take value of house as of today (pre renovation work and basically at the price of the house as it stands today) and so not eligible for LTV. They said this was a recent change to Central Bank lending rules.

Is anyone aware of this? It didn't make sense to me and some of their other information wasn;t altogether accurate.

listermint

FLC wrote: »

Hi, applying for a mortgage very shortly, renovation of an existing house.

House value as it stands is about €200k (no debt on it). Borrowing €200k, expected resale will be about €300/€350k. So LTV of say 66%.

One bank suggested today that they will only take value of house as of today (pre renovation work and basically at the price of the house as it stands today) and so not eligible for LTV. They said this was a recent change to Central Bank lending rules.

Is anyone aware of this? It didn't make sense to me and some of their other information wasn;t altogether accurate.

It doesn't make sense.

Are you saying you want to borrow 200k to buy the house and don't have 20k as first time buyer to cover deposit or what specifically is the deal here.

FLC

House is family home, which has been transferred to me by a parent. As it stands today is is valued at approximately €200k. We wish to borrow €200k to renovate it and have €40k saved/deposit ourselves (architect, fees, finish etc). We expect from talking to a valuer that the house will be worth approximately €300k/€350k when renovation work is complete.

FLC

listermint wrote: »

It doesn't make sense.

Are you saying you want to borrow 200k to buy the house and don't have 20k as first time buyer to cover deposit or what specifically is the deal here.

We are not first time buyers. Had a house but it is sold. House in question will be our family home/principle private residence. We won't be selling, the house is attached to family farm.

amcalester

You have a house worth 200k, want to borrow 200k against it and spend another 40k renovating it to make it worth 350k.

Is that right? Surely there's more fun ways of blowing 90k?

FLC

amcalester wrote: »

You have a house worth 200k, want to borrow 200k against it and spend another 40k renovating it to make it worth 350k.

Is that right? Surely there's more fun ways of blowing 90k?

Valuer has said that banks won't necessarily map investment directly onto current value. Ie spending €200k on the build doesn't automatically put the market value at €400k. They don't include architect, fees, furnishing etc.

Regardless we are fitting part of the house for an elderly parent with limited mobility who had been living on their own in the property and ourselves (myself, my wife and 3 children). So that's why we taking this route/"blowing it". Does that answer your question?

amcalester

FLC wrote: »

Valuer has said that banks won't necessarily map investment directly onto current value. Ie spending €200k on the build doesn't automatically put the market value at €400k. They don't include architect, fees, furnishing etc.

Regardless we are fitting part of the house for an elderly parent with limited mobility who had been living on their own in the property and ourselves (myself, my wife and 3 children). So that's why we taking this route/"blowing it". Does that answer your question?

And nor should they because the ROI of the renovations won't be 1:1.

The house currently isn't worth 350k, it's currently worth 200k so asking for a 200k mortgage against it is effectively a100% mortgage.

FLC

How is LTV calculated? Is it based on the current value of the house or the expected value of the completed house?

amcalester

Current value.

FLC

amcalester wrote: »

Current value.

Has this always been the case or is it a recent change? As i said one bank indicated it had only come into force in recent weeks.

amcalester

Well pre-crash banks were lending against the future value of property in the form of 110% mortgages.

That stopped a long time ago.

The Central Bank imposed LTV limits on mortgages in the last few years but nothing particularly recent.

What other information wasn't accurate?

FLC

amcalester wrote: »

Well pre-crash banks were lending against the future value of property in the form of 110% mortgages.

That stopped a long time ago.

The Central Bank imposed LTV limits on mortgages in the last few years but nothing particularly recent.

What other information wasn't accurate?

Thanks. The current house is 125sqm, 4 bed etc. the completed house will be 250sqm 6 bed etc. 6 month build. So the increase in footprint will be significant. Increase in value not based on market increases but actual value add in the asset. Banks well covered in terms of asset and that's why we thought LTV would be favourable to us. Another bank has said it would be eligible for LTV of 80% in a meeting 3 weeks ago.

Other items they were incorrect about were comments re a competitors position on sole title and a competitors best interest rates.

amcalester

I would ignore everything bank A employee said about bank b, they don't work there so no surprise they got things wrong. Could be deliberate or not, doesn't matter they're sales people trying to get your business.

FLC

amcalester wrote: »

I would ignore everything bank A employee said about bank b, they don't work there so no surprise they got things wrong. Could be deliberate or not, doesn't matter they're sales people trying to get your business.

I did. It did however cause me to question their view on LTV hence the query. Other banks out there happy to do business.

brendan86

They are only going to lend to you based on the value it is now, Since you were gifted the house I dont know what way it works if you need deposit as its currently in your name? But if you need deposit as your not first time buyer you need 20% deposit.

But once renovations are done you can get the house revalued and then get your LTV changed accordingly, just make sure not sign up to a fixed rate

FLC

brendan86 wrote: »

They are only going to lend to you based on the value it is now, Since you were gifted the house I dont know what way it works if you need deposit as its currently in your name? But if you need deposit as your not first time buyer you need 20% deposit.

But once renovations are done you can get the house revalued and then get your LTV changed accordingly, just make sure not sign up to a fixed rate

Have 20%, thanks for the steer.

amcalester

brendan86 wrote: »

They are only going to lend to you based on the value it is now, Since you were gifted the house I dont know what way it works if you need deposit as its currently in your name? But if you need deposit as your not first time buyer you need 20% deposit.

But once renovations are done you can get the house revalued and then get your LTV changed accordingly, just make sure not sign up to a fixed rate

OP, if you can get the work done with the lower mortgage, or make up the difference then this is the way to go.

Once you have the work done, you'll be able to get the house re-valued and with the lower LTV your interest rate will drop.

Trish56

FLC,
This is total nonsense re change in Central Bank rules on LTV in the last few weeks. I am a Mortgage Broker and can 100% confirm that if the property is valued at 200k now and you're spending 200k on renovations and the value on completion is 350k you should be charged a loan to value rate of less than 60% and should be able to avail of a variable rate as low as 3.05%.

The current loan to value rates is why many people are switching mortgages from one lender to another however I am not surprised at all at what you were told as the level of inexperienced staff in the banks is not acceptable. The only changes the Central Bank made were that first time buyers can now borrow 90% on the full purchase price and that a valuation is now valid for 4 months rather than 2.

Shop around and go to a lender whose mortgage advisors know what they are talking about.

Trish

FLC wrote: »

How is LTV calculated? Is it based on the current value of the house or the expected value of the completed house?

brendan86

Trish noo bank is going to give him 60% LTV before work is completed just because he projects it to be worth 350,000-400,000 when complete. Be very foolish of them if they did as he may not even be renovationg with money ( im not insinuating op isnt just making a point )

Thats what the bank told him and the bank is correct. They can only lend based on what its worth when he looks for mortgage and base LTV on % of value at time

But they never told him once work is complete he can get it revalued again and then he will get his lower LTV of <60%

FLC

Met another bank today and they indicated I would be eligible for LTV (50%-80% band) on the above figures...?

Are banks required to make their mortgage lending policy available to prospective applicants? Surely it is down in black and white somewhere?

Trish56

Brendan86, the way the mortgage will work is the OP will have to submit an application together with detailed costings either by a fixed price contract from a builder or from a supervising Architect/Engineer of the proposed work including plans, planning permission etc. An 'Approval in Principle' will issue for 200k with conditions attached. A Valuer on the lenders panel will then be appointed and given a copy of the above documents - Valuer completes valuation which will include present value - cost of works and value on completion and rebuilding costs.

The Loan to value on completion will be the figure that the lender will use. So if the Valuer states the property will be valued at 350k on completion then the loan to value will be 58% and the variable or fixed rate will be based on this. Stage payments will be paid out as the build/work progresses and must be certified by the supervising Architect/Engineer. 10% of the mortgage will be held back until the property is complete and a final valuation including photograph is submitted with a Certificate of Compliance.

OP only makes repayments on the amounts he draws down and the Architect/Engineer has to have Professional Indemnity Insurance. So all the figures are supplied and confirmed by professionals - Architect's and Valuations carried out by Estate Agents/Architects and of course the OP's Solicitor is involved. There's no way a lender will lend on the applicant's valuation of work to be complete.

brendan86 wrote: »

Trish noo bank is going to give him 60% LTV before work is completed just because he projects it to be worth 350,000-400,000 when complete. Be very foolish of them if they did as he may not even be renovationg with money ( im not insinuating op isnt just making a point )

Thats what the bank told him and the bank is correct. They can only lend based on what its worth when he looks for mortgage and base LTV on % of value at time

But they never told him once work is complete he can get it revalued again and then he will get his lower LTV of <60%