How would you do this renovation / finance question

renoone · 04-06-2022 9:23am #1

First up, long time lurker, first time poster. Anyway, thanks for reading this one

So, I've been fortunate enough to inherit a house. It's got electricity, running water etc. It's not in bad shape, but it's a good opportunity to do a major renovation on it, gut the insides, extend parts of it etc.

Currently starting the process of plans of what we want, looking at builders etc

Now this is where I'm getting stumped a bit. Currently, we're lucky enough after 16 years of paying it off, we have 100k left on our mortgage. Same house up the road is going for 400k, so we'd in theory, right now we "could" walk away with 300k after clearing the mortgage if we sold and all went well...in a perfect word :)

What I want to do is apply for a second mortgage right now to fund the renovation and stay living where we are while reno is being done, once that's nearly complete, sell what we have, and then clear the both the mortgages (existing and the 2nd one of the renovation) and move into the new place

Firstly, and I know all the above depends on property prices etc. but does that make sense? Or am I completely out of my mind

And then secondly, the 2nd mortgage, and this is where it's all falling down for me. Has anyone being in a similar situation? I'm reading different things about renovation mortgages and I'm struggling to understand how this would work. I'm presuming it's not as easy to outline the above to a bank / lender and they'll go fine, here's 250k.

Would greatly appreciate any opinions / advice on this or even suggestions on another way to do this.

Lumen · 05-06-2022 7:19pm

Careful about CGT.

05-06-2022 7:34pm

Not sure what CGT could possibly be due here - there may be inheritance tax (can't say with the info given, but assuming the OP is aware of possible obligation there).

OP,

You can possibly get 80% of your existing home and release some equity, this would depend on some other issues like your current credit history and income. Rough figures you could get €220k released. For that you and your partner would need to have approx €63k gross income between ye.

I don't think there's anything that would stop you per say just because it's a different house being renovated - maybe the bank would want a mortgage over that house also, but resist if possible due to extra costs (legal/insurance).

Lumen · 05-06-2022 11:15pm

Not sure what CGT could possibly be due here

Surely a major renovation of a property will substantially increase its value and therefore potentially bring on a large CGT bill in the case of a non-PPR?

edit: maybe this covers it

https://www.revenue.ie/en/gains-gifts-and-inheritance/transfering-an-asset/how-to-calculate-cgt.aspx#:~:text=any%20money%20spent%20by%20you,and%20disposed%20of%20the%20asset.

06-06-2022 9:39am

Renovation costs are taken into account when calculating CGT.

Maybe they make a big a profit on post renovation, maybe a loss. But, regardless, CGT is made on profits. So, if they have a HUGE CGT tax, good for them. Nothing to concern them. As the saying goes, only one thing worse than paying tax… not earning enough to be taxed ☺️

Another thing - CGT would only apply here (unlike certain share investments) if the property was subsequently sold. So, again… no issue.

Mellor · 06-06-2022 12:28pm

https://www.boards.ie/discussion/comment/119163400#Comment_119163400

An asset increasing in value doesn't trigger CGT.

https://www.boards.ie/discussion/2058248769/how-would-you-do-this-renovation-finance-question

You are simply remortgaging your home. The other property doesn't com into it.

Or you could remortgage the new property, although it may be less clear as to what the value is, so your first idea is better imo

oldgamerhead · 07-06-2022 1:19pm

https://www.boards.ie/discussion/comment/119162564#Comment_119162564

Cheers for the reply! It'd be CAT that would be due on it. So basically, call up the bank, ask for a top up / loan off our existing mortage, and put that into the renovation? Am I right there?

oldgamerhead · 07-06-2022 1:20pm

https://www.boards.ie/discussion/comment/119164885#Comment_119164885

Thanks for the reply. Yeah, I guess my original thought was to just get another mortage to fund the renovation and suffer through that until we'd move in, sell our existing place and then, clear both mortgages potentially. But just getting another loan / top up on the existing mortgage seems to make things easier possibly?

Mellor · 07-06-2022 2:54pm

https://www.boards.ie/discussion/comment/119169042#Comment_119169042

It will be easy. But a personal home improvement loan will be subject to an 8-9% APR. Refinancing the existing will be 2-3%.

I suppose to make an informed decision you need to review what the current 100k mortage is and could be

oldgamerhead · 07-06-2022 3:01pm

https://www.boards.ie/discussion/comment/119169777#Comment_119169777

That's a great suggestion actually. Ideally the plan wouldn't be to suffer all this too long with selling our main place and moving into the new spot. And the numbers I've in my head are probably a million miles off the mark in the current climate, but thank you for that!!

07-06-2022 10:55pm

https://www.boards.ie/discussion/comment/119169035#Comment_119169035

That's what I'd do in your case. Good luck.

How would you do this renovation / finance question

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