Something old, Something new, Something borrowed = something renovated.
As the old saying goes (ok – we admit we may have tweaked the last part!) but home renovation in a nutshell is exactly that.
Over time and for various reasons, properties with fantastic potential can fall into a state of disrepair. However all it takes is an imaginative buyer to take these properties and restore them back to use – either as a home for themselves, a BTL investment or on a commercial basis.
However, home renovations and repairs can be very expensive, depending on the state of the property at the beginning, which is where our home renovation finance options can help.
Is the property mortgage able?
One of the key questions when looking for home renovation finance is whether the current property is in, what lenders term, a “mortgageable state”. Basically, that the property is weather and watertight and fit for someone to live in e.g. it has a working kitchen and bathroom with running water and the ability to cook a meal.
However, let us reassure you, this doesn’t mean you suddenly need a kitchen worthy of a Michelin-starred restaurant to get started! As long as the property has a basic working kitchen, even if it consists of just a microwave, a sink and a fridge some lenders will find this acceptable.
Finance options for your home renovation
If the property is in a mortgageable state but is a bit run down, most lenders will offer 80-95% of its value as it stands. However some lenders may withhold some of the funds, called a retention, until essential repairs are completed. This essential work will be identified by a surveyor and the property may need to be re-inspected before the remaining balance is released.
Typically you will also need 15-20% of the total budget already to get the project up and running which could be funded by savings, sale of an asset or additional borrowing.
If you own the property you wish to renovate (or another property) then an efficient way of borrowing is to remortgage. How much you can borrow depends on the equity in the property, your credit rating and also how much your proposed renovations add to the property’s value once the work is complete.
Another option is a secured loan (also known as a second charge loan) for your home renovation. These loans mean you have two mortgages on the property at once which can be beneficial if, for example, your mortgage has high exit fees which prevent you from remortgaging or you are tied in to a really good rate which you would lose by remortgaging.
Reasons to take out a house renovation loan
A house renovation loan is much more flexible in terms of how you spend the money i.e. if for example you manage to complete your home renovations under budget you can apply the remaining cash to paying off the balance of your loan, or for other things entirely. It is often the case that customers borrow more than they need for the home renovation and take the opportunity to consolidate other debts or fund other things such as a dream holiday or paying for their child’s wedding.
Some customers may be sceptical about getting into debts in order to fund renovations, unless it involves fixing structural or mechanical issues that need to be repaired. However, a good reason to take out a secured loan or remortgage for renovations is investment.
Renovating properties is similar to the routine adjustments a landlord would do to their investment portfolio. By making certain home improvements here and there you can increase the value of the property should you wish to sell further down the line which also increases the equity you have within your property.
Some people rack up huge debts on credit cards with the expectation that they can pay them all off at the end. Don’t assume you will be able to do this as most first mortgage lenders do not like debt consolidation applications. Secured loans lenders are much happier with debt consolidation. Either way talk to an adviser first to make sure you don’t get stuck with expensive unsecured debts.
We get lots of applications from people to raise extra money by way of a secured loans or remortgage just as they have removed the bathroom or kitchen. This is normally due to under budgeting. If you think you will run short of cash the worst time you can apply is when there is no bathroom or kitchen as this severely restricts your options. If may be better to complete your application before removing the kitchen or bathroom or using unsecured loans to get the kitchen / bathroom installed and then apply to pay for the remaining work and perhaps pay off the unsecured loan.
Either way speak to an adviser at an early stage about your options and plans.
Promise Money is a master broker with expertise in loans, bridging and commercial finance. Our 30 years experience means you can be sure you will get the home renovation loan which suits you.