Gallery
As house prices continue to rise, many homeowners are seeking alternative ways to get the house they want at the price they can afford. Hardly surprising then that buying a cheap, run-down property to renovate is becoming an increasingly popular option. The sale prices of properties that need renovation are normally much lower than the prevailing market price. On average, homeowners who have bought a renovation property have saved themselves £44,037 by tapping into this property-buying trend. Done correctly, a great renovation can give the property value a boost. According to research carried out by comparison site Confused.com in 2016, nearly one in five (19%) homeowners say the market value of their renovation properties now exceed the combined costs of buying and renovating it, giving them a profit of between £25,000-£50,000.
If all this sounds enticing, then that’s because it is – but as anyone who has gone the doer-upper route will tell you, the key to success is organising your finances at the outset to ensure that you have the money you need as the project progresses. This is where things can get tricky, particularly for those relying on mortgage finance, such as first-time buyers who may not have much capital. The majority of high street lenders will only offer a mortgage on a property that they consider to be habitable – eliminating many ‘unconventional’ and renovation projects. So if you want to buy a property that is derelict, or want to convert a non-residential building, such as a barn or warehouse, you will most likely need to approach a specialist lender.
Financing purchase and renovation works
The important thing to remember when you are renovating or converting is that you are likely to need money for the initial purchase of the property and for the building works.
As we mentioned above, the majority of mortgage lenders won’t lend on properties that are uninhabitable, however, others may lend based on the current value of the house, but will then not lend anything further until the project is complete and the property can be revalued. This is known as applying a retention to the borrowing and will mean you having to finance the renovation works yourself – a significant cost that may be beyond the reach of many buyers, particularly those who are just starting out on the property ladder. It’s interesting to note that one of the principal reasons homeowners’ renovation dreams fail is due to lack of finances at the doing-up stage, with nearly one in 10 (8%) of homeowners who bought a property in need of renovation admitting they couldn’t afford to do the necessary work to it.
Getting access to the cash you need
At BuildStore Mortgage Services, we recognise that not everyone who wants to renovate or convert has access to sufficient cash to pay for building works upfront, so we created the Accelerator Mortgage Scheme. Here, money is released for each stage of the build at the beginning rather than the end of the stage, giving you the cash you need to buy materials and pay your builder. It also lends a generous percentage of the costs – up to 90% of the cost of the property and up to 90% of the cost of the build.
Accelerator is ideal for many situations, for example, if you have only a small amount of cash available and don’t want to sell your existing house to release equity before your new one is complete; or if you want to keep the cash you have available until later in the project to maintain a good contingency fund. It’s also ideal for first-time buyers who have minimal capital.
Seek expert help early
Deciding to renovate a property may not be for everyone, but for those adventurous and creative enough to try, the rewards are plentiful. Not only can you save money on the purchase price compared with a finished property, but you can also put your own personal stamp on the home. Having finance in place is essential to the success of a renovation project, therefore it is important to speak to an expert to discuss your plans as early as possible. Knowing you have funding in place will mean that you can act quickly when you find the right property and take those all-important first steps to creating your dream home.
BuildStore Mortgage Services has access to all types of renovation and conversion mortgages, both advance and arrears, as well as over 15 years’ experience in advising on the best type of finance for renovation projects.
