Buying a House to Improve
Buying a property to improve can be an ideal way of moving more quickly up the property ladder but the way in which you choose to fund the project can be key to its success.
The amount of cash you have available or can borrow will be the major factor in deciding on the most suitable type of finance. As most mortgage lenders will only lend between 85% - 90% of the current value of the property (ie before any improvements are made and assuming it is habitable) a standard mortgage will only work for you if you have enough money to pay the deposit on the property and the cost of improvement.
Often people fund the improvement costs from personal loans and credit cards and then repay these with a further release of funds from their mortgage lender once the improvements have been completed.
There is an alternative and that is to use a stage payment mortgage for your home improvements. With this mortgage money is released to buy the property and then in stages during the improvements.
The stages in a home improvement project can vary depending on the work done but are typically:
Stage |
Home Improvement |
|---|---|
1 |
Purchase/Remortgage of the property |
2 |
Stabilisation works – includes demolition and injection of DPC plus any roofing works necessary |
3 |
Services first fix |
4 |
Practical completion of all rooms – (rooms completed and plastered) |
5 |
Internal finishes – Including installation of kitchens, bathrooms, doors, facings and decoration |
Funds from a stage payment mortgage can be paid out in two ways – either at the end of each build stage, known as arrears, or at the beginning of each stage, known as advance. The advance stage payment mortgage is unique to BuildStore.
With a traditional arrears stage payment mortgage the lender will release money to buy the property, usually up to 85% of the purchase price or value of the property and will then release the money for the improvement costs with each stage payment being made at the end of each stage i.e. in arrears of the work being done. This type of mortgage may be suitable if you have access to cash to pay for the deposit on the property and the early stages of the building work.
At BuildStore we recognise that not everyone planning a home improvement project has access to the cash required for the building works so we have created a scheme allowing you to purchase and improve a property with a low cash deposit – the Ideal Home Improvement Mortgage.
The Ideal Home Improvement Mortgage (iHIM) will allow you to borrow up to 95% of the cost or value of the property and up to 95% of the improvement costs giving you the funds you need to complete your project. With an iHIM your building works are broken down into stages and the costs for each stage are agreed at the beginning of the project. The money is then paid to you at the start of the stage ensuring that you always have the money to keep the project moving. This positive cashflow makes the iHIM an excellent choice for buying a home to improve.
With so many finance options it is important to speak to one of our advisers as soon as possible to identify the right type of finance for your project. Call us on 0345 223 4888 or request a call back online.
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