If you buy a house that needs a lot of work, what is the best way to finance it?

[INeedACheeseSlicer]

We will be looking to move in the next 6-12 months.

Once we have sold our current house, we will probably, (if we are lucky), have around 90-100k to put down as a deposit for the next house.

We are looking to buy something up to 280k, but we have been looking on Rightmove to see how far our money will stretch, and we have seen a couple of houses on at around 160-220k that would need a fair bit of work on them (extension, new kitchen, new bathroom etc) I imagine it would be pricy and we would end up spending up to our planned 280k, just more of it would be on home improvement and less on buying it in the first place.

So my probably stupid question is, how do you finance the necessary work? Do we put down a much smaller deposit, still get a mortgage of the same size, and keep the remaining cash for home improvement? Presumably then we wouldn't get such a good rate of interest on our mortgage payments? I suppose we could then remortgage after the work had been done, when the value of the house was more. Or can't you do that?

Or do we put down the full 100k deposit, and try and make the bank lend us a mortgage of more than the house is currently worth? Surely that wouldn't work .

Or is there another way that I don't know about?

[Bearbehind]

You definitely can't go for the option of borrowing more than the house is worth.

The first option of a smaller deposit and keeping the cash back for repairs is likely to be the best option.

You might be able to remortgage onto a better rate when the deal you take expires but remember the value of the property won't necessarily increase by what you spend on it

[JT05]

Smaller deposit and keep money back for essential repairs. Paint everything cheaply white and do interior decor as you go along out of earnings, if you can.

[OTheHugeManatee]

Are you both earning enough to finance part of the renovation out of cash flow? We bought a beautiful wreck and have ended up funding it partly through savings but also because between us we earn enough to cover living expenses on DH's salary so mine has been used to pay for renovations.

It always ends up more expensive than you expect (for example we found ourselves with a surprise £2K bill for scaffolding and a brickie, because when we went to install a woodburner we discovered the chimney stack was falling down) so cost up what you think would be needed and then double it for a more reasonable estimate. If you have that in savings great, otherwise can you fund it from cashflow? If neither, your options are DIY, save up for a bit while living in a dump or buy somewhere that isn't falling down

[namechangedtoday15]

Yes to your first option. A bank will only lend on current value, not some estimated value. Get a 2 year fixed deal and remortgage at the end of the 2 years for a better rate.

Just do your homework - will the cheaper houses be worth £280 k when you've finished? If you're going to end up spending £280 k anyway, it might not be worth the hassle of buying the cheaper property and doing the work. It might be better buying a finished property.

[INeedACheeseSlicer]

Hmm, food for thought.

We probably don't earn enough to finance much out of cash flow - we would need to save up for a few years.

I can live with outdated decor in the bedrooms and living rooms quite happily (I think) but not with a horribly grotty kitchen and bathroom. I suppose we could replace those for under 25-30k, as they likely wouldn't be very big. And then just leave everything else until we could save up enough. But there are things like new wiring, and new boilers too, which wouldn't be able to wait.

Hard to say whether the cheaper house would be worth 280k at the end. It perhaps doesn't matter massively, because I am hoping that we will living be in the house for a long time.

[Bearbehind]

It sounds like you need to do an awful lot of homework before you decide what to do- £25 to £30k is pretty huge amount for just a kitchen and bathroom in a sub £200k house- I'm pretty sure you wouldn't add anything like that to the value by just replacing s kitchen and bathroom.

[INeedACheeseSlicer]

Yes, we are very much at the initial thoughts stage, we won't be viewing anything just yet. I doubt the houses we have seen will still be on the market when we actually come to buy, it's more it just gives us an idea of what might be available. 25k was just a ballpark figure; my cousin recently had new kitchen and bathroom fitted and paid over 20k, so I was basing it on that. Quite relieved to hear that it is a massive amount, and we'd probably pay less! I'd rather overestimate than underestimate the cost of things though.

We want to spend a while having a look at the market and seeing what things are worth before making the commitment, as it is a new area for us.

[itllallbefine]

We almost did this, however due to circumstances beyond our control the house sale fell through.

Like you, we didn't really know what we were doing. We had about 150k equity from the sale of our house and planned to put down a deposit of 40 - 50k, we were supposed to be buying the house for 250. This would allow us to get a decent rate on the mortgage while leaving us 100k for the renovation. We had budgeted around 20k for the kitchen and bathroom (we're in scotland) we also had to do an attic conversion, complete redecoration new central heating etc etc....i actually have no idea if our sums would have added up, but hopefully this helps.

The only other thing i would say is you need to make sure the house is habitable while all the work is going on otherwise you will need to rent somewhere, having workmen in your home 8 hours a day and their stuff everywhere can be pretty stressful.

[wonkylegs]

We did this - we put down a smaller deposit and borrowed more on the mortgage (still less than the value of the house)
We planned the work very carefully (plans and detailed spreadsheets) and have come in under budget (because some of the works we budgeted for turned out not to need so much doing as first thought) we bought for £550k and spent another £100k doing a complete renovation (heating, electrics, 3baths,kitchen, windows & doors, some roofing, insulation, repairs, decorating - big victorian pile)
It has taken a long time and has been hard going at times and very stressful but we now have an absolutely gorgeous house and it has been worth it and it's transformed from a draughty heat sink to a comfortable house.

[MrsCampbellBlack]

We waited 4 years until we had saved the money to do the renovation. I have lived with horrid kitchen/bathrooms and we've only started doing work in the last 3 months.

[INeedACheeseSlicer]

Thanks, that's all very helpful.
I suppose renovations cost a similar amount whatever the inital value of the house, so it makes a lot more sense if you are actually buying a bigger, more expensive house, so it is a smaller proportion of the total value.
I am guessing a smaller house will cost a bit less, just because it is smaller, but not enough less that it is definitely worth doing, as it probably would be for a bigger one.
How do you plan the work before you buy the house though? Can you get a local builder to come round with you before you have even bought it to tell you how much it would cost, is that the normal thing to do?

[MrsCampbellBlack]

You can but to be honest we just guessed. We knew our total renovations would cost between £150-200k. We therefore offered a lot less than the asking price to take into account what we'd spend and what the house would ultimately be worth.

Although to be honest we don't view our house as an investment at all.

[peggyundercrackers]

You do need to think about the value of the house after the renovations even though you plan to stay in it for a long time. What if that plan falls through for whatever reason and you need to move and sell? never spend money on a house you won't get back - it makes no economical sense.

[GreyBird84]

In midst of this.
Bought shack & land at 85K.

Put down 30k deposit, have 65k to extend, renovate finish etc. Currently at sub floor level & 9k down! Kitchen & utility is 15k inc appliances. 2 bathrooms & WC 5k. No flooring or painting inc though.

Once 65k is spent we intend to remortgage for kitchen bathroom floors etc.

Borrowing for structural work means a self build mortgage idea we high we are keen to avoid.

We imagine our 65k will bring house to at least 150K (great area, detached bungalow, land etc).

In hindsight we wish we had put down a smaller deposit & kept more back.