How best to finance rebuild?

[Msnotmiss]

We are on course to of sell our mortgage free home to move into a derelict property (yes we are crazy). We are on course to getting at least 1.5m-1.6m based on the offers so far.

We will need to borrow £360k before we set foot in the house. Or maybe £260 if we can claw some out of a buy to let.

House is very shabby and needs modernising and fixing from top to bottom.
Currently it’s 1800 square foot but based on other renovations on the same road there is scope to extend up, out and to the side to bring it to the usual 3000.

We are having difficulty getting builders in to do quotes but my hunch is that a full renovation is 400k plus.

DH thinks we should borrow as little as we can right now as rates are crazy and ‘we don’t need to do building work straight away’.

I on the other hand want to crack on and make it a dream home ASAP as we are in a very comfortable home currently and life is too short to suffer for years on end.

Should we hold back some of the cash deposit for renovation work even if it means we are paying a huge amount every month for the mortgage?

DH has been with same organisation for 20 years and he could get redundancy soon which would
make it tricky to remortgage in a year’s time.

The other complication is it’s in a conservation zone, plus labour is very in demand right now. It will take many months to get anything signed off by planners. Do people borrow who are purchasing borrow everything upfront in anticipation of starting building work later?

In the past we had an offset mortgage and spent several years paying it down before dipping into it for renovations but that won’t be possible now.

How much is this purchase price for this derelict property?

What are you doing to this house that costs £400k?

Where are you going to live while the work is being done?

We hope to get it for around £1.7m. Same house that was in 5% better shape sold for 2.5m a few doors down six months ago. One that had been extended but was very dated sold for 3m a month later. I know market has cooled.

We had hoped to make it habitable and live in it as rentals will cost about 4K a month!

I would borrow as much as possible and retain renovation costs from the sale of your property. That's what we've just done.

Thanks @anotherusernamethiswerk . DH works in financial services and is convinced rates will come down in next year or so (though not to what they were). Do you still borrow even at huge rates when building work can’t commence until builders are available? DH thinks that’s a waste as you’re paying monthly for building work that can’t actually happen till design is done, permissions are granted and labour is available

I would check your estimate of renovation costs- we're doing a remodelling of part of the downstairs of a 4400 sqft house with a small extension and will end up at £270k by the time we're done so £400k seems no where near enough for. £1.7m house (unless it's a London house that isn't that big)

Yikes @whensmynexthol1day . The house is currently 1800 square foot but there is potential to extend out the back and upstairs in the loft and over the garage to make it 3000. It’s not huge like yours but the area is v expensive for some reason

Curious where your area is op - we live in a pricey part of sw London but wouldn’t hit those values

anyway rates are expected to hit 4% by the end of the year as inflation reduces. So they will come down slightly from what they are but they are unlikely to reach the 2% we were seeing last year which was an unnaturally low rate.

the norm is really 4%

can’t you borrow the full amount and then take out the portion you need for the renovation nearer the time at any higher rate - that’s what we were able to do. That means you lock the current rate now - obviously rates could go down though

or you could borrow the full amount but then put the excess in a savings account to recoup some of the expense

@Msnotmiss we were lucky as our mortgage was approved before the rates went up too high and we are fixed for 5 years.

I really can't see interest rates coming down for a good while. I wouldn't want to reinvest all of my sale price into the purchase knowing I would need to use it for works. Because I'd be too afraid of not being able to borrow and being stuck in a derelict property. But if your DH works in finance maybe he's the expert?

I think £400k is too low an estimate @Msnotmiss . We've got a 1930s semi. Putting in a loft , new kitchen, 2 bathrooms a utility , re wire and modernising/making energy efficient has cost around £270kThe base price of our house was around half the cost of your intended. Based on this (without taking into account spec) you'd me looking at closer to £0.5m or more We are in a conservation area too

We're london outskirts

Current rates are not huge, long term average bank of england base rate is almost 7%, even as recent as 2007 rates were higher than now.