I feel you buy a house that needs a lot of work can you finance it with a mortgage?

[TeamPug]

We are ready to put our house up for sale and start looking for our new home. I've seen a house that has been up for sale for a really long time. I love it but it would need an extension to make it work for us. The estate agent write up says it already has planning permission.

The house has already been reduced by 25k and potentially the owners may accept an even lower offer due to the amount of time it has been up for sale. Our financial advisor says we could borrow around 100k more than this house is currently advertised at.

So my question is how do you finance it? Can you borrow as much as you need with a mortgage? Or can you only borrow what the house is currently worth and lend the extra money for building works via a loan?

I could be wrong, but I think that the days of 100% and higher mortgages are long gone.

I'm pretty sure that you would only be able to borrow a certain LTV (80%, 90% maybe depending on status) of the actual purchase price.

I think you would have to start the work and then remortgage based on the current value of the property (i.e., you've done £35k worth of work, it's gone up in value by £40k so the bank will let you borrow another £40k).

Disclaimer: I'm basing this on what people have done on grand designs...!

I think you're right Santa, I suppose we could use some of our equity to finance work.

Pottering I'm laughing at your disclaimer

I've also just realised that I have no idea how much any building work would cost! Do you just have to wait until you move in to get quotes?

This might not great idea

My son is looking at homes at the very bottom of the price ranges.
The last home he considered the bank denied a mortgage after sending out their own inspector. But it was really really bad ;)

I sold at £215k, bought at £145k, I paid off my £100k mortgage & took a new one out for £60k which left me a chunk of money for Moving Costs / 'House Refurb Fund'.
All guided through by my mortgage advisor.
I had a general idea of my costs - there wasn't an extension. But it has cost a lot more than I though it would....Kevin McCloud would laugh at my naivety...

What we've done in the past is go for a 90% LTV mortgage to have the cash for the work. As soon as the work was finished we remortgaged to a better deal as we had built a lot of equity in the property. It would be a good idea to work out how much the work will cost to see if you can afford it - if you're looking to extend, redo plumbing, electrics, heating, replaster, new kitchen, bathrooms etc you're looking at 100k + for an average house. You need to see if you'd have enough money from the sale of current home + savings to afford the buying costs + deposit + refurb of the new house.

We bought a 'fixer upper' - we financed it through a deposit & mortgage, we kept back £100k from the 'deposit' from the sale of our old house for the renovation and borrowed more through the mortgage to pay for the house. So we had a smaller deposit.
Thankfully we had a large deposit to work with, so the bank was really happy to lend to us on the LTV ratio. Our mortgage broker was really helpful with this.
When we did a bit of extra work last year we remortgaged and they revalued following the initial work we had done and we're happy to lend us a bit more.
With regards to estimating the costs I work in the business so had a head start with understanding this but we still put together a spreadsheet detailing what needed doing, put rough ideas of costs next to each item and added 15% to total for contingency, this was refined following the survey.

There are specialist mortgages ways for this. In the same way that you can get a mortgage for a house you are planning to build. The lender may release the funds in stages as work progresses.

Thanks for all your help. Maybe it is doable. The house is more than livable, just needs extending to suit our needs. Best get on with selling ours so we can make plans