Second-charge mortgage, bridging loan and other funding options

[casaberry]

We're FTB looking to buy in a very sought after part of North London. We've seen two properties in our first choice area but both need work (loft, new kitchens and bathrooms, extension). From initial discussions with builders, we're looking at £100k-£150k of work, plus VAT and the expense of renting while the work is being done so it can all happen as quickly as possible. We have a good deposit but the refurb costs would be a stretch. Someone mentioned a second-charge mortgage or a bridging loan, but I'm not clear on how risky these options are. Does anyone have experience of them?

We could maybe just do the loft first and wait a year or two for the extension and new kitchen. But it would be pretty grungy and our kids are already so unhappy about the move we don't want to make it even worse for them.

If we can make it work, one of these properties would easily be the forever home and increase rapidly in value, so we're confident the investment is worth it.

Birding loan is a short term thing at usually a high interest rate. TypicLly used for around 6 months. You wouldn’t want much more.

Speak to a mortgage adviser as you can get mortgages with a day one remortgage/ further advance.

it all depends on how much you need to borrow to buy the property initially and if it needs that much work doing is it even mortgageable.

Can you tell us which area of N London? The scope of what you want to do sounds way more than your initial quotes but it’ll depend on size of the house and area. I’m midway through a renovation so speaking with some knowledge! Rent is also expansive and difficult to find, and nearly impossible if you have pets.
Sorry to be negative but the costs have been way more than I expected.

I don't really understand the question. If you are first time buyers with a good deposit then you just hold back £100k-150k of your deposit to cover the building works. If those sums don't add up then you can't afford to do both the purchase and the building work and will have to save up.

If you can't access the finance you need on a first charge mortgage you aren't going to be able to get it on a second charge mortgage either (and the interest on a second charge mortgage will be more expensive anyway).

Bridging finance is for when you need money quickly to get by until you can arrange a normal mortgage. It is for short term borrowing and is ruinously expensive (I was quoted around £70k in interest for a year long loan).

I too can't see how you can do all that work for that budget. Unless you are planning to do a lot yourselves.

Plus renting in 6 month batches, probably for a year or at least over 6 months.

The property is near Crouch End and is around £1m. Not comfortable to live in in its current state, so really needs at least the loft done up. We're in rented at the moment so can easily stay where we are but the double cost of rent and mortgage is daunting.

I'm heartbroken at the thought of leaving the area as we've been here for years but more and more I think it's just not possible. 😪

This is viable but you need to work out the sums and make sure you can do the works for the value you expect and in the time frame you have set out.

Contact a decent mortgage advisor and you should be able to get a bridging loan sorted, it will be short term (6 months) but it will be more expensive than traditional finance.

Make sure you consider the upfront arrangement fees, higher interest charges, secondary rearrangement fees if you need to extend beyond the 6 months and any other application fees.

Firms like together finance offer mortgages on almost anything so there are lenders out there, just be cautious and run your numbers properly.

A bridging loan is normally used when the sale and purchase timescales don't match, to cover a short period at high interest rate and break a chain.

You would need a loan to be paid back on completion of the work, probably by a remortgage, but that assumes you get a significant enough increase in value or secured against the property. Do you need to do a loft conversion immediately? Would it not be better to take a higher ltv mortgage and use savings to fund work?

If you’re in Crouch End then I think your quotes are too low for quality, building control level renovations involving a loft, new kitchen and extension. Just doubt it and then add on the kitchen and glass doors you’d want.

Honestly with materials and building prices being as they are, I’d consider a place you can move into directly without needing to do work.

Incidentally my area is now packed with former CE/MW/BP people who seem to like it. It’s not the end of the world to move out a bit!!

Together finance do second charge loans at a decent interest rate.its definitely possible.

But...why? What plan can she have to pay off the bridging loan in six months that she can't put in place now? A bridging loan without an exit plan is a quick route to bankruptcy.

Not comfortable to live in in its current state, so really needs at least the loft done up

Struggling to picture a situation where the house is not liveable in without the loft being done - do you mean there aren't enough bedrooms for you and DC without a loft conversion and that you can't afford to do that? If it's not liveable in while you save up, I'd say it's the wrong house and you need to beyond Crouch End for something more affordable. I wouldn't risk getting into huge debt with all the escalating building costs at the moment.

Worth saying though, we've had a loft conversion and kitchen extension and not had to move out and rent while either was being done so I wouldn't necessarily factor in rental costs. Also going from FTB to forever home is a big leap, esp in a v expensive area, so I wouldn't add the extra pressure of needing it all done as quickly as possible. Live with the grungy and let the kids be a bit grumpy if the goal is worth it. Only the very wealthy can cushion themselves from such things.

I don’t understand why you’re thinking of a bridging loan. It’s long term borrowing, surely? Just add it onto the mortgage.

Agree with PP, you just need to borrow an additional amount to pay for the works surely? Please please don't get a bridging loan, my DH and I had to get one when we bought our current house just to bridge the gap while his house was being sold and it was hands down the most stressful perioid of my life. You have a very strict deadline to pay it back or there are huge penalties and it costs a massive amount, we paid £thousands in the few short months we had it.

I'd live in the house for a bit to save a bit of money and figure out what you want doing. A loft conversion can't be so urgent that you can't live in the place at all; there must at least be other bedrooms and a bathroom available.

I'm planning a loft conversion in a couple of years, and from what I understand, the house only starts to get really messy when they break through for the stairs. Everything else is done first, so you may be some way off needing the money anyway.

Buy a cheaper house
Why do you haVe to spend 1 million?
I found this property on the Rightmove Android app and wanted you to see it: www.rightmove.co.uk/properties/96576571

Utter rubbish.

You take a bridging loan to do works and then refinance the whole lot using a traditional product as the property will be worth more, the difference should more than sufficiently cover the repayment of the bridging loan.

I think my blood pressure just went up 20 points reading that, at a time when building costs are spiralling, interest rates on the up and house prices stagnant.

You can get much more for your money if you're happy to go further towards Harringay Ladder. Better transport links as well.

Even if OP was happy to throw away huge amounts of money servicing bridging finance, if OP does not currently have a big enough deposit to hold some back to pay for the works then it's all moot as OP does not have sufficient collateral to offer security for a bridging loan.

Thank you to everyone who replied. We've offered on another property, great house that doesn't need any significant work, costs less and is commutable to our schools. Not the area we really wanted but I hope it will be ok.

But if they can borrow more they should do it now and put down a smaller deposit