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Original poster

80k for 1st time deposit and renovation

32 replies

RuralMum2 · 09/09/2023 19:21

I'm a first time buyer thinking of buying a 350k probate property that needs updating. Wondering the best way to finance this.

I have a 80k to spend on everything related to the purchase and renovation. Then could invest about 1200 per month after that.

The house is in a good location and has the potential to appreciate quite well over the next couple of years. I would hope to sell at that point.

Wondering the smartest options for financing? A really small deposit then use the rest of my savings for the renovation? A home improvement loan? An interest only mortgage?

Thanks!

OP posts:
Bonniethewestie · 09/09/2023 19:55

How much is the renovation going to cost?

I wouldn’t advise an interest only mortgage… especially not with current rates.

ideally you would have a 10% or 15% deposit to get a better interest rate. So if you can hold back £35k for that it would be best?

JeresaLove · 09/09/2023 19:55

How much renovation are we talking? How big is the house? Structurally sound? Need new Kitchens and bathrooms? Electrics? Heating? Are you sure you can get a mortgage with a really small deposit for the amount needed?

memote · 09/09/2023 19:58

Personally I wouldn't bank on the house appreciating much in a few years. Not in todays. monster

memote · 09/09/2023 19:58

climate!

no idea where monster came from!!!

memote · 09/09/2023 19:59

How much do you earn as you won't get an interest only mortgage unless you earn a certain amount?

WonThisNameInARaffle · 09/09/2023 20:53

How much work needs doing immediately on moving in/prior to moving in? Budget for that and the rest you can live around. Things like electrics and plumbing you want doing before moving in and if you're in the south you're looking easily at 5-6k for a rewire and that's without plastering afterwards. Same with a kitchen and bathroom - these are renovations that are hard to do once you're in.

Deduct those big must do renovations from your total and that's your deposit

TarantinoIsAMisogynist · 09/09/2023 20:56

The house is in a good location and has the potential to appreciate quite well over the next couple of years.

Are you up to speed on current economic forecasts?

Now isn’t a good time to buy a house that you intend to sell after a couple of years.

TarantinoIsAMisogynist · 09/09/2023 20:59

My advice is to use your deposit to purchase a property that you will want to stay in for 5yrs or more. If that means waiting a year or so, this isn't a bad time to wait.

Also renovations are costing a lot more than they did even just a couple of years ago, so if you are going to budget for them, get quotes. Don't budget for it costing what your mate says they paid 5 years ago, because the cost now will be much higher.

DrySherry · 09/09/2023 22:29

"The house is in a good location and has the potential to appreciate quite well over the next couple of years. I would hope to sell at that point"

I doubt that very much. It is likley to appreciate in the next 5 to 10 years - almost certainly, but in the next 2 ? That's unlikely at best imo. You need to plan longer.

Original poster
RuralMum2 · 10/09/2023 07:39

@Bonniethewestie @JeresaLove I don't have any quotes yet, but it's probate so needs a lot of work. New bathrooms, boiler, electrics and I would want to combine the kitchen / utility and garage to make a larger kitchen.

In the longer term, add a new bedroom on top of a flat roof. So I guess my next step is to get a quite from a builder.

OP posts:
Original poster
RuralMum2 · 10/09/2023 07:42

@WonThisNameInARaffle That makes sense, thanks. And then I guess I need to budget for paying for 2 places at once too!

OP posts:
MondieBee · 10/09/2023 07:43

If you want to add a second storey to a single storey flat roof extension you'd need to make sure the foundations are deep enough

Original poster
RuralMum2 · 10/09/2023 07:46

Is interest only really a bad option? The full repayment mortgage my advisor recommendeds for me involves only paying interest (no principal) for the first 5 years anyway...

OP posts:
Echio · 10/09/2023 07:48

You're unlikely to get a better loan rate than your mortgage, so if you can afford to get a big enough mortgage and put down less deposit, using the remaining current cash for renovations is likely better than getting any other kind of loan to fund renovations.

If you are concerned about increasing your long term borrowing, remember you can overpay mortgages by 10% a year (20% with Natwest)- and what this means is 10% of the value of the mortgage, not 10% of your repayment - so it's a sizeable amount.

Also don't forget how useful interest free credit cards can also be if they have a long period as you can use it effectively like an interest free loan- but don't take one out before your mortgage, so it's tricky to know exactly what borrowing you could have on it.

Flubadubba · 10/09/2023 07:50

On an interest only mortgage, you would be more likely to be under water if prices go down, as you have minimal ownership percentage wise. Not a great idea atm.

DrySherry · 10/09/2023 07:52

Interest only is a liability in a falling market for most people. On the other hand you have separate investments and assets that are performing well during the falls then obviously it is the cheapest way to temporarily borrow a lump sum.

Echio · 10/09/2023 08:00

RuralMum2 · 10/09/2023 07:46

Is interest only really a bad option? The full repayment mortgage my advisor recommendeds for me involves only paying interest (no principal) for the first 5 years anyway...

I think you might be confusing the fact that a trajectory of a repayment mortgage is extremely slow at first?

Eg, my 100,000k mortgage, 4% interest. The monthly interest is £350, the repayment is £480. So I'm only paying off a tiny amount each month at first, so after 5 years of paying nearly 30k, my mortgage has only dropped by 10k. But each month that passes, because of that small improvement, the interest gets lower... and eventually it starts knocking down so the repayment element is more than the interest, so it's all repayed in 30 years.

If you do an interest only, you're effectively just adding on whatever time that period is to your mortgage because after that period, you still need to pay it all off. It's the most expensive loan you can do because your monthly interest is on the whole value of your property.

RidingMyBike · 10/09/2023 08:12

RuralMum2 · 10/09/2023 07:39

@Bonniethewestie @JeresaLove I don't have any quotes yet, but it's probate so needs a lot of work. New bathrooms, boiler, electrics and I would want to combine the kitchen / utility and garage to make a larger kitchen.

In the longer term, add a new bedroom on top of a flat roof. So I guess my next step is to get a quite from a builder.

You'll be unlikely to get all that done for £80k (and less if the £80k needs to include the purchase costs). We've just done a renovation with a similar type of property and it was more than double that, and that's with mid-range rather than expensive stuff.

PinkRoses1245 · 10/09/2023 08:36

That £80k won’t cover that amount of renovation work. And nowadays, I wouldn’t expect to make a profit or honestly even break even, with a renovation project - costs are so high and house prices aren’t going up. Going to be blunt and say it sounds like a big mistake. If you want a house to renovate, fine but don’t do it expecting to make your money back necessarily. We’re renovating a new house now but we plan to live there long term and we’re being cautious in spending on it

JeresaLove · 10/09/2023 10:30

Sorry, it sounds like the money won't go far enough. We are currently renovating a 3 bed property, and it will have cost well over £100k, and we already owned it. I just don't see how it will be possible when potential deposit and moving costs also have to come out. I'm also not sure you'll get a mortgage for a property of that amount without much deposit. Have you had a mortgage advisor meeting?

WonThisNameInARaffle · 10/09/2023 12:41

The other thing I would say is don't underestimate how long it takes to renovate a property where EVERYTHING needs renewing. Depending on the size of the house electrics are a minimum of a week if not two, bathroom and kitchen the same again each. Each room (if you want a high quality finish) will need replastering, the woodwork stripping and priming. If you've replastered then you need a couple of coats of cheap white paint for the plaster to drink before you paint your final finish.... and all that is before you find out the floorboards are rotten, the door hinges have so many coats of paint on them they're unusable and a few roof tiles have gone AWOL...

Money is one thing but time is another, the longer the new place takes to finish the longer you're paying double bills for. I would say unless you're on a mega bucks salary walk away from this as £80k on a £350k property isn't enough time or money.

ClematisBlue49 · 10/09/2023 13:02

I would advise against renovating a property in order to flip it in the current economic climate. There are people who can make money this way, but it is much more challenging in a falling market, and they will be doing most of the work themselves, probably.

Renovations are painful and always cost more and take longer than you expect due to unforeseen problems and delays. IMO, your £80K less the deposit will not achieve what you want, and your monthly savings amount would be too small to make up the difference within 2 years. It would be different if you loved the place and wanted to stay, but in your place I would walk away from this one.

SisterMichaelsHabit · 10/09/2023 13:11

PinkRoses1245 · 10/09/2023 08:36

That £80k won’t cover that amount of renovation work. And nowadays, I wouldn’t expect to make a profit or honestly even break even, with a renovation project - costs are so high and house prices aren’t going up. Going to be blunt and say it sounds like a big mistake. If you want a house to renovate, fine but don’t do it expecting to make your money back necessarily. We’re renovating a new house now but we plan to live there long term and we’re being cautious in spending on it

This. We have an identical deposit and looked at an identical house at the exact same price (maybe the same house lol) and we costed up all the work that needed doing, not just the visible stuff but all the stuff that we knew from past experience as home owners would need doing, such as plastering, electrical rewiring, updating the distribution board, etc (and that was assuming the surveyor didn't find anything we'd missed) and we decided it would be better to get a smaller house that was cheaper and save up some more before taking on a project house.

The finished project would have probably added £100,000 of value on today's prices, given the area, but it would have cost £87k to do the work, excluding the garden, and the market is falling so there's no guarantee we'd actually make back our investment.

And add to that, it's actually really difficult to get tradespeople at the moment, so they've all put their prices up, and building materials and wood is priced at an all-time high as well as there's shortages.

My advice would be to take on a smaller project, renovate that to a nice standard, then you'll have a much better idea of how projects like this are likely to go, and that will give you a much better idea of how to manage a major renovation like the one you're looking at. If you start and cock it up or can't afford to finish it, you could find yourself having to sell it for less than what you've bought it for and pay for the work you've done to date.

mycoffeecup · 10/09/2023 13:13

A flat roof will limit your insurance options and increase the cost. Get some insurance quotes before you buy.

gloriawasright · 10/09/2023 13:16

Not sure where you are OP but in Scotland we would have to factor in a second home tax.
And watch out for early repayment fees on your mortgage .
Both could add on thousands to your costs