If youâ€™re planning to make some home improvements or buy a property to renovate into a spacious family home, here are a few pointers from finance experts BuildStore to consider when it comes to funding your plans.
It makes sense to improve your own home to avoid the upheaval and cost of moving, while adding value, andbuying a so calledâ€œdoer-upperâ€ could be an aï¬€ordable way to getthe home you want in the area you want.
When it comes to funding, thereâ€™s no one size fits all solution. Your borrowing options depend on your financial circumstances, the level of works planned and whether you own the property or not.
With a number of factors and borrowing options to consider, itâ€™s important to speak to an expert mortgage adviser who will explore whatâ€™s available and recommend the right solution for you.
So what are the main borrowing options?
Improving your current home
With minor home improvements, such as a new bathroom or kitchen, your first thought may be to remortgage your home and release equity to fund the works. This can be tricky because your borrowing capacity is limited.
Most lenders will only lend up to 80-95% of your homeâ€™s current value, so you may not have enough equity to cover the planned works.
Stage Payment Mortgage
For more extensive works, perhaps an extension, basement or loft conversion, a stage payment mortgage could be the solution for you, as many traditional lenders will not lend where major structural works are being carried out.
A stage payment mortgage releases funds in stages, rather than as a single amount either before or after each stage of works. Unlike a traditional mortgage, your borrowing capacity is not limited by your homeâ€™s current value. You could borrow enough to repay your current mortgage and fund 100% of the improvement works â€“ up to a maximum of 85% of the expected end value of your home when works are complete.
With BuildStore, your mortgage can provide guaranteed stage payments based on the cost of works before each stage â€“ giving you certainty in your budget and the funds you need to get the job done! When works are complete, you can switch to one of your lenderâ€™s traditional mortgage deals.
If you own a second unencumbered property, you could raise funds against this with a bridging loan to fund your home improvements. The loan must be repaid in full, either by refinancing or selling your second property, or remortgaging your current home based on its increase value.
Buying a property to improve
If the property you want to buy is run down but still habitable (has a working bathroom and kitchen) and needs some minor improvements, a traditional mortgage could be an option. However, as we mentioned earlier, your borrowing capacity is limited and may not provide enough to fund the property purchase and required works.
Stage Payment Mortgage
Where the property is not habitable and you need help to fund both the property purchase and improvement works, a stage payment mortgage is most suitable. As previously mentioned, your borrowing is not limited by the current value of the property. You can potentially borrow 85â€“95% of the property purchase and improvement costs, with guaranteed upfront stage payments from BuildStore.
A bridging loan is very useful when you need funds fast â€“ especially with the tight timescales why buying a property at auction. If you have enough equity in your current home or own it outright, you could raise funds against this to purchase the property and fund the improvement works. When your new home is ready, you can sell your old one to repay the loan.
BuildStore Mortgage Services specialise in homebuilding finance and have access to a range of borrowing solutions including exclusive mortgages suited to home improvement and renovation projects, offering competitive rates and guaranteed upfront payments. Our expert mortgage advisers will recommend and tailor a borrowing solution to suit you and your new home.