When it comes to helping your clients fund a renovation property, it’s worth noting the majority of high street lenders will only offer a mortgage on a property that they consider to be habitable — eliminating many ‘unconventional’ and renovation projects. So if your client wants to buy a property that is derelict, or want to convert a non-residential building such as a barn or warehouse, they will most likely need to approach a specialist lender
Financing purchase and renovation works
The important thing to remember when your clients are renovating or converting is that they are likely to need money for the initial purchase of the property and for the building works. As we mentioned above, the majority of mortgage lenders will won’t lend on properties that are uninhabitable, however
others may lend based on the current value of the house, but will then not lend anything further until the project is complete and the property can be re-valued. This is known as applying a retention to the borrowing and will mean you having to finance the renovation works yourself – a significant cost that may be beyond the reach of many buyers, particularly those who are just starting out on the property ladder. It’s interesting to note that one of the principal reasons homeowners’ renovation dreams fail is lack of finances at the doing-up stage, with nearly one in 10 (8%) homeowners who bought a property in need of renovation admitting they couldn’t afford to do the necessary work to it.
A stage payment mortgage
An alternative is a stage payment mortgage where the building work is broken down into identifiable stages. The stages in a renovation or conversion are generally:
- Purchase of the property
- Preliminary costs and structural overhaul
- Wind & Watertight
- Plastering & Services
- Second fix
- To completion
Funds from a stage payment mortgage can be paid out in two ways – either at the end of each build stage, known as arrears, or at the beginning of each stage, known as advance.
With a traditional arrears stage payment mortgage the lender will release money to buy the property, usually up to 75% of the purchase price or value of the property and will then release the money for the building costs with each stage payment being made at the end of each stage (ie in arrears of the work being done). This type of mortgage may be suitable if clients have access to cash to pay for the deposit on the property and the early stages of the building work.
Helping your clients access the cash they need
At BuildLoan we recognise that not everyone who wants to renovate or convert has access to sufficient cash to pay for building works up front which is why we created the Accelerator Mortgage Scheme. Here money is released for each stage of the build at the beginning rather than the end of the stage providing the cash your clients need to buy materials and pay their builder. It also lends a generous percentage of the costs – up to 85% of the cost of the property and up to 85% of the cost of the build.
Accelerator is ideal for many situations, for example if your clients have only a small amount of cash available and don’t want to sell their existing house to release equity before their new one is complete; or if they want to keep the cash they have available until later in the project to maintain a good contingency fund. It’s also ideal for first-time buyers who have minimal capital.
Bridging finance may also offer a useful solution for clients looking to carry out property refurbishments where the property is deemed uninhabitable, if a suitable exit strategy is available. A loan can be arranged to allow them to bring the property up to a habitable standard with the loan being repaid either by selling the property or refinancing. This route is more expensive but BuildLoan can offer premier rates starting from 0.47%.
BuildLoan can provide you with a range of solutions for your property renovation clients. Call our broker desk to discuss your enquiry with one of our expert advisers.