BuildStore - self build, renovation & home improvement

Funding a renovation project

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Bringing a dilapidated property back to life can be extremely rewarding, but arranging the finance to purchase a property and fund the renovation work needed can be challenging. BuildStore, self build and renovation finance experts, explain the options.

Bringing a dilapidated property back to life can be extremely rewarding, but arranging the finance to purchase a property and fund the renovation work needed can be challenging. BuildStore, self build and renovation finance experts, explain the options.

With hundreds of thousands of empty homes in the UK, there are plenty of opportunities if you are looking to renovate or convert a property. When it comes to arranging finance however, you need to think about how you will fund the initial purchase of the property, and the renovation work that follows.

If you don't want to sell your existing property until the end of the renovation, you could consider releasing the equity from it to fund the property purchase and construction work, through a further advance with your existing lender, or by re-mortgaging to a new lender. However, not all lenders will lend for this type of renovation project, and most will not lend beyond 75% of your current property's total value.

Some lenders may consider offering a 'bridging' loan - short-term lending, normally secured by way of a legal charge over your current property, or the new property, or both, ahead of the sale of the former. Whilst this might provide the funding you need, make sure you understand all the terms of the loan thoroughly. Especially in the current market, these loans are not commonplace, are usually offered with 'ad hoc' arrangements, meaning interest rates and fees can be relatively punitive - in some cases, more than double the costs of normal mortgage borrowing.

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If you have your eye on an uninhabitable property, you may need to fund a large amount of work and the purchase yourself. There are only a few lenders who will offer a mortgage for the purchase and renovation uninhabitable properties, and those that do may hold back the mortgage funds until the property is considered habitable, meaning you have to find funds to purchase the property and complete the early stages of construction yourself.

Another option is to get a mortgage from a lender who provides stage release mortgages for renovations, which are secured against the new property. The benefit of these types of mortgages is that sufficient funds are released to purchase the property, with further funding released at stages throughout the renovation project (normally up to five further stages from purchase of the property)

There are two main methods of stage funding: 'in arrears' and 'in advance' ('Accelerator')

With the 'arrears' method, once the initial advance is made to purchase the property (typically up to 75% of final loan to value), funds are released in arrears during the project - meaning you need to fund the works for each stage before the lender releases more funds. No funds will be releases until you have completed the first stage of works (which includes the structural overhaul and your initial costs and fees). It's worth highlighting that lenders typically calculate these stage releases based on interim valuations of the property during the work, releasing funds typically in four stages against increasing property value, rather than against the actual costs you incur.

The other option, if you'd prefer to get the funds up-front is an 'advance' or 'Accelerator' mortgage (exclusively available through
BuildStore).

With this mortgage, the lender typically releases up to 85% of the purchase price of the property, then 85% of the costs, so you would be required to contribute 15% of your own funds for the deposit. The funds for the purchase of the property and the build stages are released, at the beginning of each stage, and you would fund 15% of these costs from your savings. For example, if one stage costs 16,000, the lender would release 13,600 in advance of the work, and you would have to fund 2,400, and so on. With this type of mortgage, the stage releases are actually based on your projected costs, rather than the increasing value of the property, enabling you to budget more accurately.

BuildStore is the UK's leading expert in self build and renovation finance and works with well-known banks and building societies to create a range of self build mortgages to help you find the ideal way of financing your project. Whatever your project, you can be assured that the expert advisers at BuildStore will discuss your requirements in detail and will only recommend a particular product once they have fully understood your circumstances. They have access to a wide variety of self build and renovation mortgages from the top lenders as well as the exclusive Accelerator mortgage.

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