Mouthy Money Your Questions Answered panelist Karina Hutchins answers a reader’s question about being able to get extra cash in their mortgage above the house value to conduct renovations.
Question: My partner and I are first-time buyers nearly ready to buy a house. We can afford something around £200,000 with our deposit but we’ve seen a house that needs some work, but has a lot of potential, for £180,000. Would we be able to ask the bank for extra cash in our mortgage above the house value to conduct renovations? We don’t have the extra funds ourselves to do the work that is required.
Answer: Before the financial crisis of 2008, it was common to find mortgage loans up to 120% of the value of your home.
However, this level of debt left people in negative equity (where you have more debt than your house is worth) meaning they became mortgage prisoners, as without equity, they couldn’t afford to sell their home or change their mortgage deal. As such, mortgages above 95% of the value of your home are no longer available.
I would see if it’s possible to buy with a 5% deposit and use whatever funds you have left over to start renovations.
If you require further funds, you can wait six months after the mortgage starts to apply back to your lender for a further advance. They will revalue your home and maybe you will be able to withdraw further funds if you’ve created more equity.
This could work well as house prices have naturally increased by 10-15% over the last 12 months and you can look to improve the property as much as possible with the deposit money you held onto.
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Alternatively, you should look to save funds or seek affordable borrowing elsewhere which isn’t secured against your home. If you do take out new debts, please ensure you can afford the repayments in additional to your mortgage and other outgoings.
Karina Hutchins is Head of Mortgages at Open Money