How can we raise capital to buy a property to renovate?

Posted on 21 January 2008

Hi Katie,

My husband and I would like to buy a property to renovate. We own a house worth £300,000 with a £25,000 mortgage on, its less than that now it was 25 when we took it out 3 years ago.Between us we take home about £32,000 a year. How do we raise the money? We need to borrow £187,000 to purchase the property and renovate to sell on. Raising the money is the problem we don't know where to start.

Anita

Hi Anita,

It's a simple process, you simply apply for a remortgage, and ask to 'raise extra capital' at the same time. If you approach your own mortgage lender, it would be called a 'further advice' but to all intents and purposes it is the same thing. Lenders tend to lend up to £4 x income, so a combined income of £32,000 will get you a maximum loan of around £128,000 so once you have replaced the £25,000 odd you have, this leaves you about £123,000 to take on to somewhere else.

This does of course leave you with a slight shortfall. It may be that your gross income is more than £32,000, (you do say "we take home"). Alternatively, you may have to raise the money elsewhere.  This might be in the form of a buy-to-let mortgage against the new property. The size of mortgage you are allowed on these is based on the rental income expectation of the property on the current market, instead of your monthly salary. If you intend to let the house before selling it, you could do this.

If you intend to let your current house, and move into the new one, you could swap that idea, and arrange the mortgage on your current place as a "Let-to-buy", then arrange a residential mortgage on the new one you're moving into.

It is very important that you chose a mortgage products with no Early Repayment Charges so that you can pay it off when you sell the house.

I would speak to a broker now and get some personalised quotes to go away and think about.

If you would like to use Charcol (who no longer charge a fee) the number is 0800 358 5560.

Best of luck

Category: Raising capital out of property

 

Answers provided in response to Ask Bea are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not neccessarily represent the views, positions, strategies or opinions of Charcol Limited. All comments are made in good faith, and neither Charcol Limited nor Bea will accept liability for them.

We recommend you seek professional advice with regard to any of these topics where appropriate.

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