How Do I Buy a Property to Renovate?
So you have found a property for sale which requires some renovation works. How do you actually manage to buy the property?
For the purposes of this article we will assume that you do not have the available spare cash to buy the property outright. Even if you did, that is actually not the smartest use of your money for reasons I will not go into in this article, but may be the subject of a future article. We will assume here that you actually need to get a mortgage.
Getting a Mortgage
The best kind of mortgage for a property that you intend to renovate and then rent out or sell is an “interest only” buy to let mortgage from a company such as The Mortgage Works (TMW). TMW are the buy to let arm of the Nationwide Building Society.
An “interest only” mortgage is, as the name implies, a mortgage where you actually only pay the interest on the lump sum borrowed and none of the actual lump sum itself. This obviously leads to a smaller monthly mortgage payment and therefore you are more likely to make a good profit when you rent the property out.
It is also far easier to get an interest only mortgage as lenders such as TMW are (currently) only concerned that the rent you will be able to obtain for the property will easily cover the monthly mortgage payment (usually 125% of the monthly mortgage payment). They are not so concerned about your personal circumstances with regard to income and expenses. Having said that, they usually will want to see a income of some sort happening.
Cash Will Be Required
Unfortunately you are also going to need some cash – namely the deposit (usually around 25% of the cost price at the time of writing – Jan. 2021). You will also need some cash or source of income to finance the renovation works to the property.
Now here is another issue with regard to getting a mortgage for a property that requires some renovation works. If you need to get a mortgage then the amount of renovation works required cannot be too extreme because the mortgage company will want to be sure that the property can be immediately let out. If the property is subsiding or needs the roof replacing you will not get the mortgage. However, if we are only talking about relatively minor renovation works then you should be fine. You may even have larger plans for the property such as a extension of removal of a wall or two but these should also not prevent you from getting a mortgage (but will of course require more cash).
The amount of renovation works that you carry out will depend on the amount of cash you have available for the deposit and for the work needed so you will need to plan your budget rigorously and choose your property carefully before committing yourself.