Financing an unmortgageable property

[XJ75]

If I were to find a property that was in a poor state of repair and was considered unmortgageable due to a lack of functioning kitchen and/or bathroom, is it as simple as getting a bridging loan, getting a cheap, bare-bones kitchen and bathroom fitted and then getting a mortgage. Or is there more to it than this?

I feel like there must be more risks/pitfalls, otherwise more people would be doing it.

Thanks.

[anonymous-user]

I have bought such properties and it's never been "simple" to sort them out. Always a major refurb to get them into saleable (which essentially means mortgageable) condition. But yes, once you tick the boxes lenders want ticked you're off and away.

It's a bit like car ad's in the classifieds which say stuff like,
"A/C not working, just needs a re-gas",
"Automatic transmission slipping, just needs a fluid change", or
"Failed MOT for rust, just needs a cheap welding job".
In every case, if there was a cheap and easy fix somebody would have done it already.

Separately from the above, unless you're in BTL already and preferably through a limited company - run away.

[XJ75]

Thanks - this would be a project home for us to live in, so long-term it would be a major refurb anyway, I just wasn't sure how easy it was to get it to the stage where we could switch from bridging finance to a normal mortgage.

[surveyor]

Choose your lender carefully.

I remember valuing a proper do it upper auction property for GMAC in the 2007. They were lending on everything up 105%, but really looked at conventional housing. The one page form had literally no space for me to add comments. As a result just about every tickbox for specialist reports was ticked. Really needed a specialist lender.

Whoever got it seems to have made a nice job of refurb at least...

[NickCQ]

XJ75 said:

If I were to find a property that was in a poor state of repair and was considered unmortgageable due to a lack of functioning kitchen and/or bathroom, is it as simple as getting a bridging loan, getting a cheap, bare-bones kitchen and bathroom fitted and then getting a mortgage. Or is there more to it than this?

I feel like there must be more risks/pitfalls, otherwise more people would be doing it.

The problem with these situations is that the clock is ticking extremely loudly once you have a bridging loan in place - 0.75% interest per month will do that. Whilst it makes sense for the keen DIY-er to buy a cheap fixer-upper and improve it over time, the interest rate on the bridging loan means you can't afford to do this here. Therefore you need to price the refurb at commercial rates and get an army of guys in to allow you to refinance asap.

Taking into account all of the above the discount you get versus a standard property likely isn't big enough. Would make sense for some kind of idiosyncratic dream home, though.

[XJ75]

NickCQ said:

The problem with these situations is that the clock is ticking extremely loudly once you have a bridging loan in place - 0.75% interest per month will do that. Whilst it makes sense for the keen DIY-er to buy a cheap fixer-upper and improve it over time, the interest rate on the bridging loan means you can't afford to do this here. Therefore you need to price the refurb at commercial rates and get an army of guys in to allow you to refinance asap.

Taking into account all of the above the discount you get versus a standard property likely isn't big enough. Would make sense for some kind of idiosyncratic dream home, though.

Thanks - but I was hoping that we would be able to do the bare minimum to get it mortgageable, and the mortgage it and continue with the rest of the refurb. Is that not likely to be an option?

[NickCQ]

XJ75 said:

Thanks - but I was hoping that we would be able to do the bare minimum to get it mortgageable, and the mortgage it and continue with the rest of the refurb. Is that not likely to be an option?

Hard to say without specifics - clearly you need to work out all the frictional and refurb costs and compare that to what you think a comparable property in 'done' condition would cost. You'll end up paying two sets of surveyors fees, mortgage upfront fees, legal fees and so on plus a reasonable amount in interest.

When I have interacted with bridging lenders they also put a floor on the amount of interest that is charged / an upfront fee with rebates for time outstanding. Their business model obviously would not work if everyone paid back after a month.

The key would be to find a broker who can tell you which lenders would be happy to accept a property that was a "habitable building site" as collateral for a normal loan. If you also want to use the proceeds of the normal mortgage to fund building work there will be additional hoops through which to jump.