With a chronic shortage of new houses being built, the British housing stock is ageing. One in six owner-occupied houses were built before 1960 with more than one in four built before 1945. Fashions change and buildings need maintenance, and yet much of the housing stock remains unchanged from its original concept and is in need of improvement. Government statistics show that one in three owner-occupied homes are now classified as 'non-decent'.
There are many benefits in refurbishing a property:
You can often live in the house while the work is being carried out
You can pace the work according to your means
You can grow into your house by refurbishing it room by room as you need them
You can buy a property to refurbish at a relatively low purchase price, making it an affordable option
It's a suitable investment for first-time buyers
There are thousands of opportunities available and they are quite easy to find in all areas, even in those places where new properties are scarce
You have options – you can chose to live in an urban regeneration area or in a renovated rural cottage
You end up with a property which has more character and history than a new house
You can carry out a lot of the work yourself and inject a lot of your personality into the job in the process.
There are many reasons why people are now looking to refurbish older properties. They may not be able to find a suitable property in the part of the town or city in which they want to live so the option of buying a property which they can change to suit their needs is appealing.
They might also have certain ideas that they want to incorporate into the design of a house and refurbishment is an excellent way of achieving this. Or they may have connections with the building trades and either they or their family or friends will be able to do much of the renovation work.
A wide range of people are looking to refurbish these days, ranging from those looking for affordable housing to people doing large projects.
Refurbishment is a good option for the first-time buyer – bring an older small house or flat back back to life and get that elusive start in the housing market. And people looking to move up the housing ladder quickly are also using refurbishment as a way of accelerating the growth in the values of their properties. For families, improving and extending the property they live in can be a cost-effective way of getting the space they need – better than moving house as there are not the costs associated with buying, selling and moving, the children do not have to change schools and local neighbourhood support systems remain in place.
Most lenders will be prepared to lend for a refurbishment project provided the house is habitable. They will typically lend up to 95% of the final value of the property but apply a retention to the loan in respect of the work to be done so that the maximum initial loan will be restricted to 95% of thecurrent value of the property. The client has then to fund the improvements and have the property revalued before the lender will release the rest of the money.
This process can cause severe cashflow problems for borrowers during the refurbishment and mean they struggle to pull together the finance from a combination of savings, short-term bank loans, overdraft facilities, credit cards and family. In some cases the complexities might convince them not to embark on the project at all.
BuildStore has launched a product to help address this problem – the Ideal Home Improvement Mortgage.
Drawing on our experience in the self-build market we have devised a way of enabling people who are looking to refurbish a house to obtain positive cashflow during the refurbishment period from the lender. This can help to speed up the project and also reduce costs as borrowing is at mortgage rates and the borrower becomes a cash purchaser of materials and labour.
The additional cashflow is released at the start of set stages during the refurbishment in accordance with a schedule of costs prepared prior to the offer of loan being given. The stages at which the cash is released are shown in the top box on this page.
When each stage has been completed it is certified by a professional such as an architect and their certificate stating that the stage has been completed triggers the release of funds for the next stage.
When the funds are released
Initial release of funds: purchase of house and Stage 1 of the improvements including stabilisation, demolition and injection of DPC plus any roofing work necessary
Stage 2 involves installation of services.
Stage 3 is the practical completion of all rooms (to the stage of being plastered).
Stage 4 sees the internal finishes including installation of kitchens, bathrooms, doors and decoration being completed.
The Ideal Home Improvement mortgage provides money in advance by means of a short-term indemnity policy paid for by the borrower.
In many cases, a house may not be habitable while refurbishment is taking place, or, even if habitable, maybe the refurbishment would proceed more quickly if the house were vacant. In these cases the borrower may want to remain in their current home while the refurbishment is taking place.
All of the lenders offering this mortgage allow this and, because the borrower is paying two mortgages at the same time, will treat the current mortgage as a commitment when calculating the amount of borrowing on the new mortgage.
Six facts about refurbishment
60% of owner occupied houses were built before 1960 and 30% of owner-occupied houses are classified as 'non decent'
Lack of new housing increases the market for the refurbishing of older houses
Refurbishment can help increase the stock of affordable houses
Refurbishment lets people get the living space they desire
Lenders can apply retentions until work has been completed, causing cashflow difficulties.
Borrowers can have difficulties in paying for work before the lender releases the retention – this is why BuildStore has developed the Ideal Home Improvement mortgage.