Refurb or no mortgage

THE QUESTION

I've had an offer of £87,000 accepted on a property that, once it's had a light refurb, should be valued at £120,000.  Following the mortgage valuation the mortgage company have come back to me and said they are holding a full retention until the kitchen and bathroom have been replaced, but they really aren't that bad.  I've seen much worse and had mortgages for much worse in the past.  How can I get round this?

THE ANSWER

It looks like you have fallen foul of the differing definition of mortgageable that applies to main res or BTL properties. Lots of investors fall for that one too.

Because it has a kitchen and bathroom of sorts, you believe it to be habitable and thus mortgageable and you would be right if it was your main residence you were looking to mortgage.

However, for an investment property that will be let out a different level of habitability is required – it has to be rentable, not just habitable.  In other words, the quality of the property and the kitchen and bathroom in particular, has to be of sufficient quality that people would pay the market rent to live there.

In this and many other cases, the reality is that the surveyor’s opinion is that it does not meet the required quality and that prospective tenants would not pay to rent out this property in its current condition.  What counts here is this particular surveyor’s opinion, rather than what your past experience has been.  Thus there is a 100% retention until it is improved to meet that definition.

This puts you in a Catch 22 situation.  You cannot improve the property until you buy it, but you cannot borrow any money to buy the property to be able to improve it.

A bridging loan would of course overcome this issue, but it would add an extra layer of cost.  The mortgage lender you want to stick with as you have already been approved may also have issues with releasing the money if you are using them to effectively remortgage rather than purchase i.e. six month ownership restrictions.

If the seller is as eager to sell to you as you are to complete the purchase then there may be a cost effective solution.  Exchange contracts, get the keys, do the refurb, then complete.  As long as you can get the vendor to agree to it, this would work very well.

If you can put a timeframe for them on how long that would take and particularly if it could be done within the normal 28 day timeframe to complete, there would be little logical reason for them to object.

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