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  • Refurbish/Develop

    Refurbish, Refinance & Rent - detail required

    I purchased my first BTL recently at 115,000 and the initial survey prior to purchase valued the property at 125,000 although with a 10,000 refurbishment and repairs Im hoping 140,000 is a fair and achievable new valuation. The property was already discounted from 150,000 original listed price.

    Following the successful refurbishment I am looking at the option of refinancing to 75% LTV based on the new value and potentially extract 15-20k of equity to put towards my next property deposit and refurb although I have some questions about this and I would really appreciate anyone's more experienced view on my plans..

    1. Do I need my own surveyor to value the property after the refurbishment or would I simply approach the mortgage lender to value it? I am guessing I would need to hire my own surveyor to present the new valuation and evidence of works done to the mortgage company?

    2. When refinancing following a refurbish are there any tips to getting desired increase? I plan on handing the surveyor a pack of documents showing works completed, completed checklist of repairs listed in the initial survey done by the same surveyor and evidence of other higher value properties sold on the same street within the past 2 years. Any other tips for getting a desired increase?

    3. When getting the valuation done following a refurbishment and repairs, should I do this survey/valuation prior to renting out the property even if it will be three months prior to applying for refinance (due to the 6 months refinance rule) or should I stand the property empty for 3 more months or rent it out and value/refinance it whilst let to the tenant? My assumption would be to value the property immediately following the refurbishment, rent it out to prove its maximum rental value for a few months prior to approaching the mortgage lender for refinancing (after the 6 months minimum mortgage period has expired). Does this sound a correct path to take?

    4. Any other advice for this refurbish, refinance and rent strategy. Am I on the right track and are there any potential pitfalls maybe? As I see it if house prices continued to fall (which I expect would be minimal in the north of England) I plan to hold and rent the property anyhow and if interest rates increase then rents would need to increase to match, right?

    Any help would be very much appreciated Smile

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    ManInTheMoon

    Man in the Moon,

    you don't say when you purchased the property, but from the latter part of your posting, I'm guessing around 3 months ago.  First thing first.  Not all lenders have a 6 month rule!  Some will allow you to remortgage within this time frame, although if you do, you'll minimise the potential number of lenders available quite extensively.

    Whether you go for your own valuer is a matter of personal preference, but you must understand that it will have no bearing on the valuation that is instructed by the lender, whoever they may be.  This is because a lender appoints a valuer to provide a professional opinion on the structural integrity of a property and also it's market value.  If you have an alternative report that values the property higher, they will ignore it. The valuer that they instruct is their trusted man.  They will not ignore his report lightly.

    Your plan to provide the valuer with details of money spent on the property is a sound one, along with any proof  of permissions for the building work from the Local Authority.  The lenders valuer will have his own idea of what property constitutes a comparable, but you could present yours in any case. Look for comparables within a quarter of a mile, sold within the past 6 months or so.  Not just on the same street.  Sales from 2 years ago are too far back.

    A potential lender will be looking to see that the property is currently rented.  Whilst they do not necessarily look at the current rent, at least it shows that an achievable rent has been secured.  The lenders valuer will of course provide his own rental figure, based on the nearby market.  Don't leave the property empty.  It may cast doubt in the minds of the lenders as to whether it is viable as a rent-able proposition.

    You will probably need to provide the same details to the lender that you supplied to the valuer when applying for your new mortgage.  They will want to see that you have added real value.  If you were to apply before the 6 month point, lenders take a long hard look at why you are suggesting it is now worth £x more.  If for example, you have added a bedroom, it is easier to show a likelihood of an increased rental income. If you have gone in and tarted the place up, making cosmetic changes, it will be less likely so.

    Ideally, you would have a mortgage product in mind, prior to starting your refurbishment project. We at Property Tribes Financial Services would carry out this process as a matter of course, especially if you have been using Bridging Finance, for example for the initial purchase.  Things can change slightly during the refurb process, but you should be looking at what the end result will be.  If you would like to see what your options are at this point, and indeed at the 6 month point, please call me on 07751 042485 or 01206 654444 to chat through the options.

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    Thank you for the information and for taking the time to respond. According to the land registry my purchase was made in March so 3 months ago.

    Taking on board what you mentioned I will first find a tenant and wait until October (owned the property for 6 months) with intent to maximize refinance valuation. I have your number recorded and a plan to implement, thank you Smile

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    ManInTheMoon

    Usually the lender would want their own valuation doing and wouldn’t trust a valuation you provided after all it could be a mate of yours doing the valuation. 
       
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    Last time I did one as above they value it between 10-20% less than market value for a mortgage

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    I'm sorry you had a low valuation.  I wonder how long you waited from initial purchase before refinancing and what changes/upgrades you made to the property and was it the same lender refinancing the property?

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    ManInTheMoon


    Was expected and planned for we proved that we did new roof, sorted all damp replastered full house, electric new boiler, kitchen and bathroom all with proof. It didn’t have a mortgage was bought cash, that might be why don’t know, they just seem to always value lower than true market value after refurb. Good luck you might need it especially in such short period of time
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    Be aware. I've done several BTL all with  refurbishmsnts, one where we spent £70,000 to a high standard and without exception every time they undervalued them by between 10 snd 15%.  Ever if we supplied evidence they just weren't intetested. It seems standard in the BTL mortgage  game.
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    What are my chances of refinancing based on this..?

    Based on recent comments I'm doubting whether I should have done the refurb at all and instead just rented out at a lower rental value.

    Its my first light refurbishment with intention to refinance. What do you think my chances will be to refinance after 6 months with a tenant in the property having done the following:-

    • The main refurb was the kitchen/dinning area. It needed an arched wall removing, the old kitchen removing and new kitchen fitting with new appliances and electric wiring and points, new plaster skimmed in places and all made good. All pipes were boxed in around the property and generally made tidy. The kitchen/diner is so much better now and also has much more work space and room area due to the wall being removed. Its basically a new kitchen with wall removed to make bigger adjoining the dining area.
    • New toilet and waste pipes and outside waste/ New window lintels/ Fireproofing from next door in loft / chimney re-pointing / New underlay fitted and missing floor tiles replaced / Extractor fans and smoke/CO2 alarms fitted/ Other general maintenance, cleaning and upkeep of the gardens etc
    • I am also having paint done downstairs in the property (kitchen/dining and living room area)
    • ..and of course I will be renting it with all the legal requirements for a higher rental value than was declared at the first mortgage.

    The seller was motivated to sell this property quickly and over a 6 month period the property had been reduced from 150k / 130k / 119k and I purchased for 115k.

    A neighbor's house had a kitchen extension slightly larger than the one on my BTL and that sold in 2017 for 140,000. Usual prices are 130-150k in the area. I would require a new valuation of 135,000 or more for the refinance to be viable and worthwhile.  Is it possible or maybe I should leave the equity in the property and finance my next project using more cash?

    If I request the same lender or another lender look at the property again after 6 months and if they do not provide a value worth refinancing for, other than potential loss of the valuation fee paid to the lender would there be any other negatives to not refinancing following a low valuation?

    What are my chances of successfully refinancing based on this..? (Its OK to be brutally honest I can take it..)

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    ManInTheMoon