New mortgage + refurb. What to do with lump sum?

W

Whatamiat

Registered User
Messages
6
See summary of situation below

FTB
House purchase €215,000
Savings €95,000
Refurbishment costs €100,000

Estimated value when completed €315,000

Bank has agreed to cover full cost of refurbishment provided we have contingency of 10% in savings (which we do)

I'm looking at a number of options:

1.
20% deposit of house + refurb = €63000 leaving ~27k in savings to start the refurb.

The 27k would not last very long and we would then start pulling from the banks refurb stage payments.

We would be in the LTV<80% bracket here.

= 4 year fix UB @2.6% or 10 year fix KBC @2.99%


2.
20% deposit of house price =€43000 leaving ~ €47,000 after legal fees to start the refurbishment costs and an initial mortgage of €172000

We would make the 47k go as far as we could toward the refurb then take the remainder from the stage payments agreed up front with the bank.

We would be in the 80-90% LTV bracket here

=1 year fix, Then go for <80% when refurb complete

3. 10% deposit of house price only = €21k leaving almost 70k in savings to go towards the refurb. This much in cash could result in us not needing to take any of the refurb money from the bank as we would be able to pay in cash where needed. We could also delay the refurb for a number of months to increase our savings further. We would have the fall back from the bank if needed.

LTV 90%. But after 1 year we would have the refurb complete with our own cash and the LTV would be <80%.

= Variable rate for 1 year then fix

Any thoughts or input here?
Not sure what the best route is.
with any of the options I plan to apply for the 100k refurb from the bank better to have the option than not.
 
I understand with a refurb it is like a self-build - you go in for the full amount from the outset and this would define your LTV. How the bank would call it is another question. I would have by doubts that refurb of 100k adds 100k to the value of the house. There is normally a 'sunken' cost element that its done to the way you want not the way someone else would do it.

The bank would then phase payments to you, with the first one buying the house and then as you spend your own money on refurb periodic architect reviews/further funds released by the bank.
Based on this, I don't think option 2 would be a runner with the bank - but might be surprised.

So I would say its either option 1 or option 3. Personally I would go with option 3 if I could, and use the description as redecoration rather than refurbishment. I think this would be by far the easiest option in your dealing with the bank. I have no idea how sticky the bank are with releasing phased payments, but I think 27k would mean you would be back to them pretty frequently in the process. If you had 50k spare and you could go back once in the process its one thing, but its likely you would be back 2-3 times with the cash reserves you have available at the moment.

Whatamiat said:
= Variable rate for 1 year then fix
Click to expand...
How about go on the cheapest 1 year fixed rate - with cashback (given the money will come in handy for you) and then consider what you do after that including switching, as your LTV should be better !
 
gnf_ireland said:
I would have by doubts that refurb of 100k adds 100k to the value of the house. There is normally a 'sunken' cost element that its done to the way you want not the way someone else would do it
Click to expand...

The house has no floors/kitchen/sanitary wear etc.

Any money spent will add directly to the value as nothing is being replaced/thrown away, just added to.

I'm not sure why Option 2 would be out based on what you said.
Its basically just putting down more of a deposit to lessen the initial monthly repayments.
 
Whatamiat said:
The house has no floors/kitchen/sanitary wear etc.
Any money spent will add directly to the value as nothing is being replaced/thrown away, just added to.
Click to expand...
Ok, but added to based on your taste which may not be someone elses. Assuming you are buying this stuff new, there is a depreciation the minute it is installed
But yes in certain cases it can add 100% and very occasionally more to the value of the house, but in most cases you never reach 100% increase in value
 
gnf_ireland said:
What mortgage are you applying for in option 2 and what is your initial/phased drawdown proposal
Click to expand...

All 3 options are the same mortgage arrangement but with different deposit values.

Stage payment for refurbishment works:
1: Repair house + seal + site clearance
2: Ground floor refurbishment
3: Driveway + external lighting + landscaping
4: 1st floor refurbishment

On completion of any of the above stages the engineer will sign off on the works being completed and the bank will release the funds.

The initial phased drawdown will be for the house purchase only. It will be up to me if or when I draw on any of the €100k refurbishment loan.
 
Whatamiat said:
We would be in the LTV<80% bracket here.
Click to expand...
Whatamiat said:
We would be in the 80-90% LTV bracket here
Click to expand...
If the mortgage arrange is the same, chances are the LTV is the same as well. This will not be adjusted during the window of the phased drawdowns.

I would suggest using the least amount of money for the deposit, and keep the largest amount of money for the work, so the lowest amount of phasing. Personally I would go with option 3 if I could make it work..

Surely driveway & landscaping comes after 1st floor refurbishment ?
 
gnf_ireland said:
If the mortgage arrange is the same, chances are the LTV is the same as well. This will not be adjusted during the window of the phased drawdowns.
Click to expand...

The LTV is based on the loan value though? So if I'm putting in more of my own money up front I have less of a loan and there for a lower LTV. The value doesn't change in any of the 3 options, but the LTV does.

gnf_ireland said:
Surely driveway & landscaping comes after 1st floor refurbishment
Click to expand...

I have thought about this. Most new build houses I see are finished inside and left grubby on the outside for years and in some cases never finished right.

When the ground floor is complete we will have a fully functional house. Until children arrive we would have no need for the upstairs. I'd prefer put the money to finish the outside of the house to a high standard. The upstairs can be done later with savings built up over time if needed.
 
Whatamiat said:
I have thought about this. Most new build houses I see are finished inside and left grubby on the outside for years and in some cases never finished right.
When the ground floor is complete we will have a fully functional house. Until children arrive we would have no need for the upstairs. I'd prefer put the money to finish the outside of the house to a high standard. The upstairs can be done later with savings built up over time if needed.
Click to expand...

Well that depends on what you call the finish of the first floor? Are you talking not painting/furnishing it or are you talking about builders finish? or something else. There is little point in finishing the bottom half of the house and then a year or so later dragging builders through the house again destroying the place. I have yet to see a neat builder mind the parts of the house they are passing through.
Agree with you on the garden/landscaping always being an after thought - but in a lot of cases that is due to people overspending on the house and not being able to afford to finish the outside.

Although I do applaud your financial approach here, it may not be as practical depending on the level of finish you are talking about.

Whatamiat said:
The LTV is based on the loan value though? So if I'm putting in more of my own money up front I have less of a loan and there for a lower LTV. The value doesn't change in any of the 3 options, but the LTV does.
Click to expand...
Whatamiat said:
All 3 options are the same mortgage arrangement
Click to expand...

The mortgage arrangement is the same in all 3 options, as is the value of the house.
The deposit versus drawdown is a cashflow situation that rectifies itself once the job is complete
Therefore its unlikely the LTV will be different in any of the cases no matter how much you put down. In all cases the house will still be worth the same and the money borrowed the same.

Think of a self-build. End house valued at 300k, Mortgage agreed 200k - LTV 67%. Whether the mortgage is drawn down in 4*50k, 2*100k or whatever does not impact the size of the mortgage agreed or the value of the house.

Talk to the bank, but their default will be higher deposit amount, which leaves you with less working capital available to you. I would go the opposite and keep as much working capital as you can.
 
You must log in or register to reply here.
Back
Top