equity in a house Help understanding ?

baz178 · 20 Sep 2022 at 07:40

Hi, bought a house early this year and completely gutted it and still in the progress of finishing a big single back kitchen extension and a double side extension, with garage and bedroom above.

Obviously when the house his done early next year it will be worth a lot more than I bought it for, also me and my girlfriend have funded the build outsells from own money.

So if I go back to the mortgage company later next year with a valuation a lot higher than what I bought it for, what are the options I can do ?

Kind regards Danny

lemonkettaz · 20 Sep 2022 at 07:48

I'm simple terms I believe it is,

If you bought the house for example of 100k, you do upgrades, you get a valuation of 150k

You pocket the difference plus what you have already paid off of the original mortgage, minus fees and costs of renovation.

But you are now paying a mortgage worth 150k not 100k

john_smith · 20 Sep 2022 at 07:50

At your mortgage renewal your L2V will be will be reduced so otentially you'll be offered bettr rates.

mid_gen · 20 Sep 2022 at 07:54

lemonkettaz said:
I'm simple terms I believe it is,

If you bought the house for example of 100k, you do upgrades, you get a valuation of 150k

You pocket the difference plus what you have already paid off of the original mortgage, minus fees and costs of renovation.

But you are now paying a mortgage worth 150k not 100k

No. Unless you decide you want to extract the money you spent on the extension and have a bigger mortgage.

john_smith said:
At your mortgage renewal your L2V will be will be reduced so otentially you'll be offered bettr rates.

Yes.

baz178 · 20 Sep 2022 at 07:58

lemonkettaz said:
I'm simple terms I believe it is,

If you bought the house for example of 100k, you do upgrades, you get a valuation of 150k

You pocket the difference plus what you have already paid off of the original mortgage, minus fees and costs of renovation.

But you are now paying a mortgage worth 150k not 100k

Could you ever take the money out ? Or use it has a deposit to fund another house for example?

Thanks

BUDFORCE · 20 Sep 2022 at 07:59

Yeeeeeeeeee.........

Just don't get too excited about how much you think your work will improve the value of your house.

Freakbro · 20 Sep 2022 at 08:02

baz178 said:
Could you ever take the money out ? Or use it has a deposit to fund another house for example?

Thanks

Yes, you can take the equity out through another mortgage.

baz178 · 20 Sep 2022 at 08:02

BUDFORCE said:
Yeeeeeeeeee.........

Just don't get too excited about how much you think your work will improve the value of your house.

Why’s that ?

BUDFORCE · 20 Sep 2022 at 08:13

baz178 said:
Why’s that ?

I see it all the time on mortgage valuations, people spend a ton of money and do a ton of work, then the property is value nowhere near what they think.

Don't get me wrong, it probably will add value and saleability, but often not as much as you might think, just be realistic about expectations.

baz178 · 20 Sep 2022 at 08:15

I know that but what will help me it’s only cost me materials for the extensions, has I’m a bricklayer so saved a ton on labour.

dlockers · 20 Sep 2022 at 08:27

The bank will run auto algorithms to re-value the house. Obviously the work you have done won't be "in those algorithms", so you'll have to raise a valuation appeal. You should check what LTV/equity you currently have as the bandings are quite large - IIRC 90% - 80% LTV, then 79% to like 60%. So unless you have like, doubled the house value, or were close to the next boundary anyway, it won't make any difference really.

You may also have to pay for the revaluation. And the bank will prioritise value on structural/location type value levers rather than sq/ft/decoration.

baz178 · 20 Sep 2022 at 08:35

dLockers said:
The bank will run auto algorithms to re-value the house. Obviously the work you have done won't be "in those algorithms", so you'll have to raise a valuation appeal. You should check what LTV/equity you currently have as the bandings are quite large - IIRC 90% - 80% LTV, then 79% to like 60%. So unless you have like, doubled the house value, or were close to the next boundary anyway, it won't make any difference really.

You may also have to pay for the revaluation. And the bank will prioritise value on structural/location type value levers rather than sq/ft/decoration.

It should have put on around 125k in value, the open kitchen extension his massive and I’ve added a garage and a extra bedroom above. Was 3 bedroom now 4 bedroom with 2 bathroom which one his a en-suite. Fully upstairs and downstairs underfloor heating, and proper oak skirting boards and architraves through out.

dlockers · 20 Sep 2022 at 08:38

baz178 said:
It should have put on around 125k in value, the open kitchen extension his massive and I’ve added a garage and a extra bedroom above. Was 3 bedroom now 4 bedroom with 2 bathroom which one his a en-suite. Fully upstairs and downstairs underfloor heating, and proper oak skirting boards and architraves through out.

How much is left on your mortgage? What would you value the house at now?

baz178 · 20 Sep 2022 at 08:41

dLockers said:
How much is left on your mortgage? What would you value the house at now?

Only took the mortgage out in January 35 year. Bought the house for 198 same house on street same condition when I bought it sold for 240 last month so they have gone up since January.

dlockers · 20 Sep 2022 at 08:42

baz178 said:
Only took the mortgage out in January 35 year. Bought the house for 198 same house on street same condition when I bought it sold for 240 last month so they have gone up since January.

How much do you owe on your mortgage though?

baz178 · 20 Sep 2022 at 08:44

dLockers said:
How much do you owe on your mortgage though?

I put down 35k deposit. So morgage was around 164k ish

peterwalkley · 20 Sep 2022 at 08:47

Not directly related to your question, but check whether you can reclaim VAT on the work you are doing to renovate the property. There are circumstances where you only need pay a 5% rate, not 20% - but getting a definitive answer likely needs careful reading of the rules and whether they apply to your case. A specialist rather than some random on an IT forum

dlockers · 20 Sep 2022 at 08:51

peterwalkley said:
Not directly related to your question, but check whether you can reclaim VAT on the work you are doing to renovate the property. There are circumstances where you only need pay a 5% rate, not 20% - but getting a definitive answer likely needs careful reading of the rules and whether they apply to your case. A specialist rather than some random on an IT forum

You think a builder refurbing his own house has paid VAT anywhere? lol.

baz178 said:
I put down 35k deposit. So morgage was around 164k ish

So you have a 82% LTV at the moment roughly - if you can get your house valuation up by a "modest by all accounts" £50k then your LTV will be 57.1% which should see a decent "saving" on your mortgage renewal.

Saving in quote marks because all mortgage rates have gone up. So you may find you are paying the same as what you pay now, but that is best case scenario nowadays.

Edit: rough maths, tl;dr get your bank out to revalue it. Sounds like a major improvement.

danlightbulb · 20 Sep 2022 at 08:51

baz178 said:
what are the options I can do ?

Your options are:

1. Do nothing. Just continue paying the mortgage you've already got, living in the house nothing changes.

2. When your mortgage is due for renewal, tell them the work you've done and ask for a revaluation. You can then either:

A) do nothing. You'd be on a lower LTV so might get a better interest rate but right now rates are similar across the board anyway.

B) take out a bigger mortgage on the newly higher valued property, which you'd get the difference between old and new mortgage paid into your bank account to do with as you please ("equity release"). Obviously your monthly payments would increase or your mortgage term or both.

3. Sell the house and move. You'd sell it for more than you owe on the mortgage so you'd have some cash left over and can trade up or buy another do-er-upper and do the same again.

Some things to add:

If you have increased the value of the house considerably you might get council tax rebanding too. I believe they do this when a house is sold.

Also I assume you've got all the required planning permissions and building regs approvals or you might have trouble down the line.

baz178 · 20 Sep 2022 at 09:00

dLockers said:
You think a builder refurbing his own house has paid VAT anywhere? lol.

So you have a 82% LTV at the moment roughly - if you can get your house valuation up by a "modest by all accounts" £50k then your LTV will be 57.1% which should see a decent "saving" on your mortgage renewal.

Saving in quote marks because all mortgage rates have gone up. So you may find you are paying the same as what you pay now, but that is best case scenario nowadays.

Edit: rough maths, tl;dr get your bank out to revalue it. Sounds like a major improvement.

Yes been major improvements has it was run down and basically needed a builder to buy it, with the amount of work needed and get it back to its former glory.