Renovation loans- could the banks do more?

Shelga

Just wanted to start a general discussion around renovation loans, having just bought my first house as a single buyer. I completely understand why the 3.5x income rule is in place, and I do not think it should be relaxed in general, but with so many homes in the second hand market being in fairly poor condition, should there be more done to enable FTBs to be in a position to improve them more quickly, especially with our 2030 climate goals edging ever closer?

My house, for example- it has a BER of F, it has single-glazed windows, no real bathroom, needs to be rewired, attic needs to be insulated, etc etc- I have a bit of money left over but nowhere near enough for everything that needs to be done. It was incredibly difficult to even get 3.5x my income on this house, as the bank wanted to see how I was going to pay for the most basic improvements afterwards, which is fair enough- but if they'd even lent me 3.8x my income, I'd be in a much better position!

I'm looking at the SEAI website to see what grants are available- I'd love to be able to avail of all of this stuff, but there is still so much else that needs to be done that I don't know when I'm ever going to be in a position to spend €20k on just insulation and heat pumps etc.

Does it makes sense to push so many people into personal loans at 6% and ever more debt, or should there be more joined up thinking around linking the renovation costs with the actual mortgage? Maybe this is a terrible idea, and would just keep house prices unsustainably high, if it could even be implemented?

It just feels like as a middle-income earner in Dublin, you're completely locked out of Help To Buy (well, if anyone can point me in the direction of new builds in Dublin under €350k, I'm all ears), yet there is nothing else to ease the pressure of buying a very old house that needs work.

And I don't mean to complain, I'm overall very happy with my house, just wondered what other people's thoughts and experiences around this issue were. Or how in god's name you paid for it all! :-o

Shelga

Oh, and I'm also well aware that as a nation, we're severely short on the number of tradespeople needed to do all of this work, in any case!

MacDanger

I think the govt should do more to make it affordable for people to renovate existing houses vs buying a brand new house. In small/medium towns in particular, there are no end of unused properties close to the centre of towns but it's cost-prohibitive for anyone to buy & renovate them when you can buy a brand new house on the outskirts of the town for much less. They recently announced a grant of 30k for renovating derelict properties so at least that's a start

Government set to offer new grant to help people buy derelict properties (irishexaminer.com)

Didn’t your survey show up these issues prior to purchase?

awec

The problem is renovation in the mortgage represents a big risk to the bank and a decent risk of you ending up in negative equity instantly.

Imagine you find a house worth 100k that needs to be renovated. You want this renovation as part of the mortgage. The bank would need to know your plans for renovation to calculate:

1. Will the house be worth at least the value of the mortgage when complete (i.e. you aren't in negative equity on moving-in day)
2. That your costings for renovation are realistic (i.e. you aren't living in dreamworld with your plans)

But for you to have this sort of detail will cost quite a bit of money, and this is money you will be spending on a house that you don't even own yet. Imagine spending this money and then someone else outbids you for the house.

Imagine you bought that house for 100k, and applied for a 200k mortgage to cover 100k of renovations. But imagine that after spending that 100k you weren't done, because a bunch of things went wrong, or you under-priced some work, or material costs rose massively or whatever. Imagine you can't afford to borrow any more to finish it off. You're screwed. You're in negative equity, so you can't sell, the house is probably unfinished, and the bank have a mortgage secured against an asset that's probably worth less than the outstanding mortgage.

Shelga

https://www.boards.ie/discussion/comment/118921035#Comment_118921035

Oh yes they did, of course- I still think overall that it was probably the best value I could get, in the area I wanted to live in. It'll just take me a few years to do up.

Leg End Reject

I'm sure I've read that there will be specific low-interest rates for homeowners to upgrade their homes to a minimum B3 BER along with the grants.

Building costs and the availability of tradesmen to complete the work will be a huge issue if many avail of this as demand will push prices up further.