Valencia Property Blog

As you may well know it's August so we are on holiday with just a couple of us holding the fort back in Valencia during the month. Nevertheless, we will still be putting up the weekly blog which I am writing in Asturias (Northern Spain) and we also have quite a few intial client calls lined up in the next few weeks so we can make sure to give the best service possible when we get back in September. Today is a short blog post though with details about a new mortgage deal available through our partners at Mortgage Direct which is very interesting for those of you looking to buy a place that requires modernisation or those of you who have already bought a place and are looking to modernise it now.

What Previously Happened

So, previously you had to match your requirements and your desire to renovate to your budget as you needed to find all of the money for the renovation yourself. Let's say you wanted to buy a property for 300k with a 70% mortgage (Standard) but it required modernisation and you had been quoted 80k to do the modernisation. This would mean needing the 90k for the 30% remaining for the cost of the property, plus the purchase costs of 45k, plus 80k for the modernisation. So you would need 215k in total to buy a property of 300k. For a lot of people this was not possible as they didn't have the savings despite the fact that they could easily afford the mortgage repayments due to their income. However, now you can get a mortgage for the renovation too and in the rest of this post we will detail everything about the new offer.

Currently, very few products on the market allow you to borrow more for renovation projects at mortgage interest rates. The existing product for releasing capital against your existing property comes with limited terms, higher rates, and numerous restrictions, highlighting the need for a more flexible solution. The existing products also have great limitations.

Existing products on the market to borrow additional cash for renovations required:

1. Planning permission, quotes from developers, and architects' plans need to be submitted when buying the property. Very often, there is not enough time to gather this information as the property will fly.

2. The extra cash for the development is paid directly to the developers not to you.

3. It's a capital repayment mortgage from the start

Existing products for releasing capital from your existing property for renovations also had various inconvenient limitations:

1. They were generally shorter term with higher interest rates

2. Planning permissions and quotes needed to be provided before the time of renovation meaning you had already paid out money to get these with no guarantee of getting the finance

3. Cash paid directly to the developer again

4. Capital repayment mortgage again

New Funding Details

Let's take the example above. If you were needing to renovate and had a quote of 80k then you would now be able to fund that renovation in its entirety. The maximum allowed for the renovation project is 30% of the cost of the property, in this case 300k, so the maximum allowed for the renovation would be 90k, 10k more than our example given. Essentially this means you can get up to a 100% mortgage on properties requiring renovation allowing you to do the renovation and therefore increase both the value of the property and the quality of it along with potentially getting it a better energy performance rating.

Welcome to a New Way of Thinking

People say that the devil is in the detail so let's get into the weeds with the detail. You can see it below.

1. Flexible Mortgage Options: Finance up to 70% of your property’s purchase price or valuation. (Remember that banks will always finance the lower of these two figures and sometimes valuations are higher than sale price and sometimes lower)

2. Additional Renovation Funds: Borrow up to 30% of the purchase price for renovations (This potentially takes you up to 100% of the purchase price being financed).

3. Hassle-Free Process: No need for immediate quotes or planning permissions. You have up to 3 months post-purchase to provide these, with possible extensions. (If your builder and architect take time to get the paperwork and licences together don't worry)

4. Simple Cost Estimates: The bank only requires an estimate of your renovation costs. (Not full quotes, not architect's plans, just a rough idea of what the cost will be up to 30% of cost price of property. We can help you with these initial quotes through Valencia Remodels, our renovation service)

5. Competitive Terms: Enjoy the same terms and interest rates as a standard mortgage. (This is a biggie. It's not charged like a personal loan or a car loan, it's at the same rate and time period as the mortgage)

6. Direct Payments: Funds are paid directly to you, allowing you to manage quotes and renovations yourself. (Not to the builder or architect, who could disappear off the face of the Earth after receiving payment, but to you)

7. Interest-Only Option: Opt for an interest-only mortgage for the first 12 months while you renovate. (Meaning your ongoing costs are minimised while you do the work)

8. Flexible Repayments: Over-borrowed? No problem! Pay off up to 25% of the total borrowings each year without penalties. (Penalties for full payment or extra overpayment are just 2% of the amount in the first ten years and 1.5% after that)

9. Energy Efficiency Perks: Receive a free energy certificate before and after renovation. (You probably won't need it if you are getting the loan with your purchase as the owner is required to supply one but it might be good to have a better one after doing the renovation. Equally the funds can be used to get solar panels, battery storage etc... too.)

10. Energy Savings: Improve your home’s energy efficiency by 30% and enjoy reduced rates. (Your bills can come down in price and you can use the loan to drastically reduce ongoing costs)

Who Can Apply?

You don't need to be buying a property currently, but if you are then why not, especially if you are thinking of buying a place requiring modernisation like so many of our clients do. You may have bought a place recently or you may have bought a place many years ago but feel like doing it up. You can be resident here in Spain or non-resident and the age thing is the same as for mortgages, taking you up to 75 years old more or less but not older. You will need to be able to prove affordability just as you do with a normal mortgage so expect to be asked for bank details, salary details etc...

Minimum Amounts and Time Periods

The minimum amount of money for this product is 30k so maybe it's not for you if you just want to change the tiles in your bathroom or kitchen. As regards time periods it's just like a mortgage so you choose the time period but 5 years would be an absolute minimum though normally ten years and above up to a maximum of 25-30 years is allowed. Obviously higher amounts make more sense to pay over a longer period to reduce monthly costs but as interest rates are low changing the time period compared to a personal loan is an option.

Valuations

The lending bank will do a valuation of the property before the work and after. The first valuation is normal if you are getting a mortgage on purchasing a property but the second is not. The valuations are charged at 130 Euros each which is more than decent. Sometimes the cost of the renovation will be higher than the new valuation plus the purchase price but this is not something to be worried about because some of the remodelling cost may be on things you cannot see like insulation, electrics or plumbing. There are benefits even if this is the case long term on the value of the property.

How to Apply

Contact Mortgage Direct and tell them you are interested in their new product for renovations of property. (If you are buying then tell them you want a mortgage and renovation costs) Here at Valencia Property we can also help guide you with the estinated renovation costs of course so you can apply for the right amount and also find you the right place to buy for your potential modernisation.

Conclusion

This is a surprising and welcome move. The conditions look extremely favourable especially at current interest rates and if the conditions hold even when rates drop in the Autumn and beyond then there really is no downside to financing your modernisation like this. Equally, if you bought some years ago and go to your bank to ask for money to renovate they are going to push you down the personal loan route with much higher interest rate terms and shorter time periods for repayment meaning that the monthly repayments are higher. This is a no-brainer for people looking to finance a modernisation: you increase the value of your home, make it more energy efficient and also make it look better to potential buyers if you are thinking of selling too.