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My partner and I found our dream home which is a doer-upper in need of a full renovation.
We spoke to our current mortgage lender which said we would be able to port our existing mortgage.
But when we applied for the mortgage, it was turned down. The reason was the home 'required extensive renovation involving multiple trades'.
While that's true, all the work is internal and the survey showed the property was structurally sound.
Why would we be rejected for a mortgage on this basis? Is there another lender which is more likely to approve us?
David Hollingworth replies: Most mainstream mortgages will have the feature of being portable.
That essentially means that the current mortgage deal can be taken to a new property when there's a move of house.
What is porting?
Porting offers a number of potential advantages to the borrower. The biggest benefit is if the current deal is still within an early repayment charge period.
Paying off the mortgage from the sale proceeds and taking a brand new mortgage would result in a penalty being charged.
Porting the mortgage to the new home keeps the deal intact and avoids the charge.
If the current mortgage was taken when rates were lower, porting allows the borrower to keep hold of the deal, rather than having to take a new product with a higher interest rate.
Lender checks on affordability and new property
Porting is a useful feature but the lender will still need to run their usual checks on affordability and the new property.
It's therefore possible that if there's been a change in circumstances, such as a drop in income, the porting of the existing mortgage would not be agreed.
In this case the issue lies with the property, which will also be assessed when porting.
Lenders will always carry out a valuation to make sure that the property is deemed to be worth the purchase price and that it will fit with the lender's acceptable property types.
When it comes to a renovation project, much will depend on the size and scope of the job required and the current state of the property.
Home improvements are of course acceptable to lenders. It's common for lenders to allow borrowers to take out equity from their home with a bigger mortgage, to fund the cost of the improvements.
For example, that will often be how homeowners fund the cost of substantial improvements such as an extension or loft conversion.
Scope of the work
If the property needs some TLC but the work required would largely be cosmetic it could well be acceptable to the lender and qualify for the porting.
If the property is in need of more substantial refurbishment that will require some major work to bring it up to scratch, the lending decision may hang in the balance.
Lenders will typically require the property to be habitable for it to be suitable for the mortgage.
That will extend beyond the property being structurally sound.
If it doesn't have a working kitchen, bathroom or connected services for example it is not likely to be accepted.
The valuer's comments will be critical in informing the lender's decision.
They will not only look at the condition of the property but also consider whether it would affect the ability to market and sell the property if it had to be repossessed.
If the property needs significant refurbishment, it will likely impact the marketability of the property and therefore have an impact on the lender's security.
You might need a self-build style mortgage
There may be alternative options that could help. Some lenders may be able to consider the project along the same lines as they would consider a self-build.
That could offer an initial amount on the purchase of the property but look at the project and enable funds to be released at agreed stages as the work progresses and the value of the property increases.
This is clearly a more specialist type of mortgage and you will need to consider whether it will work according to your budget requirements.
Depending on how much can be lent against the current value, it may need a bigger amount of capital upfront to enable the work to be completed to reach the next stage, although some products can even release funds in advance.
A number of lenders, particularly some of the smaller building societies, will have self-build mortgage options.
There are also some specialists in the sector such as Buildstore that have products designed for renovations that can't be met by standard mortgage products.