Should you renovate your home during a pandemic?
Why should you consider talking to your mortgage lender about any potential renovations to your home? Henk Jansen, founder and partner at Expat Mortgages, says mortgage lenders have three reasons to be interested in your home renovation.
The housing market has seen its biggest rises in decades; we are all stuck at home, seeing every defect…and many construction companies are fully booked for months to come. According to industry experts, home renovations are in full flow, as people discover that they really need that extra study and spend their holiday money on something closer to home.
Why is this a question for your mortgage adviser? In theory, you should inform your mortgage lender if you are about to start on a home renovation (although in practice this is so uncommon that they wouldn’t know what to say if you did). Secondly, you might want extra funding, and raising money on your mortgage might be an option. And thirdly, your renovation could add value to your home, provided you plan it properly and make prudent choices.
There are six stages, according to Jansen. “First: think of what you want, for example, an extra floor on the roof or solar panels,” he says. “Then select a contractor: not an easy task as there are too few available. Three, make sure the contractor is available to do the job (well!). Arrange permits if needed, then arrange the funding. Six: get the job done. It will take more time than expected and you will be confronted with extra work or costs!”
If you don’t have the cash, first talk to your mortgage adviser about your current loan. “Often, mortgage advisors help people take out a certain amount of mortgage, registering a higher amount of mortgage in the deed at the notary,” he says. “This higher registration gives you the possibility to get an extra amount of mortgage without seeing a notary again, which saves you about 1.000 euros and some time.”
You might have already repaid some capital from your mortgage and be able to reborrow this amount quite easily. Otherwise, your adviser will assess your loan-to-income ratio (LTI) to check you can still repay the amount, and the loan-to-value (LTV) ratio of your home. The price will probably have risen anyway, but if you renovate, you could add a lot of extra value: with a plan for what you want to do and what it will cost, this can be taken into account for an extra loan.
When the money comes in, it goes into a special building deposit account. “Once you hand in the invoice for the contractor, they will pay the contractor,” explains Jansen. “Or if you paid it yourself or went to Gamma, they will pay it to you. Some German people buy their kitchen in Germany because they are better and cheaper. That can be paid from the building deposit account or repaid to the client. If you hire workers from another country, as long as there are invoices and there is proof that the work has been done, these can be taken into consideration. But they won’t just give you the money and say: good luck!”
This control is a good guarantee for getting work done properly. Although it might seem incredibly expensive to do work with a contractor who is qualified, and perhaps even registered somewhere like the monuments’ restoration body, don’t let black market labourers touch your building structure.
"Your house is probably your most valuable possession, so be careful,” warns Jansen. “A constructor should have CAR insurance for construction or risk. People try to get cheap contractors and labourers and pay black market, but you want to be insured, and make sure you work with qualified people who come recommended.”
What can go wrong? At the worst, the clause in your mortgage that says you should have informed the lender could have dire consequences. “Some people tear down their whole house and then find they don’t have enough money, or a good plan, or the contractor goes bust,” he says. “But the value of the collateral for the bank has diminished, and that’s what they want to avoid. At the end of the day, they can execute the deed of the mortgage, which means they can sell the property on your behalf at auction. I can’t recall this happening, but technically that’s the bottom line.”
He also warns of the other “drama stories” of lawsuits, crooked contractors and falling foul of planning permission laws. The message is: a good contractor will know what you are and aren’t allowed to do in your local area. You might be able to build a fence of up to 1,8 metres high around your garden, but check if you need permission for a home extension; if you live in a Grade A listed building (a city or national monument), many things are banned, so tread carefully.
On the plus side, if you are doing work to improve the environmental performance of your house, such as adding insulation, solar panels or a heat pump, you can borrow an extra 6 percent on your mortgage and may qualify for government subsidies too. “This will increase the energy rating of your property as well, which will increase the value of your house if you sell it,” Jansen adds.
Finally, especially in this lockdown period, put yourself in your neighbours’ shoes: there is absolutely no benefit to them that you are doing up your house, only constant nuisance while they are stuck at home. “Communicate!”, advises Jansen. “If you are doing all the work at times that you find logical, but your homeworking neighbours with young kids might not agree, inform your neighbours.
"If they have a really important meeting, they can either find a work spot for that special day or ask you to stop working on your house for a short while. If you communicate, it really helps: after the renovation, you will (presumably) live there for a long time, so take a friendly approach!”
Planning is everything, he adds, especially as it may take three to five weeks to raise an extra loan, let alone get started on the project. “Nowadays, your property isn’t just your home anymore: it’s your workspace too,” he says. “It is a very good idea to renovate, especially now during covid, to increase the value of your property, and make it more comfortable.”
Expat Mortgages specialises in helping expats buy their perfect home in the Netherlands. Their team of independent mortgage advisors works closely with clients, allowing them to tailor their service to your requirements. With offices in Amsterdam, Haarlem, The Hague, Rotterdam and Eindhoven, Expat Mortgages is on hand to help you wherever you are in the Netherlands.
Or, why not join their upcoming webinar for homeowners (May 25) where Expat Mortgages will explain all the options available to you when it comes to borrowing extra money for renovations.
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