If you have ever spent any time looking for properties online you would no doubt be aware of how vast the range of prices can be depending on a number of factors such as location, size and condition of the property.
As house prices continue to hit record-breaking levels, many would be homebuyers or property investors are looking for ways to get on the property ladder (or grow their portfolio) for less. As prices on the open-market soar, property auctions have become increasingly popular, as they’re often the most cost-effective way to purchase a property.
One of the most common types of homes on sale at an auction are fire damaged properties. As the term suggests, fire damaged properties are homes that have seen some form of fire damage (be it accidental or intentional) and are in need of renovating before they can be deemed liveable.
While you may be able to find a fire damaged property on sale from an estate agent or via the owner directly, many fire damaged properties end up as part of an auction where they’re more likely to be purchased by a savvy property investor.
Why Would I Buy a Fire Damaged Property?
As briefly touched on above, fire damaged homes are often considerably cheaper than a standard, ready-to-live-in home.
Fire damaged properties typically attract seasoned property investors rather than wide-eyed eager first-time buyers who are looking to move into their new home asap.
Property investors often see potential in fire damaged homes as the houses can be bought for a vastly reduced price (when compared to market value), renovated and then sold at a later date for far more than they were initially bought for.
The upfront price for a fire damaged property can be appealing and often far lower than that of a liveable home. However, it’s important to note that depending on their condition, the property itself might actually be more expensive than buying a standard home in the long run.
Before buying a fire damaged property it’s important to consider a myriad of factors that could ultimately decide whether the property is worth the hassle. In the remainder of this article we will cover some of these important factors such as structural integrity and the severity of damage to the property, along with advice on how to obtain a mortgage on a fire damaged home.
Whether you’re a first time buyer or a fledgling property investor, our guide will help you to understand what checks and surveys you need to conduct before buying a fire damaged property.
What Surveys are Required?
If you have decided that buying a fire damaged property is something that you want to do then it’s important to view the property in person. Regardless of whether you buy the property via an auction or an estate agent, you should ALWAYS view it in person – especially if the property has had fire damage. Viewing the property allows you to see the extent of the damage with your own eyes and can help you to understand the scale of renovation required.
After your initial viewing of the property it is highly advisable to carry out an in depth survey to see the true extent of the damaged property. Should the property have suffered severe fire damage it’s strongly recommend that you start with a Building Survey. Unlike the standard Condition report or the more popular Homebuyers Report which is used when buying newer or standard homes in a liveable condition, the Building Survey offers a more thorough look at the property.
In a Building Survey the surveyor will thoroughly examine the property, looking under floorboards and at key walls to determine the structural integrity of the premises. Building Surveys are crucial when buying a fire damaged property as following the survey you’ll be able to ascertain just how much repair and renovation work is needed.
Building Surveys can reveal a lot more about the true condition of the property behind the visual damage. Often when viewing a fire damaged property you might see burned carpet, ash black walls or even a caved in ceiling. However, a Building Survey can help you to better understand the true extent of these damages and to ultimately see if the house is worth the extensive renovation and refurbishment it requires.
While buying a cheap fire damaged property might seem like a no-brainer and an astute investment, a Building Survey is well and truly essential as it will accurately inform you as to the viability of repairing the property and most importantly (from an investment point of view), sellable in the future.
Making a property safe for habitation (and understanding the costs involved in this process) should be your first concern when buying a fire damaged property. It can be very easy, especially via an auction, to assume that all fire damaged properties on sale are actually able to be repaired with enough work. Should a fire damaged property contain severe structural damage you might have to demolish the property and build it again from scratch in order to appease government guidelines.
Please note that obtaining financial support or a mortgage for a fire damaged property can be extremely difficult. As such, be prepared to carry a significant amount (if not all) of the financial responsibility without relying on help from a third party.
Obtaining a Mortgage on a Fire Damaged Property
As highlighted in the section above, obtaining a mortgage on a fire damaged property can be extremely challenging as most high street mortgage lenders will only lend to you for a property that is habitable at the time of purchase.
In nearly all but the rarest of cases, most fire damaged homes are deemed to be uninhabitable as they have no working bathroom or kitchen and require extensive renovation work before they can be considered safe and habitable. As such, most fire damaged properties are mainly bought by cash buyers with access to large funds to cover the cost of renovating.
However, despite the majority of lenders being unwilling to offer mortgages on a fire damaged property, there are specialised brokers who may be able to offer you a ‘Renovation Mortgage’.
As the term suggests, a Renovation Mortgage (or the similarly functioning ‘Self Build Mortgage’ is targeted at builders and would-be buyers of derelict or otherwise uninhabitable properties.
Similar to a standard mortgage, a Renovation Mortgage aims to cover the majority of the property’s value (usually up to 90%). However, a Renovation Mortgage is unique as it will ‘unlock’ further funds to finance the redevelopment once certain conditions are met.
Most Renovation Mortgages will usually come with a stipulation in the form of the lender requesting architectural surveys on the property and periodically assessing the extent of the damage and renovation work carried out. Should you pass these tests/progress checks, the lender will typically then release a further portion of the agreed funds to you.
What to do if you can’t get a mortgage
If you’re unable to secure a mortgage for the fire damaged property that you wish to purchase, don’t despair, there are still options that may be available to you.
Depending on the price of the property and your personal savings you may be able to buy the property outright as a cash buyer, this is typically one of the most common ways of buying a fire damaged property especially via an auction.
Alternatively, you could borrow money from friends and family to help you make the purchase, or as a last resort, turn to a bank or lender to loan you the money. However, before borrowing any money, especially from a third party institution, it’s important to understand the interest rate and the feasibility of the repayments.
In addition to the interest rates and the impact that the repayments may have on your finances for the foreseeable future, you should also be aware that unless you have had the property fully surveyed, there is a possibility that you might not be able to make back the money borrowed from a future sale or let of the property.