Question: We’ve been living in our farmhouse for 15 years and, while we did some work initially, as it’s over 100 years old, we really need to invest and future-proof our home.
We are working with a builder on a small extension and overall, it looks like it will cost about €150,000. We have about €40,000 in savings, but we’ll need to re-mortgage to cover the rest.
Some of the works will involve doing upgrade works on our heating system and insulation, and I hear there is a new government-subsidy home energy upgrade loan scheme.
Can I remortgage for some of the works and apply for the loan scheme with the rest?
Answer: There are a couple of things here to consider. So the good news is, yes, you can secure a loan against this property for the works to be completed. This is called an equity release mortgage, and lenders will provide 90% of the current value of your farmhouse, or 90% of its future value, assuming that the works will increase the value of the property, on completion.
You should budget for valuation fees of around €150, and must use the same valuer when the builder finishes, to confirm works are complete.
As this property is over 100 years old, the lenders would also request a structural engineers report, the cost here will range from €500-800.
To apply for the equity release, you need detailed costings of the works. With the upgrade work costing €150,000, it would be expected that there will be some structural works, and, if this is the case, a full costings report would need to be completed by an engineer.
The engineer oversees the works, as well as approving the plans and costings. These costs can be included in the initial mortgage application, and can run to around €3,000 but shop around and get quotes from local service providers.
Your equity release may entail stage payments, whereby monies for the renovation are released at intervals, or are not released until the works are done, and your engineer signs off on the project. So, you may need to fund your upgrade in advance, or ask your builder to wait for the money to be released by your lender. You get the money back from the lender, once works are complete, and are confirmed by the engineer and valuer.
Planning permission
If planning permission is required for your extension, this needs to be in place, or the lender needs to know that you will be applying for it. There will be a portion of money held back on the final drawdown until the engineer submits a certificate of compliance, this confirms that all works were completed in line with the planning permission approval.
With regards to the grants, SEAI, the national sustainable energy authority, details the criteria and process on their website seai.ie. Your contractor may also be familiar with the scheme, but do check directly with the SEAI too, as there are eligibility criteria.
Also, most of these grants are not payable until works are fully complete. So, if you are using an equity release mortgage to fund this, you will need to demonstrate that full funding is available to complete the works at the outset.
So, while you may be eligible for the grant, the use of an equity release mortgage and the upgrade loan scheme in conjunction with each other is not a viable option where upfront funding is needed.
What can be done, however, is to split your equity mortgage, keeping a proportion on a low fixed interest rate, and the reminder on a variable interest rate. The latter can then be paid off immediately, on receipt of the grant payment, when all upgrade work is complete.
Margaret Barrett is managing director at Mortgage Navigators, a specialist mortgage broker service with offices in Cork and Dublin. Margaret is an experienced mortgage adviser and Qualified Financial Advisor (QFA).