non self build mortgage

[Amateur bob]

just curious as ive not a big combined salary wit wife but if you own the plot and have 100k to put towards a 220k build is there any way i can simply use the plot(worth 150k) and just borrow against that? or against estimated final value of house once ive started building rather than the 4x salary multiple? thanks

[ProDave]

The normal salary multiples will still apply so if your salary is low will that not be your limit?

[Amateur bob]

16 minutes ago, ProDave said:

The normal salary multiples will still apply so if your salary is low will that not be your limit?

surely id have thought the lender would take more of a chance with someone who has security?

[newhome]

It’s based on affordability and thus salary multipliers are for the most part used to determine this. The FCA issues rules and guidelines that lenders have to abide by. One of the key ones is that the lender must assess whether the customer will be able to pay the sums due, and that the lender must not enter into the transaction unless it can demonstrate that the mortgage contract is affordable for the customer. 

 

You can’t use land or an estimate of what a property might eventually be worth to determine affordability. The lender is only able to make an assessment of what you can afford based on your income. How else can you seek to pay the monthly payments if not via income?

 

There is also a lot more uncertainty and risk for the lender with a self build mortgage meaning that there are few players in the market to choose from. 

 

[Amateur bob]

2 minutes ago, newhome said:

It’s based on affordability and thus salary multipliers are for the most part used to determine this. The FCA issues rules and guidelines that lenders have to abide by. One of the key ones is that the lender must assess whether the customer will be able to pay the sums due, and that the lender must not enter into the transaction unless it can demonstrate that the mortgage contract is affordable for the customer. 

 

You can’t use land or an estimate of what a property might eventually be worth to determine affordability. The lender is only able to make an assessment of what you can afford based on your income. How else can you seek to pay the monthly payments if not via income?

 

There is also a lot more uncertainty and risk for the lender with a self build mortgage meaning that there are few players in the market to choose from. 

 

yes i understand this but surely a better deposit than most would gain a better interest rate increasing affordability and allowing me to borrow a bit more?

[ProDave]

Just now, Amateur bob said:

yes i understand this but surely a better deposit than most would gain a better interest rate increasing affordability and allowing me to borrow a bit more?

But even if you owned a £500K house and wanted to borrow £100K, they would only lend up to what they thought your salary could repay.

[the_r_sole]

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Edited September 26, 2019 by the_r_sole

[Amateur bob]

Just now, ProDave said:

But even if you owned a £500K house and wanted to borrow £100K, they would only lend up to what they thought your salary could repay.

ahh i see, how much can a person borrow without security on say a credit card?

[ProDave]

5 minutes ago, Amateur bob said:

ahh i see, how much can a person borrow without security on say a credit card?

Not enough to build a house.

 

I am playing the 0% credit card game Virgin were offering 0% for 29 months a few weeks back.  With a 3% balance transfer fee, that works out about 1.25% per year.  Once all that is spent SWMBO will be opening one hopefully on a similar deal.  If not paid off in full by 29 months we will be looking for another 0% deal to swap them onto. (probably need to look at MBNA then)

[Amateur bob]

5 minutes ago, ProDave said:

Not enough to build a house.

 

I am playing the 0% credit card game Virgin were offering 0% for 29 months a few weeks back.  With a 3% balance transfer fee, that works out about 1.25% per year.  Once all that is spent SWMBO will be opening one hopefully on a similar deal.  If not paid off in full by 29 months we will be looking for another 0% deal to swap them onto.

great  deal how much can you borrow on it?

 

[ProDave]

4 minutes ago, Amateur bob said:

great  deal how much can you borrow on it?

 

That depends on your salary and credit rartng.  I got a pretty low £3200 credit limit but because the only sensible way to transfer the balance is by balance transfer I am limited just to transferring our normal credit card bills as they come in.  The transfer window of 60 days might run out before I have transferred up to the credit limit.

 

You can do it as a cash advance, but then a 5% fee applies and it is only 0% for 20 months, so not such a good deal.

[newhome]

12 minutes ago, Amateur bob said:

yes i understand this but surely a better deposit than most would gain a better interest rate increasing affordability and allowing me to borrow a bit more?

 

Self build mortgages rates tend to be more expensive than a standard mortgage product in general so not really. It’s why people are generally keen to remortgage as soon as they complete the build. The banking crisis was in part caused by banks offering very large mortgages that became unaffordable and with falling property prices many defaulted. This led to much stricter regulation in the banking industry and lenders are much less likely to abandon salary multipliers for someone with a low salary. If you were in a professional job with the expectation that your salary should increase rapidly in the near term there are specialist lenders that will look at offering higher salary multipliers but I doubt that you’d find that in the self build market. 

[BrettW]

On 25/07/2019 at 13:17, Amateur bob said:

just curious as ive not a big combined salary wit wife but if you own the plot and have 100k to put towards a 220k build is there any way i can simply use the plot(worth 150k) and just borrow against that? or against estimated final value of house once ive started building rather than the 4x salary multiple? thanks

Hi Bob,

If it helps I just learnt (Buildloan) that most lends will lend 4.5x times your income not just 4x, does that make a difference to you? 

 

Cheers

[Amateur bob]

16 hours ago, BrettW said:

Hi Bob,

If it helps I just learnt (Buildloan) that most lends will lend 4.5x times your income not just 4x, does that make a difference to you? 

 

Cheers

every little helps, i presume if i move in with parents while the build is going on instead or remortgaging existing house or renting then they will lend me more as outgoings will be lower?

[Jeremy Harris]

26 minutes ago, Amateur bob said:

every little helps, i presume if i move in with parents while the build is going on instead or remortgaging existing house or renting then they will lend me more as outgoings will be lower?

 

As pretty much every lender only lends up to a fixed multiple of income, then outgoings don't make any significant difference as far as a mortgage goes.  If the limit is 4.5 times your income, then that's the limit, and I doubt that it could be increased.

[Amateur bob]

6 minutes ago, JSHarris said:

 

As pretty much every lender only lends up to a fixed multiple of income, then outgoings don't make any significant difference as far as a mortgage goes.  If the limit is 4.5 times your income, then that's the limit, and I doubt that it could be increased.

if my salary multiple is say 4.5 x 30k =135k minus 8k for living costs thats theoreticaly 127k rather than 135k  that theyll lend me though?

[Jeremy Harris]

2 minutes ago, Amateur bob said:

if my salary multiple is say 4.5 x 30k =135k minus 8k for living costs thats theoreticaly 127k rather than 135k  that theyll lend me though?

 

 

It only works on the salary multiplier, usually.  I've not encountered a lender that will increase the amount borrowed over and above that multiplier.  For a salary of £30k the maximum a lender is likely to advance will be £135k.  They will check that you don't have higher than normal outgoings, just to be confident that you're going to be able to meet the repayments, but they won't lend you more if your outgoings are unusually low, as a general rule.

[SteamyTea]

I seem to remember that they also look at the possibility of people paying the loan at a higher rate than it is borrowed at.

So if you borrow at 5%, the banks have actually calculated at 8%.  In the recent past this did not happen and even a small rate increase caused defaults.

There is also a big difference in secured and unsecured loans, different criteria for different goods.

Quite simple, cash is king.

If you can save £8,000/year buy moving in with parents, do so.  It is £160/week in your pocket, buys a lot of plasterboard.

 

A bit more here:

https://www.duncanyeardley.co.uk/news/buying-a-home/what-is-mortgage-affordability-criteria.html

 

https://www.clearscore.com/mortgages/mortgage-affordability-assessments

 

http://www.intermediaries.hsbc.co.uk/criteria/residential-lending-criteria.html

Edited July 30, 2019 by SteamyTea