Ecology/Buildstore - Self Build/Personal Loan

[Mark Boland]

Morning Folks, 

 

Long one, so please bear with... 

 

My Dad, uncle and 3 of their friend bought a plot of land for £62,000 each in November 2017. All in the building trade at different levels, from builder to commercial director. they bought the land as joint LTD Company. An additional £35,000 has been put in each. In order to pay; Solicitors fee's, Accountants, roadworks, tree care, planning permission, mining companies, fencing, councils, up-keep etc. 

 

It was decided that I will "buy" the house from my dad 12 months ago as I will live there when it is complete, so I have put the majority of the £35,000 into the project. (which was my savings for my own house). 

 

We are now at the end of our savings and are looking to apply for additional funds to fund the actual build of the house.

 

Me and my partners combined salaries are circa £80K+ and have a good credit history.

 

The next step will be to get a price for what the plot is currently worth, we feel it will be around £120K+, given the planning permission and state of the land since initially being bought for £62K. The estimated build costs are circa £110,000 (appreciate this sounds low, but it has been worked with the help of a lot of trades people given the connections etc) the estimated finished property value will be worth circa £350,000/£400,000. 

 

Looking for some advice/help on the following: 

 

• Gifting land to a child or family member? If I go down the self-build route, the plot will need to be in my name as apposed to my Dad's to get the mortgage/loans etc. If so, whats the best way to go about it, with regards to tax etc. 
• I have made a few steps with Buildstore, but after reading some forum's, I believe Ecology are overall a better company? 
• The rough %APR I have been quoted on a self build is 5/6% and they promise to swap you over after the completion of the build to a regular mortgage.  Is this possible to get an interest only mortgage until the completion of the build? I would hope that my rate would be pretty good as my LTV Rate would be around 50% when getting a "real mortgage". 
• When using the self build companies, given the above circumstances, would they borrow me a lump sum given i am giving them land as collateral or would it still be in staged payments? 
• The other option would be to look down a personal loan route, or maybe use the land as collateral? 

 

Appreciate this is long winded, but any any information (On anything!) would be massively appreciated. 

 

Thanks 

[Ferdinand]

You need to work outhow you want to handle the limited company ... eg as a Ltd company you would be able to recover VAT during the build.

 

It may be the way is to increase your own mortgage and put that in the CO as a Directors load or capital.

 

Suggest taking advice from a specialist accountant.

Edited February 5, 2020 by Ferdinand

[Mark Boland]

Thanks Ferdinand. We are meeting with an accountant over the next couple of weeks, just wanted a heads-up, appreciate it. 

Edited February 5, 2020 by Mark Boland

[Ferdinand]

There are people around on the forum with this knowledge, but it tends to be very hard won and very specific to circumstances, plus the rules change regularly - so it is usually better to mention vague possibilities and recommend advice :-).

 

 

[Dan F]

1 hour ago, Mark Boland said:

The rough %APR I have been quoted on a self build is 5/6% and they promise to swap you over after the completion of the build to a regular mortgage.  Is this possible to get an interest only mortgage until the completion of the build? I would hope that my rate would be pretty good as my LTV Rate would be around 50% when getting a "real mortgage". 

 

You can get a rough idea of the products available here: 

https://www.buildloan.co.uk/product-list.php

https://www.ecology.co.uk/mortgages/residential-mortgages/self-build/
(this doesn't mean they are all suitable for you though!).

 

My understanding is that lenders do allow for interest-only during the buld, yes.  That's certainly what we are doing, I'm unsure how widespread that is though amongst other lenders though.

 

Quote

When using the self build companies, given the above circumstances, would they borrow me a lump sum given i am giving them land as collateral or would it still be in staged payments? 

 

There are various different approaches that different lenders use.  Cost-based vs value-based and arrears vs. advance stage payments.  Normally though, if you own the land outright, based on our experience, you can take an intial drawdown of around 80% of the land value and then the stage payment approaches apply to the rest of the build.

 

[Ferdinand]

One point is that in the Buy to Let market the number of mortgages going to limited companies is now more than half.

 

This is driven by ta changes clobbering individuals with mortgages on BTL property.

 

It is therefore conceivable that one of these lenders may have a willingness to do it for a self builder, or you could call it a BTL and remortgage afterwards.

 

You would need a good broker for that, or a lot of luck finding them.

 

Ecology will not touch it with a bargepole without changing the ownership, as they do not dance with anything that looks like a developer.

[Mark Boland]

9 minutes ago, Dan Feist said:

 

You can get a rough idea of the products available here: 

https://www.buildloan.co.uk/product-list.php

https://www.ecology.co.uk/mortgages/residential-mortgages/self-build/
(this doesn't mean they are all suitable for you though!).

 

My understanding is that lenders do allow for interest-only during the buld, yes.  That's certainly what we are doing, I'm unsure how widespread that is though amongst other lenders though.

 

 

There are various different approaches that different lenders use.  Cost-based vs value-based and arrears vs. advance stage payments.  Normally though, if you own the land outright, based on our experience, you can take an intial drawdown of around 80% of the land value and then the stage payment approaches apply to the rest of the build.

 

Thanks Dan, I've seen a couple of similar links. I'm going to get in touch with Ecology today and see what they say. 

 

[Mark Boland]

Thanks Ferdinand. We will now be separating the 5 plots into individual plots. The "Shared LTD Company" will be used for shared pathways, roadworks, electric gates, tree care etc. But the actual individual house build will be done as a self-build. That is the plan as of today's date. But, that's one of the reasons I have joined this forum and have meetings with an accountant etc in the coming weeks. 

[nod]

3 hours ago, Ferdinand said:

You need to work outhow you want to handle the limited company ... eg as a Ltd company you would be able to recover VAT during the build.

 

It may be the way is to increase your own mortgage and put that in the CO as a Directors load or capital.

 

Suggest taking advice from a specialist accountant.

As a LTD company you would be able to recover the vat IF you where vat registered 

But also liable for corporation tax on any profit 

Im sure your account will explain this 

[Temp]

+1 to the accountant.

 

So many ways to come unstuck. For example the CIL exemption for self builders only applies under some pretty tight rules. Don't do anything until you are sure you understand them. As some errors cannot be reversed easily or at all leaving you liable to pay it. Even your accountant may not fully understand the CIL exemption do check out what you propose to do on this forum.

 

When did your Dad get planning permission and is there still much time left before it expires? 

 

I think there are also different tax and inheritance tax rules for gifts of land rather than other assets. I wouldnt be surprised if someone told me it was better for you to buy the land and for your father to gift you the money straight back (or some other complication).

 

 

Edited February 5, 2020 by Temp

[Mark Boland]

54 minutes ago, Temp said:

+1 to the accountant.

 

So many ways to come unstuck. For example the CIL exemption for self builders only applies under some pretty tight rules. Don't do anything until you are sure you understand them. As some errors cannot be reversed easily or at all leaving you liable to pay it. Even your accountant may not fully understand the CIL exemption do check out what you propose to do on this forum.

 

When did your Dad get planning permission and is there still much time left before it expires? 

 

I think there are also different tax and inheritance tax rules for gifts of land rather than other assets. I wouldnt be surprised if someone told me it was better for you to buy the land and for your father to gift you the money straight back (or some other complication).

 

 

Thanks, some interesting points to take on board. Regarding the planning permission, it was only full authorised early January 2020, so all good on that front. Regarding the land gift/sale, i'm hoping the accountants will shed some better light on this situation as there's numerous opinions online. 

[PeterW]

On 05/02/2020 at 12:11, Mark Boland said:

Thanks Ferdinand. We will now be separating the 5 plots into individual plots. The "Shared LTD Company" will be used for shared pathways, roadworks, electric gates, tree care etc. But the actual individual house build will be done as a self-build. That is the plan as of today's date. But, that's one of the reasons I have joined this forum and have meetings with an accountant etc in the coming weeks. 

Who owns the company ..?? 
 

You potentially have a plot worth nothing, as the land has no access....

 

Unless you have a right to access the plot in perpetuity, with no restrictions or covenants then you own nothing ... that has to be in the deeds for your house/plot and not at the whim

of a company. 
 

That is what you need to sort first, or you won’t get any mortgage company to touch it as it is effectively land locked. 
 

I know this is family / friends etc but you need a good solicitor before you need an accountant. 
 

Each plot needs to buy a 1/5th share of the road “company” with access and the land ownership fully marked out on the deeds for each, and have the granted right of access. 
 

Also, what is the agreement for upkeep ..? You could land yourself a bill for £££ a month for upkeep of the shared areas, and there is nothing stopping the other 4 selling out to a company that will hike your service fees. 
 

I don’t want to put a damper on this, but I’ve seen this happen before, and my first rule is never do business with family or friends ... it ends in tears and legal bills ...