Mortgage confusion!

[bpk101]

Hi – My OH and I are looking to pursue a self-build project and i'm at a stage where i need a bit of advice on mortgage options to fund it.

 

We've been advised by various architects that buying a run-down (but habitable) house to demolish is the best way to acquire land for your build in terms of saving cost to install utilities and ease of planning approval. 

 

If i was to pursue this option... would i require a normal mortgage from a typical high st. lender, or a different kind of mortgage from a specialist self-build lender (Ecology etc.)?

 

And in relation to Build Stores 'Project Types', would buying a house to demolish be classed as 'Self Build', 'Property Renovation' or 'Property Conversion'... or none of these?

 

Thanks

[Conor]

If the property is habitable, you'll need a residential mortgage. Then you'd get full planning for a replacement dwelling, then apply for a self build mortgage. The plot would then be valued as a building site, and unless the plot with FPP is worth the same as the residential mortgage you have, then you'll have a shortfall to meet with cash.

 

We did exactly that, and luckily Ecology valued the plot with FPP the same as what we paid for it and was simply a matter of drawing down and paying off the residential mortgage.

 

I think for any project, you'll need some sort of planning permission to get anything from a self build lender.

[Temp]

Welcome.

 

Buying to demolish counts as a new build so qualifies for zero rating for VAT. I believe demolition cost should be zero rated to you.

 

Best advice is not to do any work on the site until you have planning permission for a knock down and rebuild.

 

After getting planning permission make sure to apply for the self build exemption from the CIL, that is If your council has implemented the CIL. This must also be done before doing any work on site. It's particularly important if the new house will be a lot bigger.

[Buzz]

Also consider the pool of lenders for a plot /demolish and re build is much smaller if you only have outline pp , most want detailed plans passed and approved before they will consider an offer . 

[bpk101]

Thanks, so the correct sequence would be:

 

1: Apply for 'residential' mortgage to buy the house

2: Gain planning permission for demolish and rebuild

3: Apply for 'self-build' mortgage to pay off the residential mortgage and fund the build 

 

?

 

Would i need to inform the residential mortgage lender of my plans (to gain planning and switch to a 'self-build' mortgage) at point of application? Or is this not necessary given the house wouldn't be demolished until we switched to a self-build mortgage with another lender?

 

[Buzz]

In theory yes , but the realty could be something different. 

I would go and speak to an independent broker and tell them what you want to do they may be able to find a lender who would be happy to lend on the whole project,  if the numbers for the lender add up , particularly if you can put a large amount of your own money in and reduce the LTV ratio , im sure there are specialist lenders out there . 

[bpk101]

18 hours ago, Buzz said:

In theory yes , but the realty could be something different. 

I would go and speak to an independent broker and tell them what you want to do they may be able to find a lender who would be happy to lend on the whole project,  if the numbers for the lender add up , particularly if you can put a large amount of your own money in and reduce the LTV ratio , im sure there are specialist lenders out there . 

 

Thanks... i've started reaching out to a few brokers i've used in the past and will see what advice they come back with.

[bpk101]

Interestingly a mortgage advisor has just got back to me saying it's not possible... their response below:

 

(Incidentally, in case it has any bearing the mortgage i'd need to buy the house/plot would be a second mortgage)

 

"Unfortunately it wouldn’t be able to be done as a second mortgage at all because of what the property will be used for (demolish and rebuild), even though you plan to re-pay the mortgage back before you demolish it, its not seen as a second residential. For any self build mortgages, planning permission has to be obtained. So this would either involve you purchasing the house outright with no mortgage, applying for planning permission and once this is granted then development finance can be looked at, or you can purchase a house with planning permission already granted but these tend to be a lot more expensive."

 

Any thoughts? 

[Conor]

Your broker is wrong. We did exactly the sequence you described above. We found our mortgage broker a little bit clueless as well when it came to self build, that's why we went to ecology directly.

 

The big caveat is that the house you intend to buy mist be habitable so you can get a residential mortgage. And the other that they "site" is valued to a similar amount to the purchase price once FPP is granted, otherwise you'll be digging deep to pay of the residential mortgage.

 

Also be aware of early exit fees on your res mortgage. Luckily our planning coincided with the term ending and didn't have to pay the £3k exit fee.

 

Another thing, as you'll be buying a house as a second property, you'll be paying the higher rate of stamp duty. This is refundable if you sell your primary residence within three years and move in to your new build (or a rental)

[bpk101]

4 hours ago, Conor said:

Your broker is wrong. We did exactly the sequence you described above. We found our mortgage broker a little bit clueless as well when it came to self build, that's why we went to ecology directly...

 

Thanks Conor, this is all really helpful advice... i did think the broker might have got it wrong as i've heard this sequence being done before.

 

In terms of where to turn next then for advice on what we may be able to borrow, should i speak with someone like Ecology directly and ask them to do some sort of mortgage affordability check to calculate what we might be eligible for based on our current financial status? Or do i need to handle this through a broker?

 

Does anyone have experience with Buildstore? Are they a lender or a broker? Or just a general self-build advice platform?

 

 

[Buzz]

Try this link https://www.themelton.co.uk/mortgages/guide-to-self-build/#2

 

They mention what you are trying to do ,

In areas of high house prices, it may be worthwhile purchasing a poor quality house and then demolishing it to create a building plot. For example, some areas have poorly built bungalows on fairly large plots surrounded by larger houses. However it’s always worth speaking to the local planning office to gauge their attitude to this type of development.

But also mention,

To qualify for a self build mortgage, your project must usually meet the following criteria:

Outline Planning Permission must have been obtained before your application can be considered and before any initial funds can be released. 

I found them very helpful to talk to but they will only deal with a broker when it comes to applying for a mortgage, they are one of a small pool who will lend on just outline PP