Residential Mortgage retain / switch to Self-Build?

[Mania]

Hi. 

 

We are planning to demolish our residential home and replace with a new dwelling in a couple of years time.

 

We currently have a residential mortgage with a building society and hope to fund our project purely with savings. Our mortgage will be due for review soon. I don't want to commit to a fixed term residential if early repayment charges will be incurred. 

 

Will our residential mortgage have to be converted to a self-build for the duration of the build? I have read some online articles where some suggest that building societies allow customers to retain while others raise alarm bells. 

 

Please does anyone have experience of or know the answer to my question? I could only find a post relating to funding self-builds whilst living in existing residential homes with sufficient equity.

 

Thank you.

[Conor]

Your resedential mortgage is against your house and must remain habitable. You can't demolish your house. You have to pay off your residential mortgage with either your own cash or a self build mortgage. Caveat is that the self build mortgage provider will only provide you with a mortgage for the value of the plot with the house demolished and planning in place. We did it this way with ecology. Fortunately they valued the cleared site the same as what we had with the residential mortgage, and both products had similar LTVs so we didn't have to cough up too much of our own money. That left us with a healthy pot of money to start the build before we'd need additional draw downs. 

 

Sequence was simple, get FPP for a replacement dwelling, apply for ecology mortgage, valuer comes out and values cleared site (even though house still there) with the FPP in mind. You then draw down the self build mortgage and immediately pay off your residential mortgage. Solicitor does all that. Then you are free to demolish your house and start building. Ecology were the ownly lender we found that were willing to do this. Others were looking for much higher LTVs that we couldn't afford as mortgage was quite large.

 

I'm assuming you've not got planning permission yet? In that case I suggest you go on to a one or two year product. This will then give you the time to get a design completed and through planning. when that product ends, you can then pay it off without penalty. We waited three months after getting FPP to switch as it saved us a £3k exit fee. You also need a couple months to get your self build mortgage sorted, as you can't apply until planning is granted.

 

 

 

Edited October 25, 2020 by Conor

[Bozza]

I cannot answer your specific query, but I like many here have our self build mortgage with Ecology.  If you see their website they seem to offer a variety of option for self build mortgages and I suspect they’ll have more experience with your circs than the high street lenders.  Thing is about them is if you phone them you’ll actually get to speak to someone in the right dept not a generic call handler.    Would recommend you give them a phone as they’re very helpful.  My best guess with any lender is they would only lend up to the value of your property once the current house is demolished, eg it’s value as a cleared plot with PP.  so it may be that you need to use some of your savings to pay off the existing mortgage then use a self build mortgage to fund the build..   LTV will the key I’d imagine and how much savings you have.

 

Unless someone here has done specifically what you are proposing the rest of us will probably advise you to speak to the lenders.  If you do get an answer from a lender please do update your post, as future reference. 
 

good luck !

  

[Mania]

Thank you so much Conor & Bozza 

 

That is really helpful information and has saved us. I have a call lined up with our building society tomorrow morning and will make sure that we don't commit to a 5 year offset mortgage product transfer (with high early repayment charges) which I was told about last week! 

 

We got full planning permission (won our appeal!) a couple of weeks ago, and are now just looking at making slight amendments to the approved design and discharging conditions, the standard contamination of soil, drainage (been advised by architect to do after stage 4) and landscape (advised to do after design has been finalised), party wall agreements etc. (Does it ever end?) 

 

I will give Ecology a call tomorrow, they sound very professional and like they could be the most suitable option for us and I guess that it wouldn't do us any harm to add  a contingent buffer on top of the mortgage amount based on the mechanics of the self-build loan and how we don't have to draw down. This actually feels a lot better, especially if we can qualify for interest only. 

 

Is / was it easy to switch back to a standard residential repayment mortgage after your build is / was complete?

 

When estate agents valued our property last year they all told me that it literally was for the site because nobody would buy this for this bungalow to live in as it stands (ouch - but I knew that!) and that it would always be to rebuild (even though we did a major refurbishment just to make it habitable until we reached this stage). So hopefully we will have the same valuation situation as you Conor. Currently our LTV is around 30% with a large mortgage. 

 

I'll also have a chat with our financial advisor this week and see if he can come up with any solutions. 

 

I'll provide an update as to how I get on after I have exhausted all the above. 

 

Thanks again. Brilliant.

 

 

[Conor]

28 minutes ago, Mania said:

. This actually feels a lot better, especially if we can qualify for interest only. 

 

Is / was it easy to switch back to a standard residential repayment mortgage after your build is / was complete?

 

 .

 

 

 

You won't get interest only unless you have the full capital to repay the loan in full.

 

When the build is complete and you have completion certificates, you then apply for a standard residential mortgage as a new customer as you would when buying a house. Obviously you'll go to a broker and shop around. The only difference is that the lenders will require more paperwork and guarantees in place as it's a new build, e.g. 10 year structural or NHBC warranty.

[Mania]

On 25/10/2020 at 16:55, Conor said:

 

You won't get interest only unless you have the full capital to repay the loan in full.

 

When the build is complete and you have completion certificates, you then apply for a standard residential mortgage as a new customer as you would when buying a house. Obviously you'll go to a broker and shop around. The only difference is that the lenders will require more paperwork and guarantees in place as it's a new build, e.g. 10 year structural or NHBC warranty.

 

Thank you.

[Mania]

An interim update:

 

I spoke to our existing lender - we have opted to stay with our flexible product. Thank heavens we didn't commit to the transfer - that was close. They do not offer self-build mortgages at present, he said that could all change in the future, hopefully it can be a product transfer by the time we are ready. 

 

I called Ecology for information. The representative advised to borrow a buffer amount from our existing lender now as it will be cheaper,  but if we do that now and start repaying, surely it isn't that beneficial especially as we will have to transfer the slightly reduced principle amount to a self-build mortgage when we start our project anyway. 

 

For any newbies reading this post the Ecology rep also advised that the new build would need to energy efficient with a SAP rating of 85+ which our architect would be able to advise on. They would also need the standard evidence of income, value of the plot and projected final value of the build. Arrangement takes 4-5 weeks including survey & the early repayment charge will apply before 2 years. 

 

No word from our Financial Advisor.. 

 

All of our efforts will go into saving now, the holiday cancellations / refunds from this year will help. 

 

Thank you all. 

[Mania]

On 25/10/2020 at 16:55, Conor said:

 

You won't get interest only unless you have the full capital to repay the loan in full.

 

As additional information Ecology confirmed that they would accept equity in another property to qualify for interest only.

[Ferdinand]

21 hours ago, Mania said:

An interim update:

 

I spoke to our existing lender - we have opted to stay with our flexible product. Thank heavens we didn't commit to the transfer - that was close. They do not offer self-build mortgages at present, he said that could all change in the future, hopefully it can be a product transfer by the time we are ready. 

 

I called Ecology for information. The representative advised to borrow a buffer amount from our existing lender now as it will be cheaper,  but if we do that now and start repaying, surely it isn't that beneficial especially as we will have to transfer the slightly reduced principle amount to a self-build mortgage when we start our project anyway. 

 

For any newbies reading this post the Ecology rep also advised that the new build would need to energy efficient with a SAP rating of 85+ which our architect would be able to advise on. They would also need the standard evidence of income, value of the plot and projected final value of the build. Arrangement takes 4-5 weeks including survey & the early repayment charge will apply before 2 years. 

 

No word from our Financial Advisor.. 

 

All of our efforts will go into saving now, the holiday cancellations / refunds from this year will help. 

 

Thank you all. 

 

85+ as a required threshhold for EPC by Ecology is interestingly low.

 

That is only a mid-range B, and I would be interested to know how different that is than a Building Regs House.

 

Are they acknowledging that the EPC is a very clunky measure?

 

As a comparison, the Scottish Gov are planning to require all existing owner occupied properties to reach C ie 69-80 by 2040.

 

That standard is essentially already in place or expected for rentals (expected by 2030 in England) and the UK Govt is thing about bringing the timescale forward significantly even from that.

 

F  

[Weebles]

+1 to @Conor's post

We had to switch from a residential mortgage to a self build mortgage, then demolish our bungalow, then start building.  Ecology locked us in for 2 years. That has elapsed but we are still paying their stupidly high self build rate due to not getting sign off yet (and that is another story).

Ecology wouldn't accept our estimate of build costs.  We had to pay an official estimator to estimate it all (cost about £200).  Turned out he was only £10K different to my estimates but his came on an official looking bit of paper rather than a spreadsheet ? 

Otherwise, Ecology have been great.  Easy to draw down the cash needed.  We are interest only.  I did have to demonstrate sufficient savings at the point of approval.  

Time your switch carefully and make it as near as you can to your demolition.  You don't want to pay those higher rates for longer than necessary.

[Mania]

2 hours ago, Weebles said:

+1 to @Conor's post

 

Time your switch carefully and make it as near as you can to your demolition.  You don't want to pay those higher rates for longer than necessary.

Thank you.