We sold our house earlier this year to buy a house which stands in around a acre of land, with the idea of splitting it.

 

We definitely got a bargain and feel confident that we are in a position to be able to split the current plot in half and theoretically sell the original property for about what we paid for it, though there is a strong indication that the original property is worth more than we paid and the value has the potential to increase further if we renovate it. The result would be a plot of around 0.5 acres, which itself has a value of course, and about £250k in the bank, with that figure increasing depending on how much we do to the current house and will be decided on the basis of a conversation with an Estate Agent.

 

The conundrum is that we would ideally like to live in the original house while we build the new one, so that we can have the option to renovate the original one once we're done with our build. This will also put us in the best position to manage the new build as we're right there on site. Of course, by doing that, we can eventually sell the original property and recoup all of our borrowing, but need to figure how we can fund this in the interim as our equity is tied up. Also, it would mean the original property is more appealing as the build will be done, so the new owners won't have to face a building project on their doorstep.

 

An early fairly basic conversation with our mortgage broker suggested that we can probably take another £100k out of our mortgage as it stands, which along with our £25k in savings, might be enough to get the new place up and water-tight before we need to shift lanes, but it certainly won't allow us to do much beyond that.

 

So the question is, are we asking too much to be able to live here? What other borrowing options could we look at?

 

 

Just to clarify:

 

Do you have £250k in the bank, or is that contingent on something?

 

Do you want to build something on the plot to live in, or would you want to sell everything and move on?

 

What is the plot value?

3 minutes ago, Mr Punter said:

Just to clarify:

 

Do you have £250k in the bank, or is that contingent on something?

 

Do you want to build something on the plot to live in, or would you want to sell everything and move on?

 

What is the plot value?

 

The £250k is the (approximate) equity in the property we ideally want to live in, as things currently stand.

 

We want to build on the plot to live in, selling only the original house.

 

I'm not sure on the plot value, but 0.5 acre of non-overlooked land in an off-road setting has to be worth £200k?

I hesitate to suggest this because of the number of scams around but it is possible to borrow AGAINST a pension (not FROM your pension). Its important not to take money from your pension as there can be big tax implications but its an asset that can be used as security for a loan from a third party. Make sure its repayable early without big fees. 

Could you split the land into three instead of two?

If you bought with cash could you not raise a mortgage against existing to build new?

18 minutes ago, Temp said:

Could you split the land into three instead of two?

 

That's so tempting, but I think a better idea might be to sell the existing, along with one or two divided plots (with planning permission) and buy a plot elsewhere. It's just buying a plot that's as nice as what we have here, they rarely come up.

20 minutes ago, Oz07 said:

If you bought with cash could you not raise a mortgage against existing to build new?

 

We didn't buy the existing with cash. We have a £119k mortgage, but we think a conservative marketable value of £350-400k in its present condition (or close to). The mortgage valuation when we bought it was even more than that (but of course didn't take account of the split).

If you could get two plots, the figures will stack up really well.

 

Sell one and keep one.  Use the sale proceeds to do up the house a bit and to build your own place.

sell your home, find the cheapest rented you can.

 

Build house1 move in, mortaage.

 

Build house 2. move in, sell house1.

Please get advice on tax implications, as if you develop the plots you may have a tax liability.

not if they do it in the sequence i described.

Have I missed the obvious here? If we can borrow based on a proportion (say 85%) of our assets, that would surely give us enough to do the build.

 

Not sure if I'm looking at this correctly and we'd of course need expert valuation to get a clearer picture, but if current house is worth £400k and the plot is valued at £200k, we'd have £600k in assets. That might give us a borrowing scope of £500k (subject to approval of course), secured against both properties, which, less our current £119k mortgage, would give us well over £300k in borrowing potential.

 

I guess if we could do that on an interest-only basis for now, that would make the payments a lot more reasonable.

 

Of course there are the tax implications to think about as mentioned by @Mr Punter

 

We can also of course consider the funds being released in stages, at which point our assets have increased as the project evolves, if that's relevant.

 

An option?

Bear in mind that if you want to borrow £300k the lender will want to see an income of £75k and they will probably not take into account the value of additional land, just your house, that will most likely be valued as at purchase price.

2 minutes ago, Mr Punter said:

Bear in mind that if you want to borrow £300k the lender will want to see an income of £75k and they will probably not take into account the value of additional land, just your house, that will most likely be valued as at purchase price.

 

OK. The income will be an issue, we are a little down at the minute due to the impact of COVID. Ironically, we are coping well and still adding to our savings, but I guess that may not be enough for a lender. We'll have to see on that aspect and perhaps will have some advantage if we can keep the business with our current lender, who carried out their affordability calculations only a few months ago.

 

I guess we need to know what this place is worth with the reduced plot as that could be key to all of this. If we can squeak it to £450k valuation, that would enable us to borrow £280k above our current mortgage (based on 85%) and that would probably be enough to make the new build liveable in, even if not fully complete. At which point we can get the other place sold if we have to, or at least re-evaluate our position.

ignore the plot they wont borrow on it. You need a min £1200 m2 for whatever plans you have to build and that is pretty basic.

 

Self build mortgage may be an option but then you will be paying for 2 mortgages.

 

Comes back to the original option. Sell current house to release cash. Move into rented while you build.

4 minutes ago, Dave Jones said:

ignore the plot they wont borrow on it. You need a min £1200 m2 for whatever plans you have to build and that is pretty basic.

 

Self build mortgage may be an option but then you will be paying for 2 mortgages.

 

Comes back to the original option. Sell current house to release cash. Move into rented while you build.

 

Dave, we've been basing our maths on £2000/m2, but hope to get down towards £1500-1600 on the basis that we'll do a fair bit ourselves, but want a good standard. We don't have a design yet, but had thought we'd end up at 200m2, though I think even 180m2 will be enough for us (40m2 more than we're currently very comfortably living in). That could see us coming in at under £300k if we're smart, though we have a fair bit of landscaping and hard-standing to suffer, but we can tackle that once all the initial dust has settled.

 

I'm not against your suggestion to sell the current house, but I think the prospect of a plot will hurt the value and potential buyers, which might be detrimental especially when you take into account the additional cost of renting a further property. We'd not be totally against living in a caravan actually, but we both work from home, so that might be tricky.

is your current house part of the plot as you think the plot will effect its value?

 

Renting is cheaper and much less miserable than a caravan, been there done that never again!

We did this but as we owned the house outright that we lived in we did not want to start with a mortgage no matter for what short time we would have needed it. We split the land and used a solid fence near the front so that the plot could not actually be seen from the other house, we did a bit of modernisation to the house ( new kitchen, hardwood flooring and general decoration) and sold it for more or less what we had bought it for a year previously. It may have helped that we left the old house with over half an acre of ground and places like that are much sought after here. We stayed in a caravan for 6-7 months until the new house was liveable. It worked out very well for us as the new owner bought it as a second home so was not in residence much and she was so kind to us letting us have electricity for the caravan and water for the build as well as a key to use the shower when we wanted 

49 minutes ago, recoveringbuilder said:

We did this but as we owned the house outright that we lived in we did not want to start with a mortgage no matter for what short time we would have needed it. We split the land and used a solid fence near the front so that the plot could not actually be seen from the other house, we did a bit of modernisation to the house ( new kitchen, hardwood flooring and general decoration) and sold it for more or less what we had bought it for a year previously. It may have helped that we left the old house with over half an acre of ground and places like that are much sought after here. We stayed in a caravan for 6-7 months until the new house was liveable. It worked out very well for us as the new owner bought it as a second home so was not in residence much and she was so kind to us letting us have electricity for the caravan and water for the build as well as a key to use the shower when we wanted 

 

That's very similar to us. We bought our family-owned property for much less than it's mortgage valuation. We'll be leaving the current property with what is currently the better half of the garden. I can easily see how we can carry out some improvements to it, so much of doing this place up now makes sense. It's just getting our heads around moving twice more and potentially not being close to our build.

 

I would have liked to do a proper job on the current place, it has so much potential, which is why I want to hang on to it. I don't want to use all my enthusiasm on this place, I want to be fresh for the build.

 

The current place is 3 bedroom, has an obvious route to 4 bedrooms for very little work using some poorly utilised dead space. But on the horizon, I can visualise creating a chalet style, with 2 large en-suite bedrooms upstairs and a potential value in excess of £600k. If only!

I think that getting your hands on money via a mortgage, will require affordability...... The only other way is to borrow on a commercial basis. Back in the good old days, 80's, when i was in banking, i could do you a mortgage just based on you assets. I did'nt have to give a monkey about your affordability. It didn't even matter if you had no income. Not anymore, i'm afraid... You have to be able to demonstrate affordability even if you only want to get a mortgage at 10% loan to value.

Lots of ways to do this .

 

I’d sell and BUY something to live in . Freeing up cash . Cheaper than renting for a long term project . Also property bought may increase in value . You can borrow in a personal loan upto 15k at a good rate . With some steering you can get 3 loans from your own bank .Also maybe SWMBO too. Then it is possible to get more personal loans .

This path of course isn’t for everyone!!!!. 

On 09/11/2020 at 10:54, Temp said:

I hesitate to suggest this because of the number of scams around but it is possible to borrow AGAINST a pension (not FROM your pension). Its important not to take money from your pension as there can be big tax implications but its an asset that can be used as security for a loan from a third party. Make sure its repayable early without big fees. 

Ecology allow you to borrow against your assets - it was offered to us as an option, just a pity we don't have any!

We've just had an Estate Agent round, he sees the existing place as being marketable for £400,000 as it is, with no work, but is worried that the value will fall next year (once the Stamp Duty holiday ends and COVID recovery starts). He thinks there's not really enough earning potential in doing it up, suggesting that we might spend £200k for a place that might be worth £650k, but at a risk.

 

If we achieved the £400k, added to our current savings pot, but less our current mortgage, we'd end up with about £308,000 in the bank and a 0.5 acre plot. We have a lot of fencing/landscaping to do to separate the current property from our 'plot', so that could probably wipe the £8k out, plus we'd lose some in fees and legal work pertaining to the sale, but also regarding the plot itself. I'd like to think we'd have a starting budget of £280k comfortably.

 

That means we'd have to find somewhere to live during the build (rented, caravan or whatever) but it stacks up well because it answers all of the borrowing conundrums. It just leaves me not really fully knowing what we could expect to achieve for our 'budget'. We ideally want to end up mortgage free and would want to plan that way, but could continue feeding into the project organically and save the possibility of a small mortgage as our 'contingency'. We hope to build a 3-4 bedroom place to a good standard, but we want to be very hands on. We've already done what I think is the worst type of project (a ground-up renovation of a 1930's place while we lived in it), so have lots of offer to the project in terms of my/our ability.

 

Does this sound like a decent plan?

 

Sounds a good plan to me, you should be able to build something decent for the money you’ll have especially as you intend to be very hands on. Definitely think this is the time to sell and it gives you the winter to get all your ducks in a row, without looking back the thread I can’t remember if you already have planning?