AdamB

Hello, is still financing structure possible?

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Hi all,

 

Are there any finance people out there? If so, I would very much welcome your thoughts on the below please.

My godfather has a parcel of land that he is looking to sell. Whilst he is looking to maximise value, he would be open to structuring a deal that could maybe allow myself (& my young family) to potentially purchase it. It's a great piece of land.

The land is valued at £400,000
Build Costs would total circa £350,000- £425,000
Properties in the area for a similar house are in the region of £1.3m - £1.5m

 

Our combined income is £85k.
I know that we cannot afford to purchase the land. However, given our relationship with the seller, is the below proposal (from a finance point of view) possible.

 

I purchase (STP) the land at, say £100,000 cash (savings).
We get a self build mortgage for £350,000.
We complete the self build and then re-finance at say £1.3m
We remortgage on an interest only mortgage at £450,000, which is at a level we could afford. (£350,000 (from the self build mortgage) + £100,000 (in equity to be paid to the seller).
The seller would have therefore received £200,000 (of the £400,000)
Is there potential to then take out a secured loan for the remaining £200,000 against the equity we would have in the new home (circa £850,000)
If so, we can then use that loan to pay off the final £200,000.

We would therefore be left with:
Interest only mortgage on £450,000 (c30% LTV) paying say c£500pm
Secured loan of £200,000 paying c£1,750pm+
Equity in the new house at c£850,000

Many thanks in advance,

 

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Hi I tried to get a interest only mortgage for our current home to fund our new build

I went through a mortgage broker 

but the only interest only mortgage were for buy to let not owner occupied 

we are in Scotland but I would check availability of interest only loans first

 

adam

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Sorry - typo in the heading. It should read - Is this financing structure possible?

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51 minutes ago, Adam E said:

Hi I tried to get a interest only mortgage for our current home to fund our new build

I went through a mortgage broker 

but the only interest only mortgage were for buy to let not owner occupied 

we are in Scotland but I would check availability of interest only loans first

 

adam

Thanks Adam. 

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HI , is your Godfather looking to invest the monies raised from the sale of the land to fund say his retirement ? of needs the full amount paying back over a short time? 

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2 minutes ago, Buzz said:

HI , is your Godfather looking to invest the monies raised from the sale of the land to fund say his retirement ? of needs the full amount paying back over a short time? 

Hi - thanks for the note.

 

In short, he doesn't the cash ASAP. Hence, he may be prepared to structure some sort of timeframe that would be more preferable to me (assuming there is anyway I could fund this :) )

 

Having said that, I certainly wouldn't propose paying him over X amount of years. Ideally, he would somehow receive full funds upon practical completion...

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Is the land part of the sellers garden or agricultural land? The seller may have CGT  or other taxes to pay on the value of the land rather than what you pay for it. In some cases you only have 30 days now to pay the tax due.

 

Does the land have planning permission? It might be better to buy it while it's still valued as agri land rather than as a building plot. That might save the seller tax.

 

 

 

 

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10 minutes ago, AdamB said:

Sorry - typo in the heading. It should read - Is this financing structure possible?

 

There would appear to be quite a few events needing to happen for this to work. What would happen if your costs were 10% higher, interest rates increased etc.

 

My own experience was that it was pretty difficult to get a self build mortgage and the amounts we could afford no way reflected what was offered.

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16 minutes ago, Temp said:

Is the land part of the sellers garden or agricultural land? The seller may have CGT  or other taxes to pay on the value of the land rather than what you pay for it. In some cases you only have 30 days now to pay the tax due.

 

Does the land have planning permission? It might be better to buy it while it's still valued as agri land rather than as a building plot. That might save the seller tax.

 

 

 

 

Hi - thanks for the note.

The subject site (2 acres) is currently part of the sellers garden (he owns 6 acres in total). The excess 2 acres that they have is currently fenced off and has a few sheep on it keeping the grass down. 

Interesting point you make around it's current use and potential tax implications. Does a seller have to pay different tax amounts when selling for garden land, compared to argi land? 

Edited by AdamB

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8 minutes ago, Thedreamer said:

 

There would appear to be quite a few events needing to happen for this to work. What would happen if your costs were 10% higher, interest rates increased etc.

 

My own experience was that it was pretty difficult to get a self build mortgage and the amounts we could afford no way reflected what was offered.

Yes, any shift in rates & build costs could certainly have an impact.

 

I'm just trying to see if there is any structure possible, given the opportunity and knowing the seller.

 

Ultimately, if I cant afford it, then I'll have to pass. 🙁

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11 minutes ago, Thedreamer said:

 

There would appear to be quite a few events needing to happen for this to work. What would happen if your costs were 10% higher, interest rates increased etc.

 

My own experience was that it was pretty difficult to get a self build mortgage and the amounts we could afford no way reflected what was offered.

Can you give any steer on what level of mortgage you were offered? Was it a specific multiple of your combined income?

Had you gone as far as costing your project at this point?

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1 minute ago, AdamB said:

Can you give any steer on what level of mortgage you were offered? Was it a specific multiple of your combined income?

Had you gone as far as costing your project at this point?

 

First point is that I'm in the opposite end of the UK to you (Isle of Skye). You could build a mansion for that up here!

 

Less lenders here, so I only had the choice of three or four, but the mortgage offer was not really much in the way multiples of my salary. At that stage we had a £38k grant secured and serviced plot valued at £75,000 to £80,000 and still it was nightmare borrowing.

 

By far the hardest bit of the entire build was the financing.

 

I had costed the project, as being a Chartered Accountant this was an area I wanted to add some value.

 

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39 minutes ago, AdamB said:

Hi - thanks for the note.

The subject site (2 acres) is currently part of the sellers garden (he owns 6 acres in total). The excess 2 acres that they have is currently fenced off and has a few sheep on it keeping the grass down. 

Interesting point you make around it's current use and potential tax implications. Does a seller have to pay different tax amounts when selling for garden land, compared to argi land? 

 

Yes. In the UK any gain you make on your house (Principle Private Residence) is free of Capital Gains Tax.

 

The position for agricultural land is more complex and I'm not familiar with all the rules.

 

There may also be an issue because his land is so big. Have a look here..

 

https://ritchiephillips.co.uk/insights/capital-gains-tax-on-gardens-and-grounds/

 

The fact that it's fenced off and has sheep on it may also go against it being considered "garden".

 

This is something you should investigate and perhaps take action on before sale. Eg make it more obviously garden if necessary.

 

Edited by Temp

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I can help but bring a realistic view here. It seems even from a preliminary assessment that alot of things need to go right to get this to work. In reality it'll get harder from here in and sounds somewhat difficult to grasp how you'd get there with these agreements. That's a lot of money to be paying.. .. 2250 in repayments will be a killer on an 85k wage. Its not unachievable but its unlikely to all work.  That said...that my personal view on risk and it seems too risky for me, but I am generally risk adverse to a degree in.  I'd work on what if it all goes 🍐 shaped....Will you still be able to pay or make it work?  E.g. you can't access that secured loan. 

 

 

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10 hours ago, AdamB said:

Hi - thanks for the note.

The subject site (2 acres) is currently part of the sellers garden (he owns 6 acres in total). The excess 2 acres that they have is currently fenced off and has a few sheep on it keeping the grass down. 

Interesting point you make around it's current use and potential tax implications. Does a seller have to pay different tax amounts when selling for garden land, compared to argi land? 

 

2 acres may be over what HMRC consider as "garden" in this scenario.

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I started gulping at the bit about 'complete the build and refinance at £1.3m'. The wouldn't be easy on £85k. You could end up selling just to get out of debt.

 

It looks like you could afford it if you didn't have to buy the land first. Why not see if he will trust/loan/lease the land to you and pay him back some other way? You definitely need advice from a specialist property lawyer.

 

BTW self build is very stressful...

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The difficulties are your income and lack of capital.  However you finance this, if you aim to retain the property it seems you will need a mortgage / loans of £650k with an income of £85k which is 7.7 times income.  I doubt many lenders would go more than 5.5 X.

 

With only £100k of your own funds and no experience I can't see the construction being possible to fund either.

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