Holiday let build on joint mortgage

[Clueless]

Hi folks,

 

Given recent rise in the value of houses (plus a quick check on Zoopla) it looks like I could potentially remortgage and free up £30,000+ in equity on my current house giving me ~ £40k (with savings) to invest along with my father who is potentially looking to invest in a self build for a holiday let. Would it be possible for him and I to get a joint mortgage with 40k deposit each (£80k total) for a ~£220k build to run as a holiday let and family holiday home?

 

Please excuse the naivety of this question, but my current property is my first property and a mortgage advice center did all the heavy lifting for me on this one and my dad is from a generation where houses cost £3,000 and hasn't had to deal with mortgages in a long time.

 

We'd be looking to have the whole build done for us with maybe the exception of project management if the saving on doing that ourselves is substantial as my dad spent 40 years in the building trade.

 

As far as managing the listings and calender of a holiday let goes the plan is for my wife to do this while I continue working.

 

Any and all advice would be great, thanks.

[SteamyTea]

Best way to find out is to ask your existing lender, and a few brokers.

 

You do stand to loose your house though if your circumstances change.

 

If you wonder why banks are asking for 25% deposits, it is because they think that housing is at least 25% overpriced.

 

I can't predict the future, but I believe that we are due a 'correction' in house pricing.  How this happens is a really big unknown.  It may be stagnation in nominal price (what people usually think of i.e. I paid £3000 now it is work £200,000), or it may be a 1989-95 crash, where the nominal price actually reduced.  Or it may be interest rate driven, with the associated inflation pressures.

 

The World Bank warned the UK that house prices were over priced in 1999.  They were about 4.5 times income back then.

 

But why not just buy a holiday home, plenty down here here for sale.  I don't believe that self building adds value to a property, we have too many rules and regulation to allow that to happen.

[PeterW]

8 hours ago, Clueless said:

 

Hi folks,

 

Given recent rise in the value of houses (plus a quick check on Zoopla) it looks like I could potentially remortgage and free up £30,000+ in equity on my current house giving me ~ £40k (with savings) to invest along with my father who is potentially looking to invest in a self build for a holiday let. Would it be possible for him and I to get a joint mortgage with 40k deposit each (£80k total) for a ~£220k build to run as a holiday let and family holiday home?

 

 

I think the last line is where you will struggle with any mortgage company. 

 

A self build mortgage will require you normally to be building to live in it with affordability based upon income. A Buy to Let mortgage is "normally" aimed at lettings under standard tenancy agreements as they have a reasonable surety of rental income. 

 

You may end up having to look towards the commercial mortgage sector as what you want is a hybrid. I had to do this in the past when I owned a serviced apartment and that was funded with a commercial mortgage as I effectively had a company managing the rentals (2 weeks to 2 months on average) but I only got 50% income when it was empty. 

 

As @SteamyTea said you may be better buying something - just watch for the tax implications and stamp duty. 

[Temp]

On ‎5‎/‎14‎/‎2017 at 10:10, Clueless said:

We'd be looking to have the whole build done for us

 

It would be necessary to use a VAT registered builder anyway because you can't use the Self Build VAT reclaim scheme unless you are building a house to live in yourself.

 

You should also check out the VAT rules on houses that are let before first sale. A house sale is zero rated but a let is an exempt supply and the difference may mean you cannot reclaim VAT you have paid on materials (eg Input tax).

 

The HMRC issued a note in 2008 that said developers could rent out houses that they were unable to sell and still reclaim the VAT but that might not apply today or where the house is intentionally built to let? You should get professional advice on this before you start.

 

More below..

 

http://bishopfleming.co.uk/property-vat-pitfalls-4/

Quote

Property rentals

a) Residential

If a developer builds new houses for sale, they are used to getting all their VAT on the or costs and materials back without thought as to why this is happening. As a general rule, property transactions, be that sales or leasing, are VAT exempt – no VAT is charged by the seller/landlord but no VAT can be recovered by the seller/landlord either.

A new house is an exception, being zero rated rather than exempt. The buyer pays no VAT either way but the difference for the seller is crucial as charging notional VAT at a zero rate allows input VAT recovery but not charging VAT at all, neither actual nor notional, removes that right.

The zero rating applies only in very specific circumstances i.e. the first sale or letting on a lease of more than 21 years by the person constructing (the builder if he owns the property or the person engaging the builder if different).  It does not apply to a shorter lease, which is exempt
 

I have lost count of the number of occasions when a client has discussed in detail their plans for a development, confirming that all their VAT is recoverable, only to find out after the event that some or all of the properties were retained and let on assured shorthold leases.

The result is that the developer is making at best both taxable sales and exempt sales and so is partially exempt, or has lost the right to be VAT registered at all. In most cases, some of the VAT recovered has to be repaid, sometimes all of it.

There are ways around the problem, but these are not perfect – they will result in some transfer costs, and possibly some income or corporation tax bills, but that may pale into insignificance compared to the unexpected VAT bill, plus the interest and penalties on that VAT.

We continually emphasise the need to talk to us to ensure that tax matters are considered before making major transactions but that applies equally to changes to previous plans

 

• Get advice before a significant transaction, or a change to a planned transaction or activity, especially those concerning property.

 

 

 

Edited May 17, 2017 by Temp