Hi all.

 

My partner and I have been looking at self-build for a little while now and may have finally found a plot in Surrey. I've had a look through other posts and haven't seen anything that quite matches what we're hoping to do in terms of the financing so here goes. We currently own a flat in London that is worth about £500k with an outstanding mortgage of £150k. We are hoping to flip it to a let-to-buy rather than sell it. We have an agreement in principle to be able to take £370k in equity out of the property, so paying off the current mortgage gives us £220k to play with. This was for when we were looking to just buy another home though, not self-build so I'm aware the current AIP won't be any use, but it gives us an idea of possible equity release.

 

Our combined salaries give us about £75k a year. The expected rental income from the flat would be another £20k.

 

Does anyone know if the likes of Ecology, Mayflower, etc. will take potential rental income into account with lending? (We did have a traditional bank that was willing to lend on the purchase of a house based on the combined £95k income)

Do any of the self-build lenders do let-to-buy/equity release on the "old" property as well or do I just need to try and find a bank that will lend against the current flat separately?

What sort of lending ratios have people got? I've seen some as high as 5.5 times income on here, but nothing I've found online comes close to that.

 

For reference, the bit of land we've found will cost us about £220k to buy, it does need quite a bit of prep work to be buildable (doesn't currently have planning permission, but we're looking at an option agreement), and we're hoping we can get a decent enough place with a build budget of£350k-400k though I'm very aware prices have rocketed.

 

One thing we've found confusing is that to get a mortgage you seem to need planning permission and details of the build but without knowing how much we have to spend we can't design a feasible home! 

 

Any thoughts very welcome! Particularly around the whole let-to-buy equity release plan!

 

1 hour ago, Strudel said:

let-to-buy

Sounds a little odd as you describe but is probably OK - Are you actually converting existing mortgage into a bigger one that will be buy-to-let that gives you the money to buy the plot which is in turn secured on the flat? Take care of capital gains here. You will then need a new mortgage for the build secured at the outset on the plot. So you have neat chain which sounds OK to me and should, in theory, be acceptable to Ecology. 

Thanks Mike, so yes, let-to-buy is effectively the same as buy-to-let but rather than buying a new property to rent out, you already own the property to let out and are buying your new primary residence, using the equity you have in the current place. 

 

One of the sticking points is that a condition of most let-to-buy mortgages is that you have to be buying a new property that will be your primary residence. Obviously we won't have a new place to move into straight away, so need to find someone who will accept the delay or just not have that condition. 

If you get them to pay the money directly for the land surely its the same thing - you could live in a caravan on the site which would be your home. They need not worry about security as that is coming from the flat. I will have chat to someone I know who understands mortgages and see what they think.

Thanks Mike

Let-to-buy is definitely a thing. I did it on two rental properties to buy the house we converted. I currently have a ridiculous amount of mortgage debt which is surprisingly very affordable, all thanks to a rather creative mortgage broker. Of course when my fixes run out in a few years time, I will be underwater, so I'm selling one of the let-to-buys now to pay down some debt.

Whether you can combine let-to-buy with self build, I don't know. What my mortgage broker suggested was to just remortgage your existing flat and tell the mortgage companies you are applying to that you are releasing the additional equity for "building works". You don't need to spell out that it is building works on another plot. Obviously if they specifically ask, then you need to truthfully answer, but if they assume it's for the property over which they have a charge, that's their issue not yours. That will release a healthy deposit. You can then approach another lender and say here's my deposit, can you lend me the rest for self build. The fact that you have an existing mortgage will just count towards the affordability criteria. Also, if you have a flat that you are living in and plan to rent in the future, consider remortgaging to a residential mortgage with a bank that is known for granting "consent to let" easily. You can then convert your residential mortgage to a buy to let without paying the hefty buy to let fees. Not all banks do this, but I know NatWest did a few years ago, as I did that and saved a lot of interest. They gave me the consent to let for just paying an admin fee of £150.

 

The products that pay 5.5 (and now even 6) times your salary tend to be the "premier" products offered to high earners. E.g. Barclays Premier is a current account offered to those on a £75k+ salary, although if you have a large cash sum in your account you might qualify, so it's possible that after your equity release you could deposit all the money in a barclays account and then qualify for them to upgrade you to a barclays premier account which should - in theory - unlock access to their "premier" products, including a 5.5 multiple mortgage. 

 

Six times mortgages are pretty rare, unless you are in certain profession.

 

There is one lender offering a 7 times mortgage: https://www.theguardian.com/business/2021/dec/27/fears-of-higher-uk-home-prices-as-habito-launches-7x-mortgage but I'm sure it has its catches.

 

Good luck. 

 

PM me if you want a broker recommendation