Understanding how to get the money needed

[Kuro507]

Morning All

 

We are looking to self-build, I don't fully understand the process of raising funds to purchase the land and self-build.

 

We can find 25% deposit on total land and build costs, but we would need a mortgage to purchase the land. We would only look to purchase land with PP, although it's likely we would need to amend the plans to build exactly what we want. We have 2 houses, I would sell mine to release the equity which would give us most of the 25%, before we start looking seriously at land.

 

How should we go about this?

 

[ToughButterCup]

Common issue here.

If you can live in No 2 house, sell No 1 first, build, then sell No 2

If you can't live in No 2, caravan, sell No 1 FIRST , then build.

Or, like many here, make it up as you go along because of national and local level policy changes during the course of the build.

Ian

 

[MikeSharp01]

In the end it will come down to the debt equity ratio you can stand. In the sense that the size of the mortgage you can get will depend on how it is secured. So the more equity you have in your various properties the more you can borrow against them, provided you can pay the mortgage. In this way you might get enough to buy the land and do the build then sell up and largley, or perhaps wholly, pay back the mortgages. The challenge with self build mortgages is managing the money as you go because you only get the payments against the equity you have built up in the property you are building. So if you can get the money against your current houses you don't have that problem. 

[Kuro507]

I think the bit I am not getting, is the process.

 

We sell my house and release £100k equity (for example)

We also have £20k savings.

 

That is not enough to purchase the land, so we look for a self-build mortgage. We have to estimate build costs, hoping that ground conditions are fairly standard. (This is the bit I'm trying to cost up right now)

 

When we speak to mortgage companies or and independant advisor, how do we justify what we need to borrow? and how we get the payments?

Its likely that local plots are not on the market long, so we wouldn't have time to discuss lengthy planning changes with the council, we would need to purchase it and sort those out afterwards, accepting that we will have to compromise on what we want.

 

Sorry if I'm sounding dim

 

[Temp]

Might be of help.. 

http://www.buildstore.co.uk/finance/hsbmwork.html

 

See also other links on the left of that page.

 

 

Edited May 25, 2017 by Temp

[PeterW]

Firstly get a mortgage agreement in principal for the amount you think you can afford and want to spend. Let's use easy numbers and say you need £300k on top of your £100k equity. The bank will want to see that you can afford the interest payments on the £300k with everything else. 

 

If if you find a plot with PP for a 200sqm house you can say that at £1250/sqm the house will cost £250k and you have £150k for the land. 

 

You make an offer on the land and at that point you can start to get quotes or at least QS estimates to back up your £1250/sqm estimate that the mortgage company will need. 

 

if possible try and hold onto your money as the contingency so you don't need to go back to the bank for more ...

[Kuro507]

1 hour ago, PeterW said:

Firstly get a mortgage agreement in principal for the amount you think you can afford and want to spend. Let's use easy numbers and say you need £300k on top of your £100k equity. The bank will want to see that you can afford the interest payments on the £300k with everything else. 

 

If if you find a plot with PP for a 200sqm house you can say that at £1250/sqm the house will cost £250k and you have £150k for the land. 

 

You make an offer on the land and at that point you can start to get quotes or at least QS estimates to back up your £1250/sqm estimate that the mortgage company will need. 

 

if possible try and hold onto your money as the contingency so you don't need to go back to the bank for more ...

 

That makes sense, however I have seen recent sales of plots where they want sealed bids and details of how you expect to pay for the land, plus even solicitors details.

Personaly, I don't understand how they think they will get the best offers like that, its likely to have taken a year or more to obtain planning permission, just be patient to get the best price.

 

We will, of course, try to find a plot ourselves, approaching local people so that we can get first refusal if they agree to sell (subject to us getting planning permission for it)

I know we could even have a contract drawn up to do this. (An option I think its called)

Edited May 25, 2017 by Kuro507

[jack]

15 minutes ago, Kuro507 said:

That makes sense, however I have seen recent sales of plots where they want sealed bids and details of how you expect to pay for the land, plus even solicitors details.

Personaly, I don't understand how they think they will get the best offers like that, its likely to have taken a year or more to obtain planning permission, just be patient to get the best price.

 

I assume that the other requirements relate to the "sealed bids" approach to selling. There's no point taking the highest bid if it turns out down the line that the bidder was just tyre-kicking.

 

I assume they want sealed bids because there's a lot of interest in the land.  I suppose in that case the argument is that the pool of potential buyers is smaller, but those that have bid will all be serious and can proceed.

[Triassic]

Land around where we are self building is very expensive, so we looked around for old property we could knock down and replace.

 

As I type this I'm looking across the garden at our donor property with its partially stripped roof. Back to work!!

 

[MikeSharp01]

+1 for buy a wreck, knock down and build your dream. 

[Onoff]

FFS don't buy a wreck and sink a fortune into it trying to make it something it'll never be! Some realise this too late 

[MikeSharp01]

@Onoff not clear what you mean. By knocking down I mean leveling to the ground so you end up with a blank canvas allbeit in its old context. 

 

Edited May 25, 2017 by MikeSharp01
Typo

[jack]

42 minutes ago, MikeSharp01 said:

@Onoff not clear what you mean. By knocking down I mean leveling to the ground so you end up with a blank canvas allbeit in its old context. 

 

Think he's talking about what he's in the middle of doing!

[MikeSharp01]

Ah - thanks @jack I get it now. 

[ultramods]

If you have equity in both houses, could you sell both and rent?

 

Might be worth speaking to buildstore. I have heard that they can add delays to the process, however the person we have dealt with so far has been helpful.

 

You could also potentially look at commercial type lending, whereby you can borrow based on the final value of the property. You may find that this gives you the money quicker, but fees will probably be higher.

 

[Onoff]

8 hours ago, jack said:

 

Think he's talking about what he's in the middle of doing!

 

He was!

 

Can I just add it's very important to have a partner with the same goals and vision of "what could be". I would like to batten down the hatches cash wise now and spend it on the house, starting with the roof, then EWI.  This rather than splurging on non essentials. Ain't gonna happen! It'll get to the stage when I'm old, decrepit and unable to physically do stuff that we'll have to sell I'm sure as aside from anything else heating bills will cripple us.

 

Turned 50 the other week so going through the whole life's rushing by thing at the mo! 

 

Didn't somebody here say the other week that insulation is a one off cost but heating bills go on forever?

[ToughButterCup]

51 minutes ago, Onoff said:

Can I just add it's very important to have a partner with the same goals and vision of "what could be". [...]

 

Didn't somebody here say the other week that insulation is a one off cost but heating bills go on forever?

 

Nail, head, bang on.

[Triassic]

I'll second don't buy a wreck thinking you can renovate it. The last two "self builders" were renovation jobs. In both cases it was a roof off and strip back to the brickwork/stonework jobs. You will spend more, way more, than you budgeted, mainly due to then unknowns. If you've done your sums right you walk away with a profit. It's always best (and cheaper)  to buy a donor property and knock it down and start again.

 

As others have said, self Build is a team sport and your partner is an essential part of that team. If they are not committed to the vision, it won't work.

[MikeSharp01]

Great partner essential. Sharing the details, the budgets, the decisions, the pain all vital. Partitioning the workload critical, when both are involved, what is yours and what is theirs.

[Bitpipe]

This was our build finance story.

 

We owned a nice newish 4 bed and had paid down the mortgage substantially, also had some savings.

 

When we stumbled across our new house (tired 1950's detached on 1/2 acre garden) we re-mortgaged the original property to the hilt and used the equity to help buy the new (old) house. Then rented out the original house to cover that mortgage and started planning our build.

 

A few years later, we eventually sold the original house and had the capital (our build fund) in the bank. No need for a self build mortgage we thought.

 

However when we informed our lender that we were planning 'substantial' works on the house (i.e. demolishing and rebuilding) they got cold feet and after much faffing, released us from the mortgage penalty free - however that ate much of the build fund.

 

We then got a self build from Ecology, who were very easy to deal with but have strict criteria on lending to passive or SAP A projects.

 

They were happy to give us the whole chunk upfront or release it as we needed it, there were no inspections or surveys to release funds.

 

On our self build team, Mrs B is the visionary and I am the one who figures out how to do it. Works quite well and irritatingly she's almost always right with her decisions.... (even after I've said about six times - thats impossible, we cant afford that, that will look stupid etc...)

 

 

 

[Temp]

23 hours ago, Kuro507 said:

That makes sense, however I have seen recent sales of plots where they want sealed bids and details of how you expect to pay for the land, plus even solicitors details.

Personaly, I don't understand how they think they will get the best offers like that, its likely to have taken a year or more to obtain planning permission, just be patient to get the best price.

 

Depends on their view of the housing market. Some vendors will resort to a sealed bid process when there a lot of interest in the plot. Instead of going around all the potential buyers haggling them up they just ask everyone for their best offer. In England there is nothing legally binding about the sealed bid process. The seller is free to open all the bids and decide not to accept the highest bid if he wants. He can even go back to his preferred bidder and ask him to match the highest bid.

 

In with the bid you should point out (if true) that you are a cash buyer or have a mortgage approval and you've done all your due diligence checks. They want to be sure the buyer is ready to go and won't pull out six months down the line when they find out a sewerage treatment plant is needed or some other complication they hadn't planned on. Remember some buyers won't have a clue. 

 

We weren't the highest bidder for our plot :-)