self build mortgage Mortgage Timing

[Highland Newbie]

Good afternoon; this is my first question here, and is the one that prompted me to join The Hub!

My partner and I are so very much hoping to start building on our plot this autumn/winter. We have enough savings to get the groundworks (foundations, drainage...) done (estimated at about £37,000), and our builder has said he could get that done in the autumn. Good. The we can get started on the build in early spring.

We need a mortgage to complete the build, but are very unsure as to when would be the best time to submit our application. Can you apply for a mortgage once your foundations are laid? Or are some Building Societies tricky about this? It is a question we just don't seem to be able to get an answer to! Also, does anybody know the average maximum time between having a mortgage approved and the first drawdown? (As it might be a very much safer option to have everything in place before starting the foundations).

I hope my question is understandable. I am very keen for the time to come when I can answer questions instead of asking them!

[Oz07]

Definitely apply once you own the plot but before you start the build. I found in the past these landers want to be in from the outset regardless of how little you want from them. Once mortgage agreed you may only need the initial valuation or 1 further mid build valuation to enable the LTV to be sufficient to release funds to complete the build.

[mike2016]

Hi,

You can use the value of the plot / and or savings as the deposit for the mortgage as I understand it. The mortgage application paperwork shows the stage payments and what is included - they are mostly paid in arrears. You will be expected to pay the first set of bills with your own funds / deposit and then start drawing down on the bank's funds. You starting paying % on the amount drawn down. Once the final stage is completed you convert to the fixed rate or variable rate negotiated. So, unless you need to draw on funds to get the initial foundations completed, you should be mortgage free until the spring but you should carefully plan your cashflow and ensure the builder and large ticket items like window deposits are catered for. Are you clear who will be signing off each stage as complete? There are some nicer mortgages which pay in advance (There are none where I'm based!). I've just been approved for a standard mortgage and the process was quick enough but the life insurance took a while to organize, medicals etc. If you have all your paperwork in order get it in now, the decision normally stands for 6 months and can be extended with some newer bank statements / payslips etc. You just need clear costings breaking down each stage. A quantity surveyor can help with this, lots of PC Sums as they call estimates for certain areas like Kitchen's and Bathrooms. 

Best of luck!

 

[Ferdinand]

Bearing in mind that interest rates are low and due to rise in the next 6 months, I would suggest considering getting a mortgage earlier.

 

I would also suggest considering a longer term fix so you can budget predictably over the length of the build.

 

Thirdly, I would consider keeping as much of your own money as you possibly can as contingency / flexibility funds. 20 or 30k is an amount that can be swallowed by a small number of surprises.

 

Ferdinand

Edited September 3, 2017 by Ferdinand

[Highland Newbie]

Thank you very much for the replies. 6 months seems a reasonable time to get things going. And, it could be a very expensive slab of concrete if I couldn't then secure a mortgage! Is it usual for a builder to provide quite detailed costings? And who has anyone used to 'sign off' each stage? Is it something the architect would do?

 

[mike2016]

That would normally be an architect - signs a form from the bank and sends it in. The bank then pays out the associated installment. There may be other professionals allowed sign the form but check your local Regs for that. All those Professional Fees add up!

[PeterW]

We have a valuer from the building  society (@£80 a visit...) who agrees that the stages are complete and gives a valuation to release the next stage. 

 

We also have included the warranty report up to that point to show progress - no idea why but the Melton ask for it..!

 

No architect involved ...

[Thedreamer]

I would suggest holding off any building works until you have secured your mortgage. We have found that the limited number of building societies that offer finance for self builds in Scotland apply quite a high 'stressed rate' of interest. Often the lenders provide rough estimates of your borrowing multiples on their websites, however it really once you have completed the affordability assessment that your have an indication of your potential borrowing from a lender.

 

After decrofting our house site, we applied for planning and then put in the services and our access road. These works can be undertaken before you apply for a mortgage and in the worst case scenario your really only adding value to the plot. Electricity connections can be costly if you have to go back to a transformer. 

 

Just out of interest what are your drainage costs?

 

 

[swisscheese]

On 04/09/2017 at 11:57, PeterW said:

We have a valuer from the building  society (@£80 a visit...) who agrees that the stages are complete and gives a valuation to release the next stage. 

 

We also have included the warranty report up to that point to show progress - no idea why but the Melton ask for it..!

 

No architect involved ...

 

Same for us we have a Melton Mortgage agreed, we had some capital to get started so have not drawn down from the Mortgage yet, but felt it was important knowing the build budget/costs and for piece of mind to get it sorted sooner rather than later.

 

Once Melton were happy that all the warranties/insurance were in place and valuations done it was all really about loan to value.

 

[Jeremy Harris]

Just a word of caution about delaying the draw-down of an agreed mortgage.  To part-fund our build I needed to borrow around £100k.  Rather than get a self-build mortgage (because they are expensive and attract massive fees from the few brokers that specialise in them) I opted to mortgage our existing house (we had no mortgage on it, and intended to sell it after the build anyway).  I shopped around, and Santander, who happened to be our bank at the time, agreed to lend £100k without any problems,  We paid the valuation and set-up fees, and were given full approval for the mortgage within about a month.  I told Santander what the mortgage was for, and that we wanted to delay the draw down until we had used most of our savings, and they were fine with that.

 

We went ahead and signed a contract with the main frame and foundation contractor, committing us to a stage payment plan.  Come the time for the second stage payment, I went to the bank and asked to draw down the agreed mortgage.  Santander then told me that their mortgage policy had changed and that they were withdrawing the offer, and wouldn't even refund our fees.....................

 

This caused a load of stress, as we were committed to paying the contractor and had insufficient funds available.  In the end I was able to secure a mortgage from another lender, although it cost a fair bit more in both fees and interest.  It was one of the most stressful points of the build.

 

Needless to say there is no way I would ever deal with Santander again.  We did eventually get our fees back from them, but only after the best part of a year battling them via the regulator.  We didn't get any other form of compensation for the additional costs incurred because of Santander's actions.

 

The moral of the story is never, ever, trust any lender.  Until you actually have the money in your account, assume that they will renege at the last minute and have a back up plan in place if they do,

[Ferdinand]

+1

 

Better off in your hand, than in their bush.

[Stones]

When we built our last house we had already sold our previous so already owned the plot outright and had enough to get the house to second fix.  It was mortgage provider who actually suggested applying to borrow the maximum amount we could based on income multiples (around double what we actually needed) so that when we needed our first chunk of borrowed money, we would be so far ahead of their usual stage release, we could get the equivalent of the 1st three stage combined.  We applied on that basis, drew down what was required to finish the build then converted to a standard mortgage product.

[Mr Punter]

1 hour ago, Ferdinand said:

+1

 

Better off in your hand, than in their bush.

 

I am not sure this works as a motto.

[Bitpipe]

We've used Ecology and they have been a dream - money is released without any hoops to jump through and you can have as much or as little as you need at any time - obv. they have lending criteria (passive/SAP A) so not for everyone.

 

In our case, we used the pot of money to get the groundworks done and then drew down the first chunk of money, starting the two year redemption penalty clock ticking. In retrospect, we should have pulled out £50k early on and kicked off the two year timer early.

 

Coming to the end of our time with them and about to remortgage to a conventional provider - will start a thread about that in a bit..

 

Edited September 11, 2017 by Bitpipe

[Highland Newbie]

On 05/09/2017 at 21:04, Thedreamer said:

I would suggest holding off any building works until you have secured your mortgage. We have found that the limited number of building societies that offer finance for self builds in Scotland apply quite a high 'stressed rate' of interest. Often the lenders provide rough estimates of your borrowing multiples on their websites, however it really once you have completed the affordability assessment that your have an indication of your potential borrowing from a lender.

 

After decrofting our house site, we applied for planning and then put in the services and our access road. These works can be undertaken before you apply for a mortgage and in the worst case scenario your really only adding value to the plot. Electricity connections can be costly if you have to go back to a transformer. 

 

Just out of interest what are your drainage costs?

 

 

Um... drainage. We luckily have a mains sewer running through the plot, which was serviced when we bought it; don't have a breakdown yet of drainage around the house. Apparently we need a 'soakaway' for all that rainwater. Do you? Sorry not to be more helpful. Thanks for replying!

 

[Thedreamer]

23 hours ago, Highland Newbie said:

Um... drainage. We luckily have a mains sewer running through the plot, which was serviced when we bought it; don't have a breakdown yet of drainage around the house. Apparently we need a 'soakaway' for all that rainwater. Do you? Sorry not to be more helpful. Thanks for replying!

 

 

Okay, see now regarding your drainage. I hope to have a soakway for our waste water and for our rainwater we will probably just dig a ditch to let it run down the croft.

 

[ProDave]

I too was shafted by a lender in the past.

 

We previously had a buy to let flat with  small mortgage from Lloyds. Had been a customer of theirs for years, had a mortgage for 20 years with no arrears.

 

We wanted to update the flat, new windows, new doors, new kithchen and bathroom.  Applied for an extra measly £5K on the mortgage. Yes sir that will be fine. It doesn't take long, about 2 weeks, come back when you need the money.

 

We ordered the windows, paid the deposit. The window company called to say 3 weeks, so we went to Lloyds to make the arrangements.  The computer blew a raspberry. "You no longer meet out lending criterea"

 

Long story short, we borrowed the money instead on a 0% credit card. Rolled it over onto another. It was paid off in 4 years with no interest charges (but a small admin fee for each advance) So it in fact cost us less in the end.

 

But if they were the last bank standing, I would not give ANY of my banking business to any of the Lloyds group again. Absolutely shocking way to treat a long standing customer with a good trading history with them over such a small amount.