Offer accepted, but funds wiped out from land purchase.

[flanagaj]

So we have just had our offer accepted on a building plot with full PP.  Super excited, as  my wife and I have been looking for a plot for over 2 decades.   Unfortunately, the plot purchase (350k) is going to completely clear us out (profit from the sale of our previous house) and we will not have any funds for the actual build.   I am conscious that lenders do either 'in advance' or 'in arrears', but I wanted to ask whether there are any caveats to be aware of.  We are looking to borrow 250-300k in total and we have been told that after completion a house in that area will be valued ~ 700k - 750k.

 

 

Thanks

[Conor]

If you have FPP, a self build mortgage provider will lend based on the theoretical final value, and release funds based on current value of the plot. So say 80% of £350k is £280k. Draw that down, build to the next substantial phase, get another valuation, draw down again. Ultimately all depends on you meeting the lender's requirements. I recommend Ecology, it's who we used, and this is how we managed the funding of our build. 

 

How big a house are you planning? £300k for everything from design to finish isn't much these days unfortunately. Depending on where you are, budget a min of £2k/m2.

[Moonshine]

as @Conor says, self build mortgage is the way to go, we used Melton Mowbray via a specialist self build mortgage broker (https://www.mayflowermortgage.co.uk/).

[Square Feet]

I haven't used these people, but I am currently in discussions with them.  They seem to know their stuff.

https://www.buildstore.co.uk/mortgages-finance

[flanagaj]

6 hours ago, Conor said:

If you have FPP, a self build mortgage provider will lend based on the theoretical final value, and release funds based on current value of the plot. So say 80% of £350k is £280k. Draw that down, build to the next substantial phase, get another valuation, draw down again. Ultimately all depends on you meeting the lender's requirements. I recommend Ecology, it's who we used, and this is how we managed the funding of our build. 

 

How big a house are you planning? £300k for everything from design to finish isn't much these days unfortunately. Depending on where you are, budget a min of £2k/m2.

Build is 157m2 internal with a detached double garage.  Budgeting around 2k / m2, but hoping my Brother in Law who has just completed his 280m2 build for just over £1200/m2 can help me.  I am quite fortunate that plumbing / electrics / roofing / carpentry trades are available in the family.

[Buzz]

8 hours ago, flanagaj said:

So we have just had our offer accepted on a building plot with full PP.  Super excited, as  my wife and I have been looking for a plot for over 2 decades.   Unfortunately, the plot purchase (350k) is going to completely clear us out (profit from the sale of our previous house) and we will not have any funds for the actual build.   I am conscious that lenders do either 'in advance' or 'in arrears', but I wanted to ask whether there are any caveats to be aware of.  We are looking to borrow 250-300k in total and we have been told that after completion a house in that area will be valued ~ 700k - 750k.

 

 

Thanks

Another one here who used the Melton via a broker and found them easy to deal with, if you get them on board now as @Conorsaid they will stump up 80% of the plot purchase on completion leaving you with more than enough to get you deep into your build before you need another release of funds . 

[flanagaj]

13 minutes ago, Buzz said:

Another one here who used the Melton via a broker and found them easy to deal with, if you get them on board now as @Conorsaid they will stump up 80% of the plot purchase on completion leaving you with more than enough to get you deep into your build before you need another release of funds . 

When you say 80% of the plot purchase, you mean that I put down 70k (20% of 350k) and they will pay the additional 280k and then I can keep the 280k cash liquid so it can be used as and when, or am I missing something? 

[Buzz]

13 minutes ago, flanagaj said:

When you say 80% of the plot purchase, you mean that I put down 70k (20% of 350k) and they will pay the additional 280k and then I can keep the 280k cash liquid so it can be used as and when, or am I missing something? 

Not missing anything there that is exactly what they did for us .

[mickeych]

Ditto that we are using Harpenden through Mayflower Brokerage. 

From a risk perceptive, lenders prefer to lend against a solid valued asset which you already own (such as land with FPP). By lending to you and taking a charge over the land they are offering a form of re-mortgage.

The combination of a fixed value of the land greater than what they are going to lend overall (ie they are only lending you 280K against a market value of 350K) and the prospect of the future value being added to the original asset, make it an easier decision for them to underwrite.

Lots of caveats about personal circumstances and loan types and limitations in there ,but this is how it should work in principle.

On 13/02/2024 at 23:16, Buzz said:

Not missing anything there that is exactly what they did for us .

 

Edited March 4 by mickeych

[mickeych]

Oh yes, just 1 thing to be aware of if you are going down this route that no one tells you is that once you buy the land, if you need to provide the title deeds to the lender (which you will), you will have to ask your solicitor to expedite the title registration with the Land Registry as the normal queue is currently 18 months and the lender is unlikely to proceed without a clear title deed.

[flanagaj]

Another point is regarding costings for the build and what level of detail the lender wants to see for the mortgage application.  Do they want fully quantity survey figures, such as those provide by estimators online, or is it just a case of providing less detailed labour / materials for each stage?

Edited March 4 by flanagaj

[mickeych]

On 04/03/2024 at 22:39, flanagaj said:

Another point is regarding costings for the build and what level of detail the lender wants to see for the mortgage application.  Do they want fully quantity survey figures, such as those provide by estimators online, or is it just a case of providing less detailed labour / materials for each stage?

It probably depends on the lender, but in our case they wanted full details on costs and potential contractor long before we were in a position to confirm this, so it was suggested to us that you show as much detail as possible from a QS service and include an outline quote from a reputable contractor to avoid any delays and back and forth. The other things we learned from the process is that the lender has a 'tick-box' that needs to be completed at this point to weed out the hopeful from the realistic self-builders and that means as much detail as the lender asks is needed and no debate!

[flanagaj]

2 hours ago, mickeych said:

It probably depends on the lender, but in our case they wanted full details on costs and potential contractor long before we were in a position to confirm this, so it was suggested to us that you show as much detail as possible from a QS service and include an outline quote from a reputable contractor to avoid any delays and back and forth. The other things we learned from the process is that the lender has a 'tick-box' that needs to be completed at this point to weed out the hopeful from the realistic self-builders and that means as much detail as the lender asks is needed and no debate!

So what about the situations where you intend on doing a lot of the work yourself as opposed to using a contractor to do the whole stage?

 

 

[mickeych]

23 hours ago, flanagaj said:

So what about the situations where you intend on doing a lot of the work yourself as opposed to using a contractor to do the whole stage?

 

 

Just use the cost estimator as a guide to show a lender that you understand and are considering the costs in your project. Speak to a good broker (really can't fault Mayflower and we have been working them for 16 months now for a very complex project!) They should be able to guide you as to the most appropriate level of costing/detail you provide to the lender to enable them to underwrite the loan. Some lenders can get a little nervous with the idea of you taking on the work yourselves unless you are in the trade or have prior experience (so I am told).

Also - what you get funding for and exactly what you end up doing or who you work with can be a little different in reality. So long as the end result is the same and you get the valuations that you are aiming for to release funding and reach completion all within the scope of approved plans and you are paying the mortgage this is the goal for everyone!

[Conor]

On 10/03/2024 at 22:19, flanagaj said:

So what about the situations where you intend on doing a lot of the work yourself as opposed to using a contractor to do the whole stage?

 

 

Ecology were happy with a list of line items on a bit of headed paper. We took the QS estimate, modified some things, architect checked it and put his logo on it, job done.

[flanagaj]

That's positive to hear.  Having the estimate helps focus the mind as to where the money is spent, and it has helped me hugely in understanding what each stage costs.

 

I have already saved a large sum by taking out the labour cost for decorating, fitting the external cladding and tiling the roof.  So those savings can be used towards a nice kitchen and decent doors and windows.

[Amateur bob]

On 13/02/2024 at 14:16, Conor said:

If you have FPP, a self build mortgage provider will lend based on the theoretical final value, and release funds based on current value of the plot. So say 80% of £350k is £280k. Draw that down, build to the next substantial phase, get another valuation, draw down again. Ultimately all depends on you meeting the lender's requirements. I recommend Ecology, it's who we used, and this is how we managed the funding of our build. 

 

How big a house are you planning? £300k for everything from design to finish isn't much these days unfortunately. Depending on where you are, budget a min of £2k/m2.

are you sure about this? i thought it was all based on your salary?

 

ive a plot with full pp and own the land outright as its on farm, hoping to mabye borrow 150k between wife and i with combined salarys of 40k does this seem feasable? 

[Amateur bob]

On 13/02/2024 at 23:16, Buzz said:

Not missing anything there that is exactly what they did for us .

i thought it was all based from your salay and not plot values?

[PNAmble]

4 minutes ago, Amateur bob said:

i thought it was all based from your salay and not plot values?

Max amount they will loan is based on final value; your ability to pay the interest on the self build mortgage is assessed on your income (not necessarily salary). 
 

we owned our land which had planning permission and they (Harpenden) enabled us to draw down 65% of that to fund ground works and then the ability to draw down up to 65% of the final house value as described above.

 

it costs nothing to speak to a broker or to a lender we used Mayflower who were excellent but others about who get just as good reviews.   

[Amateur bob]

6 minutes ago, PNAmble said:

Max amount they will loan is based on final value; your ability to pay the interest on the self build mortgage is assessed on your income (not necessarily salary). 
 

we owned our land which had planning permission and they (Harpenden) enabled us to draw down 65% of that to fund ground works and then the ability to draw down up to 65% of the final house value as described above.

 

it costs nothing to speak to a broker or to a lender we used Mayflower who were excellent but others about who get just as good reviews.   

ah i see, i may send Mayflower an email then, 

 

do u think my own situation is feasable? land owned outright and also have 150k from sale of house so need roughly 150-200k mortgage to fund build, wife salary 20k my self employed profit was 20k last 2 years, im currently paying 12k a year in rent though while i do the build so unsure if theyd knock this off my joint earnings so making it 28k joint earnings or if theyd allow me to set aside a years worth of rent in cash to cover this

 

thanks

[PNAmble]

4 minutes ago, Amateur bob said:

do u think my own situation is feasable

really couldnt say, but both myself and my partner are self employed  - she had many years of sole trader accounts, I had 2 years limited company accounts.  Mayflower will do affordability testing.  We were running a second mortgage etc at the same time.  

[NJLJ2024]

22 hours ago, Amateur bob said:

ah i see, i may send Mayflower an email then, 

 

do u think my own situation is feasable? land owned outright and also have 150k from sale of house so need roughly 150-200k mortgage to fund build, wife salary 20k my self employed profit was 20k last 2 years, im currently paying 12k a year in rent though while i do the build so unsure if theyd knock this off my joint earnings so making it 28k joint earnings or if theyd allow me to set aside a years worth of rent in cash to cover this

 

thanks

As a starting point, most lenders seem comfortable with lending on up to 4-4.5x your salary. As its joint this will be combined salary, so you might expect to be ‘allowed’ to borrow around £160k - £180k.
 

But…there will be a lot of things that factor into this. For one -  do you have any adverse credit - CCJ’s, bankruptcies etc. If so you’ll be classed as high risk and may struggle. On the other hand, if you’ve never borrowed any money, you may also struggle! 

 

The lender would normally assess the amount of existing credit you have in place and whether taking this new debt on will be affordable or could put you in financial difficulty. E.g if your combined earnings are £2666 monthly, let’s say new mortgage is £1000 monthly, leaves £1666 per month to live off. Would this be enough to cover your current commitments, plus essential spend such as food, fuel etc. Lenders role will be to assess that and then advise what they’d be willing to lend on. 
 

Note it can be slightly harder for self employed to get a mortgage vs those with standard salaried jobs (lenders want to see stable, predictable income which isn’t always case for self employed due to seasonality or just peaks and troughs). Brokers will help connect you with the most ‘suited’ lenders based on your circumstances. Recommend you and wife pull free credit report if you haven’t done so already, this should give you a good indication of how you’re likely to be seen by a lender from a credit risk perspective at least. 

 

[Amateur bob]

7 minutes ago, NJLJ2024 said:

As a starting point, most lenders seem comfortable with lending on up to 4-4.5x your salary. As its joint this will be combined salary, so you might expect to be ‘allowed’ to borrow around £160k - £180k.
 

But…there will be a lot of things that factor into this. For one -  do you have any adverse credit - CCJ’s, bankruptcies etc. If so you’ll be classed as high risk and may struggle. On the other hand, if you’ve never borrowed any money, you may also struggle! 

 

The lender would normally assess the amount of existing credit you have in place and whether taking this new debt on will be affordable or could put you in financial difficulty. E.g if your combined earnings are £2666 monthly, let’s say new mortgage is £1000 monthly, leaves £1666 per month to live off. Would this be enough to cover your current commitments, plus essential spend such as food, fuel etc. Lenders role will be to assess that and then advise what they’d be willing to lend on. 
 

Note it can be slightly harder for self employed to get a mortgage vs those with standard salaried jobs (lenders want to see stable, predictable income which isn’t always case for self employed due to seasonality or just peaks and troughs). Brokers will help connect you with the most ‘suited’ lenders based on your circumstances. Recommend you and wife pull free credit report if you haven’t done so already, this should give you a good indication of how you’re likely to be seen by a lender from a credit risk perspective at least. 

 

 

yes most lenders mention this 4-4.5x joint salary lending criteria i just wondered if theyd subtract my rent from it, as given the fact ill no longer need to rent once the house is complete it wouldnt seem logical?

i wasnt sure if whether i could use the equity in the land to help me borrow against that and mabye borrow a bit extra if possible

 

i currently have paid off existing mortgage and house on the market so no debt, no car finance or anything, where can i find this free credit check?

 

thanks

[NJLJ2024]

13 hours ago, Amateur bob said:

 

yes most lenders mention this 4-4.5x joint salary lending criteria i just wondered if theyd subtract my rent from it, as given the fact ill no longer need to rent once the house is complete it wouldnt seem logical?

i wasnt sure if whether i could use the equity in the land to help me borrow against that and mabye borrow a bit extra if possible

 

i currently have paid off existing mortgage and house on the market so no debt, no car finance or anything, where can i find this free credit check?

 

thanks

Agree post build the rent won’t be factored in as this will no longer be an expense, but question mark over how they factor the rent into your affordability throughout the build - though I would’ve thought the affordability would be less impacted as it’ll be funded in stages, so you’re borrowing less than the total amount. One to check with broker 😊
 

Cool, the less commitments you have going out the more chance you have of passing the affordability assessment. Plus you should’ve built up a good credit history through your historical mortgage payments so sounds like in theory you should be in a good place on this part. Clearscore or credit karma are free services.