Remortgaging amounts on completion

[lora]

Hi, Im hoping to self build on a budget a small 1.5 story, 2 bed, 1 bath house. We have £12,350 in cash (£7,350 in savings & £5,000 offered by mum). The highest LTV I have seen is 85% with build store.

If this was the case, I would take a personal loan to have a cash amount of £20k and take a mortgage for £113k. Giving me a total budget of £133k.

 

This would mean by budget for building would be:

Land £50k

Build £70k

Contingency £13k

 

If I was then to switch to a standard normal mortgage after competition, how much would I be able to take out on the house if its value is a min of £160k?

Could I take out £128k to pay off the self build mortgage, in addition to paying back the loan and my mum?

Edited February 3, 2018 by lora

[PeterW]

First question is how big ...??

 

£70k is a tight budget for anyone, and it sounds like you don’t have a reserve to fall back on if it goes wrong. 

 

You could remortgage to whatever LTV you can get as long as you can meet the lending criteria - I’ve seen 95% loans again recently so that would release £152k against your £160k final value. 

[Hecateh]

1 hour ago, lora said:

This would mean by budget for building would be:

Land £50k

Build £70k

Contingency £13k

 

Architects

topographical survey

Planning permission

ground investigation

Water

Gas

electriciy

Sewerage

NHBC insurance

Building Control

 

A list of things I didn't fully consider (I considered them but took averages rather than getting quotes - apart from architect who was pretty much a waste of money anyway) before starting my own self build ... Cost of all of these approx £20,000.  Yours may not be as much BUT have you the contingency if they. Some of these costs are lower for a small project like yours (and mine); many are the same whether you are building a 70 sq m bungalow or a 500sqm mansion.  

On top of this I have the other extras (£15k) ish on the the actual build.
I am not trying to be negative - I know that despite all this I will love living in my new build - however I had (sort of ) available funds way and above my contingency - my pension fund - so really didn't want to use it.

I hope you can sort it out BUT don't get to the point of no return without knowing how you'll cope.  Many sleepless nights here and I know I will be ok.

 

[lora]

2 hours ago, PeterW said:

First question is how big ...??

 

£70k is a tight budget for anyone, and it sounds like you don’t have a reserve to fall back on if it goes wrong. 

 

You could remortgage to whatever LTV you can get as long as you can meet the lending criteria - I’ve seen 95% loans again recently so that would release £152k against your £160k final value. 

 

the ground floor is 38m2, I have legal costs, surveys and utilities etc within the £70k build figure, to save money I will do as much work as I can myself, I work as an architect assistant so I have done all the technical drawings myself/will manage the project myself and the plot is located in Yorkshire. I don't have a mortgage yet so not sure about remortgaging values, so they still go on for example, 4.5 times your income slike with a first time mortgage?

Edited February 3, 2018 by lora

[lora]

1 hour ago, Hecateh said:

Architects

topographical survey

Planning permission

ground investigation

Water

Gas

electriciy

Sewerage

NHBC insurance

Building Control

 

A list of things I didn't fully consider (I considered them but took averages rather than getting quotes - apart from architect who was pretty much a waste of money anyway) before starting my own self build ... Cost of all of these approx £20,000.  Yours may not be as much BUT have you the contingency if they. Some of these costs are lower for a small project like yours (and mine); many are the same whether you are building a 70 sq m bungalow or a 500sqm mansion.  

On top of this I have the other extras (£15k) ish on the the actual build.
I am not trying to be negative - I know that despite all this I will love living in my new build - however I had (sort of ) available funds way and above my contingency - my pension fund - so really didn't want to use it.

I hope you can sort it out BUT don't get to the point of no return without knowing how you'll cope.  Many sleepless nights here and I know I will be ok.

 

Thanks for your reply, I have included these cost which I have researched in some depth within the £70k build value

[Thedreamer]

Like other users don't want to be negative, but....

 

your build costs seem very low.

Also your need to remember that your loan will be taken into consideration for your borrowing limit.

The amount from your mother will need to be in your bank when requesting the mortgage with possibly as an agreement.

You will need to remember that the 85% value limit not just at the end but during the build process. 

Buildstore will hit you with some pretty heavy fees

 

I don't know who ticks the box for 4.5 times borrowing on salary costs, but be prepared for this to be drastically different. I.e. no overtime, remove child benefit, stressed mortgage rates and higher expenses then you actually show on your bank statement. Most of the lending multiples offered by big banks tend to differ hugely from from the building societies that offer self build products. 

 

I would suggest that you really check the feasibility of this before you commit any spending towards the build.

 

Edited February 3, 2018 by Thedreamer

[Ferdinand]

I've been struggling how to call this one.

 

1 -Your proposed financial feels high risk, intricate and too-easily derailable. Needs detailed assessment. Operating so heavily from borrowing is very fragile. That personal loan could knock a huge hole in your mortgage capacity - from here it looks like 3-4k a year repayments. It feels as if too many stars have to align successfully for it to come off.

2 - My gut feel says that your cost allocation needs to be more like 30-35k plot, 75-80k build and 10k more on your contingency because of the riskiness.

3 - And yet ... and yet ... you clearly know a lot of the stuff and this type of project *can* work. I would have confidence in your ability to self-build at some time, and question the wisdom of doing it this way now.

 

My concerns are around:

 

4 - Expenses and risks that you may have missed out or have not yet appeared - eg several k to hire or buy scaffolding, or if there suddenly turns out to be 10-20k of work underground that you have not yet found.

5 - Which says that should you go ahead attention to detail and completeness need to be your top priority.

6 - Have you got the practical skills at this point substantially to build your own house?

 

If forced to recommend I think I would suggest a need to find a lower risk path, at least for this time round. I would suggest a conventional mortgage on a renovation to which you can add value (best street, worst house, room to extend or into loft etc), ideally with a potential plot in the large garden.

 

Then I would suggest a renovation project first, and plan to self-build once you have a more absorbent financial base.

 

My opinion. But the best of luck whatever you do.

 

Ferdinand

 

Edited February 4, 2018 by Ferdinand

[Hecateh]

I loaned my son 11k to buy his first home, the only way the mortgage company would consider it was if the loan became a gift.  He has paid me back but there is a risk involved.  If things had gone wrong then I would have had to take the knock as legally it was a gift. 

 

 

 

[Hecateh]

Another consideration is interest on the mortgage,  

 

This is a bigger factor for me as, on a bridging loan the interest are eye watering (but still lower than I was paying on a standard mortgage 20 years ago),

But the more you do yourself the longer it takes and the more interest you will pay

.

[Russell griffiths]

I think from a previous thread you asked about an ally for neighbour access 

so is this like an end of terrace build or something similar 

if you put up some pics it may give people an easier understanding of your budget. 

 

[MikeSharp01]

18 hours ago, Hecateh said:

If things had gone wrong then I would have had to take the knock as legally it was a gift. 

Beware large gifts as they can come with tax implications if you fail to keep breathing for a further 7 years. See HERE

 

PS Welcome to the FORUM.

Edited February 4, 2018 by MikeSharp01
Added PS and corrected URL (later)

[Hecateh]

1 hour ago, MikeSharp01 said:

Beware large gifts as they can come with tax implications if you fail to keep breathing for a further 7 years. See HERE

 

PS Welcome to the FORUM.

You seem to have done a circular link here - it leads back to this discussion.

 

I'm aware of the 7 year rule (went through it all a few years ago with my parents who had a lot more money than me)  - 3 years down, I'm still breathing and both parents lived into their 90's.  Maybe this message was meant more for the OP Lora

 

[Thedreamer]

Also an annual exemption of £5,000 exists for gifts to children. This is outwith the seven year inheritance tax rule mentioned.

[Jml]

13 minutes ago, Thedreamer said:

Also an annual exemption of £5,000 exists for gifts to children. This is outwith the seven year inheritance tax rule mentioned.

 

Thats only for marriage, see below for gifts

 

https://www.gov.uk/inheritance-tax/gifts

 

[Thedreamer]

Yes, but assuming no other gifts in the current and prior year, the £5,000 would still be exempt as you can receive a gift of up to £6,000 over the two years which would be exempt from inheritance tax.

 

 

[Hecateh]

There’s normally no Inheritance Tax to pay if either:

• the value of your estate is below the £325,000 threshold
•  
• That lets me out anyway

[Jeremy Harris]

My wife had to deal with this every year for around 10 years or so, as her grandmother used the maximum gift allowance every year to reduce her cash assets, both because she wanted to help her grandchildren but also because she wanted to avoid as much inheritance tax as possible as she hated the thought of all that money going to the government (a bit curious given that her late husband had been a Tory MP for some years.........). 

 

We used to keep a running spreadsheet going of how much was still liable to inheritance tax under the 7 year rule, keeping the capital in the most tax-efficient investments we could, bearing in mind the possible need to pull some of it relatively quickly out to pay inheritance tax.  In the event, her grandmother lived to 96, and managed to get her estate down to around half a million, by a combination of having gifted the maximum every year to her grandchildren and then choosing to spend her final years in a pretty expensive home for the elderly.  Her plan was to spend the lot before she died, leaving just enough for her funeral, but she was in a position initially where the interest on her capital was more than she could spend each year.  Not something that would happen with today's interest rates.

[MikeSharp01]

5 hours ago, Hecateh said:

You seem to have done a circular link here - it leads back to this discussion.

Sorry - sorted now.