Demolish and rebuild - self build mortgage help please

[mikew1978]

Hi guys, 

Can anyone point me in the right direction? 

We have bought a small cottage on an expensive plot of land. Current value of £380k.

Residential mortgage in place (current deal expired). We owe £260k at present.

Full planning permissions in place for demolish and rebuild- in Scotland.

 

Where can I find a self mortgage that will allow us to transfer the existing residential mortgage of £260k and put up the self build costs of £250k = £510k. 

The value of the finished build will be circa. £800k.

 

Any help would be much appreciated ! 

[ragg987]

Not sure if this is feasible. You want to demolish the very thing that provides security against your mortgage.

 

You might need to borrow against the notional land value as a self build mortgage which pays out in stages as build value increase. If that is right you may need to inject cash to reduce the initial loan value.

 

I took my mortgage with the Melton. Might require a discussion to plot a way forward.

[Trw144]

Yes sounds like a difficult one. Do you have any finances to cover the current mortgage until you demolish - at that point it may be easier to sort a self build mortgage.

[Oz07]

A self build mortgage in arrears may be what you need. You would need to have a strong cash position at present thought as I'd imagine your ground to only be worth around your current mortgage amount 250k ish. Possibly need to demonstrate you have enough funds to demo and get out of the ground before stage payments advanced

[oldkettle]

Yes, I naively thought the value of the land would be good enough a security, but this is not what the "standard product" covers. If you find anything - let us know, we are interested. At the moment in our case it seems paying an extra 4%+/year for a self-build mortgage defeats most benefits of demolition.

[Trw144]

Well you can shift off a self build mortgage once it’s built ( or after early redemption period) but there are ways to speed this up

[mikew1978]

Old kettle, Hi, I don't understand the last sentence ?

Edited February 18, 2018 by mikew1978

[oldkettle]

@mikew1978, sorry, will try again. We are trying to extend the existing bungalow and everybody recommended demolish and rebuild instead as it gives better quality and potentially comes at a same cost due to VAT benefits. In our specific case though, residential mortgage is fixed at 1.29% for another 4 years, where as self-build mortgages are 5.5%+, which means paying extra 14K+/year in interest. Taking into account the project is unlikely to take less than 2 years and after that we will not get residential rate anywhere close to the current, in 4 years we would lose (overpay in interest) a sum comparable to a VAT benefit of say 45K.

[ultramods]

Would it be possible to split the plot and not demolish the cottage. You could then sell the cottage and own the plot outright, which would help with a mortgage.

 

What is the size of the current plot and where about in Aberdeenshire is it?

[mikew1978]

Thankyou old kettle.

[mikew1978]

Ultra mods.

We're in Bieldside on a 1/3 acre plot. 

I was told by a director of a large house building company, that owns land adjacent to ours that, it is £1m/ acre. 

The actual cottage is tiny, in poor condition and house insurance would see a rebuild cost of £70k.

Our cottage sits in development land but the rest of the plot is green belt :-( and so your suggestion can't be done :-(

Edited February 18, 2018 by mikew1978

[ultramods]

I think I remember seeing that plot advertised on ASPC.

 

So if the land is worth 330k your current equity of 70k is 21% of the land, which makes it possible in terms of a lender.

 

I have seen a couple of positive posts on here about Scottish Building Society, they have an office in Aberdeen, might be best discussing with them.

[Ferdinand]

There are various posts around about private finance (eg via your solicitor to investor clients or peer-to-peer), but they all come at a cost.

 

Off topic slightly: how secure are those predicted values, given the oil-decline and (not trying to be political) Scottish Government slanting of the tax take towards asset/income-rich people (eg + 1k per year for 50k salary in Band H house from April)? OTOH perhaps builders near Aberdeen are less pricey.

 

One thing that is a huge risk-reducer in self-build is a far wider than expected buffer to absorb the slings and arrows, in terms of contingency %, personal resources and expected value of your project. It can be done on tight buffers, and there are relevant strategies to use, but there is a lot of potential for expensive mistakes which can chomp through contingency before you are out of the ground. One important strategy is to take lots and lots and lots of time to learn if you lack experience.

 

Ferdinand (aka Jeremiah)

 

Edited February 19, 2018 by Ferdinand

[Conor]

We're in exactly the same situation - residential mortgage on a property we want to demolish and replace. We've spoken to dozens of banks and drawn universal blanks. Only exception is Ecology, they will pay up to 75% of the land costs and then on the building stage. They've confirmed to us that they will take over our current residential mortgage when We're ready to start works and have planning. We also spoke to build store and they said they had two potential lenders that could work with us - but didn't name them.

Positive for us is that the site, cleared and with FPP is worth more than what we paid for the house...