Paying off pre-existing mortgage

[CADjockey]

Morning all...

 

So we are planning to knock our house down and replace it, if we ever get the planning sorted...

 

I'd be interested if anyone is or has been in a similar position, as I've mostly held back paying off  

our current mortgage in favour of stockpiling as much cash as I can to do the work.

 

Is it actually fair to assume I'll need to pay it off anyway or could I get the remainder of the current

mortgage added to a self build mortgage? Anyone got any experience or this?

 

We probably own about 88% of our house/land under current value estimates. 

[Ferdinand]

There are a lot of considerations in this, and it can change in direction rather easily.  My thoughts:

 

1 - Maintain your options until you can’t maintain them any more through demands or if it will be too expensive.

2 - Whatever you build is likely to cost more than you think ==> have an extra nest egg that other parties do not know about if you can that can be drawn on.

 

Ferdinand

 

 

 

[CADjockey]

32 minutes ago, Ferdinand said:

There are a lot of considerations in this, and it can change in direction rather easily.  My thoughts:

 

1 - Maintain your options until you can’t maintain them any more through demands or if it will be too expensive.

2 - Whatever you build is likely to cost more than you think ==> have an extra nest egg that other parties do not know about if you can that can be drawn on.

 

Ferdinand

 

 

 

 

Yes, that's what I have been doing, and playing PushMePullYou in my head the whole time. 

Safe in the knowledge that cash looses about 2% of it's value every year just sitting in an

account (almost no matter which account you can stick it in), I also recognise that the best 

saving you can make is paying off your mortgage early. We probably have enough set aside to 

get out of the ground and build most of the shell. I guess I really just need to talk to a professional.

I was just casting about for some group experiences in the mean time.

 

[Ferdinand]

I th8nk that cash loss is now under 1%, even with an ISA, and may be well under 1%.

[Ian]

@CADjockey

what we had which worked really well was an “offset mortgage”: An offset mortgage is where you have savings and a mortgage with the same lender and your cash savings are used to reduce or offset the amount you owe in the mortgage. The big advantages are that you still have instant access to the savings with no penalties but the cash in the offset savings account is effectively ‘earning’ interest at the same rate as your mortgage.

 

[CADjockey]

Well I phoned up that big self build mortgages broker north of the border who tell me there’s no problem either way. The one other useful thing the nice lady said was that we shouldn’t do any of the work before securing a deal as some companies won’t lend if you’ve started.

so at least I learned something today.

[Ferdinand]

21 hours ago, CADjockey said:

Yes, that's what I have been doing, and playing PushMePullYou in my head the whole time.

 

The centipede was happy, quite

until the frog in fun

said "Pray, which leg goes after which?"

and worked her mind to such a pitch

she lay distracted in a ditch

- considering how to run !.

 

F

[TerryE]

The one thing that you do need to be careful about as you have an outstanding mortgage is that the lender will be registered as having an interest in your property. This means that you can't do material changes (like knocking out down or even building an extension) without getting their permission.  The reason for this is that the property itself acts as collateral for the loan.  Many of the big lenders will simply not be interested in doing this. You might need to remortgage with a lender that is willing to offer more flexible packages, such as a specialist self-build lender, or one that will take the value of the plot itself as collateral.

[recoveringbuilder]

2 hours ago, TerryE said:

The one thing that you do need to be careful about as you have an outstanding mortgage is that the lender will be registered as having an interest in your property. This means that you can't do material changes (like knocking out down or even building an extension) without getting their permission.  The reason for this is that the property itself acts as collateral for the loan.  Many of the big lenders will simply not be interested in doing this. You might need to remortgage with a lender that is willing to offer more flexible packages, such as a specialist self-build lender, or one that will take the value of the plot itself as collateral.

Yes I can second that , friends of ours bought a run down cottage on a mortgage intending to knock down and rebuild but were told they’d need to repay mortgage before they could knock it down 

[TerryE]

On 02/03/2019 at 13:41, Christine Walker said:

but were told they’d need to repay mortgage before they could knock it down

 

Thanks @Christine Walker, I suspect hat @CADjockey realises that this might be a possibility.  Whilst the original lender might not support this option, any lender is free to remortgage their property and given that the outstanding sum is ~12% of the total value, then it sounds like the mortgage is an old one so the early redemption penalties will be zero or pretty minimal.   

 

When we planned our new build, we had had a relationship with Nationwide of over 30 years.  All of our banking and our mortgage had been with them.  At that time they still had a service of deed retention if you kept a £1 amount outstanding on the mortgage, which we had.  During the course of our loan with them, we had obtained a couple of principle extensions to finance building work / improvements on our farmhouse -- quick, simple and pain-free -- so we expected that remortgaging for about 25% of the value of the farmhouse (and within our joint pension income to repay) to finance the element of the new build that we couldn't fund out of our savings would be straightforward, but no: Nationwide turned us down flat.

 

In the end we went to a broker who found us a far better deal.  The Monmouthshire BS were very happy to offer us an interest on capital only for an initial 3 years and about ¼%  over base rate.  We were open about it's use to finance the new build and in fact the reason that they were willing to offer a capital-only repayment loan was because "build the new house and then sell the old to release equity" was our repayment strategy, and they assessed this as very low risk.

 

So my suggestion is first approach some of these smaller lenders or specialists and to discuss options or to pay for an independent broker who has the professional expertise and can shop around for you.  In our case I felt that his fees and service gave us excellent value for money: 1¼% was a lot better than the 10% bridging that some others were offering.

 

This sort of thing all takes time.  In our case because we had split the plot and so the new-build was now an adjacent separate title to the farmhouse, so luckily we could start ground-works, do the detailed design and commission the TF and slab, etc. using our saving and in parallel to the financial negotiation.   In the case of a demolish and rebuild, you just can't do this without breaching you loan agreement:  the new agreement has to be in place before you can start any demolition.

Edited March 3, 2019 by TerryE

[CADjockey]

@Christine Walker, @TerryE, Yes I figured that  was most likely to be the case, so I've been balancing liquid asset vs

paying down the mortgage. In fact I cut off another chunk this morning and I figure, without an actual valuation, 

that the mortgage is now less than half the value of the land alone, notwithstanding the house we intend to demolish.

The broker I finally spoke to last week said that whatever remained would be transferable and just form part of the 

self build mortgage. Thanks for responses.

[PeterW]

14 minutes ago, CADjockey said:

The broker I finally spoke to last week said that whatever remained would be transferable and just form part of the 

self build mortgage.

 

 

Just be careful to get that in writing. If it’s one of the well known Self Build brokers they are known for a wide variety of pirouette routines when faced with what has been “agreed” previously ...

[recoveringbuilder]

I find these “transferable “ mortgages a bit of a con. When we sold our last but one house we had a very small mortgage which we understood was transferable and we thought we’d just move it over to the house we were buying, it was an eighth of the price of the house and we thought since it was an old house we were buying it would be handy to have the cash to do some improvements, however when we approached the lender to do this it turned out we would have had to make a completely new application and since we were then 9 years older than we had been when we took it out and would have reached retirement age just before it was paid off it would have been put onto a reduced repayment term thus making the payments higher or we would have to have shown a means of making the payments after retirement. We decided to pay it off as it seemed such a palaver on what was supposed to be a transferable mortgage!