Dispute with Mortgage Lender over project?

[newhome]

22 minutes ago, John Cain said:

Eh, I'm one of those pre-planners, so if it's a good idea to start collecting a bit of data it makes me sleep easier at night.. (hopefully better than last night.. sigh)

 

I don’t think looking at moving lender in the circumstances you describe will make you sleep easier ?. Continue down the road of sticking with your current lender. 

 

Getting out of a 5 year fix and applying for what is a likely to be a significant renovation or even a self build mortgage will be £££ IMO. If the house is all but gone you should have looked at demolishing it and doing a new build so that you could reclaim the VAT. 

[John Cain]

26 minutes ago, newhome said:

 

I don’t think looking at moving lender in the circumstances you describe will make you sleep easier ?. Continue down the road of sticking with your current lender. 

 

Ha, well, my sleep typically gets easier with more info, even if it's not great news, it's still better to be prepared than be surprised.

 

26 minutes ago, newhome said:

Getting out of a 5 year fix and applying for what is a likely to be a significant renovation or even a self build mortgage will be £££ IMO.

 

Selfbuild mortgage> hopefully not much more than if we went with this in the first place?

And, I've not heard of my lender even offering self-build mortgages. Would they try to make an exception? 

 

 

26 minutes ago, newhome said:

If the house is all but gone you should have looked at demolishing it and doing a new build so that you could reclaim the VAT. 

 

Eh, we looked at that but sadly conservation area, in keeping etc etc.. so it's more of a hollowing-out project, and we were advised to go with this approach

[John Cain]

(Day 2.. and still no letter.. - but I doubt I got lucky somehow)

 

Does anyone have experience with remortgaging a standard mortgage into a selfbuild like @newhome said?

 

My current mortgage lender doesn't offer a selfbuild, but might make an exception somehow, on the other hand selfbuild mortgages seem to have rates around 5% - is that what I can look forward to, or will they squeeze me since I'm in urgent and unexplored territory..

[Alex C]

A self build mortgage is always at a much higher rate than normal mortgage. When I looked a few years ago none of the high st lenders would lend for self build or on land only, so the fact the plot is nearly all of the value might not help in a computer says no situation. If you changed lender do you not have an exit fee? 

[John Cain]

13 minutes ago, Alex C said:

A self build mortgage is always at a much higher rate than normal mortgage. When I looked a few years ago none of the high st lenders would lend for self build or on land only, so the fact the plot is nearly all of the value might not help in a computer says no situation. If you changed lender do you not have an exit fee? 

 

Well the situation is unusual. Assuming no 'legal' action they might at least boot me out with/without exit fee (upon which I would have to get some, probably unfavourable mortgage on the spot). Alternatively they might want to renegotiate to a crazy premium themselves (could I refuse?)

 

[Ferdinand]

40 minutes ago, John Cain said:

(Day 2.. and still no letter.. - but I doubt I got lucky somehow)

 

 

I was going to make a couple of suggestions that could potentially help oil the wheels.

 

As I see it, their concern will be the extra risk you have inadvertently imposed on them by not knowing the dot and tittle, and therefore your answer needs to mitigate that risk.

 

- The "blitz" answer would be to have it built to a stage that stops them worrying before they have done anything, and the problem would have gone away. Obvs not practical in the the circs.

 

1 - So, can your solicitor (or your architect) come up with something like a traditional Indemnity style policy or a plan of periodic supervison / audit that would help. As I see it, the relevant risk is now that your construction process will fail, and the sum to be covered will be the difference between where you would have been following the bank's rules, and where you are now. But the risk of a construction process failing should be an insurable one, though it may need some sort of pro-supervision if the lender insists.

 

2 - Can you offer (or afford) to put a sum in escrow to cover the increased risk for your lender, that will decline at each stage as you have surveyor or architcetural reports that the work is done, and so gets released as the build proceeds.

 

I am sure that once you get to the more senior staff, they will have had this before and must have ideas about how to manage it.

 

It is always good to have an answer to hand. Best of luck.

 

Ferdinand

Edited May 16, 2019 by Ferdinand

[Alex C]

I suspect that as the bank have gone to the effort of finding out about your build they will have a standard procedure that they will want to work to. During our build quite a few people I know let it slip that they didn't tell their bank during major works on their house. It must happen all the time, but I have to say it is completely bonkers as there is so much risk if any major issues arise and also insurance during build. 

[John Cain]

47 minutes ago, Alex C said:

I suspect that as the bank have gone to the effort of finding out about your build they will have a standard procedure that they will want to work to.

 

Perhaps this is some 'due diligence' thing.. the banks should (?) be happy as long as they get their mortgage cash every month, and situations like this are not worth the hassle.... but if they learn of such a violation they might have to follow up? (paranoid cap on.. could it be the neighbors after all..)

Quote

During our build quite a few people I know let it slip that they didn't tell their bank during major works on their house. It must happen all the time, but I have to say it is completely bonkers as there is so much risk if any major issues arise

 

Clearly I'm exhibit A for risk... (although I guess we'll have to see how bad this bad situation turns out. ) 

 

But let's say the builder goes bust or I hit some financial or medical hardship and can't finish the build.. that means that the property lost (say) 15% of its value permanently and I'd have to tell the mortgage guys.. not ideal, but as discussed earlier in this topic, it hopefully will be a re-negotiation not a blunt axe coming down on your head..

 

Quote

and also insurance during build. 

 

Insurance - @Alex C: do you think this situation affects insurance somehow? My building insurance never asked for any mortgage details, why would they care if that part is handled properly or not? 

 

Edited May 16, 2019 by John Cain

[John Cain]

21 minutes ago, Ferdinand said:

 

I was going to make a couple of suggestions that could potentially help oil the wheels.

 

As I see it, their concern will be the extra risk you have inadvertently imposed on them by not knowing the dot and tittle, and therefore your answer needs to mitigate that risk.

 

- The "blitz" answer would be to have it built to a stage that stops them worrying before they have done anything, and the problem would have gone away. Obvs not practical in the the circs.

 

1 - So, can your solicitor (or your architect) come up with something like a traditional Indemnity style policy or a plan of periodic supervison / audit that would help. As I see it, the relevant risk is now that your construction process will fail, and the sum to be covered will be the difference between where you would have been following the bank's rules, and where you are now. But the risk of a construction process failing should be an insurable one, though it may need some sort of pro-supervision if the lender insists.

Hopefully this would be doable. 

21 minutes ago, Ferdinand said:

 

2 - Can you offer (or afford) to put a sum in escrow to cover the increased risk for your lender, that will decline at each stage as you have surveyor or architcetural reports that the work is done, and so gets released as the build proceeds.

 

Interesting idea.. depending on what they say (how much 'increased risk' there is is surely debatable.. ). Let's say our 500K home+plot is now worth 400K until I succeed in turn it into a 700K magic palace, is the risk really 100K? Surely it's more like "25K" (if 1 in 4 builds fails?). 25K I can do.. 100K.. um..

 

21 minutes ago, Ferdinand said:

I am sure that once you get to the more senior staff, they will have had this before and must have ideas about how to manage it.

 

Hopefully!

21 minutes ago, Ferdinand said:

It is always good to have an answer to hand. Best of luck.

 

Indeed. Thanks

 

[Mr Punter]

I have looked at part complete building projects for sale in the past and they are very cheap compared to full market price. One in particular looked mostly completed, did not have building regs final, shockingly poor brickwork, cracks around ceilings and bouncy floors.  All doable but not mortgage-able.  Ended up selling for about 50% discount.

 

If your completed dream house were worth £700k it is unlikely that the bare plot is worth more than £350k and if repossessed could net just £200k for your lender after fees.

[Alex C]

@John CainHaving half your house knocked down will definately effect your building insurance. Have you contacted your insurer and also have site insurance, sorry if you covered this already but didn't see it. If you are still running on your old policy without telling them of building works I suspect it will be invalid.

[Ferdinand]

The other way you could ask them to think about it is to consider what the LTV is now with a .. er .. knockdown valuation (groan), and adjust your terms in the interim based on that.

 

eg They used to run Mortgage Indemnity Guarantee for people with eg LTV of over 80%, which were a single up front payment at a rate of (say) £5 for each £100 of borrowing up to 85%, then £10 for each £100 up to 90% and so on. I had one of those on my first house, and they could get expensive very rapidly and were in the end withdrawn.

 

Do the rough calcs first based on the reduced value and the most accurate numbers you can get, but it is another option to think about.

 

My feeling (and only a feeling) is that the way is likely to be a confession, apology, bootlick, then a mix of fastracking as much as possible to a watertight shell, combined with feedback from your architect or other professional.

Who knows - they may decide it is less painful for them just to watch you, as they presumably want it built as a successful transaction.

 

The one time I got into serious trouble on a mortgage (nearly lost the house), the thing that unlocked a solution was a desperate letter to the CEO of the Leeds Permanent explaining why 15% interest rates were a struggle too far, and all the things I was going to put in place to get it back on track over 18 months.

 

>If your completed dream house were worth £700k it is unlikely that the bare plot is worth more than £350k and if repossessed could net just £200k for your lender after fees.

Which is perhaps a strong argument, but one to be made with care or only by implication. In the numbers quoted by @Mr Punter, your max risk is when the bank decide that they can get their loan plus costs back at a heavy cost to you, and something out of your control makes them do it.

 

Ferdinand

Edited May 16, 2019 by Ferdinand

[Ferdinand]

2 hours ago, John Cain said:

Interesting idea.. depending on what they say (how much 'increased risk' there is is surely debatable.. ). Let's say our 500K home+plot is now worth 400K until I succeed in turn it into a 700K magic palace, is the risk really 100K? Surely it's more like "25K" (if 1 in 4 builds fails?). 25K I can do.. 100K.. um..

 

I think it all depends on the calculations they make. In the recession the RBS drove a lot of companies over the edge because their priority then was to shrink the book rather then make a max long term return on it (think that is right), due to iirc things like regulatory ratios and liquidity.

 

You are then in a place of guessing their priorities.

 

F

Edited May 16, 2019 by Ferdinand

[John Cain]

3 hours ago, Mr Punter said:

I have looked at part complete building projects for sale in the past and they are very cheap compared to full market price. One in particular looked mostly completed, did not have building regs final, shockingly poor brickwork, cracks around ceilings and bouncy floors.  All doable but not mortgage-able.  Ended up selling for about 50% discount.

 

If your completed dream house were worth £700k it is unlikely that the bare plot is worth more than £350k and if repossessed could net just £200k for your lender after fees.

 

Useful, if not encouraging point. not completely surprising though that a part house is a 'hassle'. That said, my plot is super central in a city with a terrible house so I still feel the value of the plot is definitely the bulk of the price. 

[John Cain]

2 hours ago, Ferdinand said:

The other way you could ask them to think about it is to consider what the LTV is now with a .. er .. knockdown valuation (groan), and adjust your terms in the interim based on that.

 

eg They used to run Mortgage Indemnity Guarantee for people with eg LTV of over 80%, which were a single up front payment at a rate of (say) £5 for each £100 of borrowing up to 85%, then £10 for each £100 up to 90% and so on. I had one of those on my first house, and they could get expensive very rapidly and were in the end withdrawn.

 

Do the rough calcs first based on the reduced value and the most accurate numbers you can get, but it is another option to think about.

 

OK I think I'll brazenly go for halfway between MrPunter an my guess, so 70% = 350K. 

 

My 60% LTV - I paid 200, they paid 300 to the house sale. 

 

At this point, if the house is worth 350, given my 200 deposit ... hm frankly I'm a bit confused how to work out these calcs, am I on the right track here?

 

2 hours ago, Ferdinand said:

My feeling (and only a feeling) is that the way is likely to be a confession, apology, bootlick, then a mix of fastracking as much as possible to a watertight shell, combined with feedback from your architect or other professional.

Who knows - they may decide it is less painful for them just to watch you, as they presumably want it built as a successful transaction.

 

Will see.

 

2 hours ago, Ferdinand said:

The one time I got into serious trouble on a mortgage (nearly lost the house), the thing that unlocked a solution was a desperate letter to the CEO of the Leeds Permanent explaining why 15% interest rates were a struggle too far, and all the things I was going to put in place to get it back on track over 18 months.

 

And the CEO was okay with your assurance and everything worked out hopefully?

 

2 hours ago, Ferdinand said:

>If your completed dream house were worth £700k it is unlikely that the bare plot is worth more than £350k and if repossessed could net just £200k for your lender after fees.

Which is perhaps a strong argument, but one to be made with care or only by implication. In the numbers quoted by @Mr Punter, your max risk is when the bank decide that they can get their loan plus costs back at a heavy cost to you, and something out of your control makes them do it.

 

Well, as above surely they can get their loan back if they are allowed to sell the place, 300 seems doable. 

 

But then what about the 200 I spent on this?

[Jeremy Harris]

The only way to know for sure what the part-completed house is worth is to get it valued, as-is, which is something a lender might ask for, perhaps. 

 

When we applied for a self-build mortgage we had the plot valued after we'd completed the ground works (which cost around £55k), so the services were in, the site had been levelled and boundaries were all fenced.  The valuer gave two values, an initial plot valuation that set how much we could borrow based on just the current site value, plus a speculative value for the completed house, based on the plot value plus the house design drawings.  The value of the plot was about 40% of the completed house value, and we live in an area where plots are pretty expensive.

 

I'd suggest that a current value, as-is, might well be between 30% and 50% of the estimated value when the work is complete.

[John Cain]

6 hours ago, Alex C said:

@John CainHaving half your house knocked down will definately effect your building insurance. Have you contacted your insurer and also have site insurance, sorry if you covered this already but didn't see it. If you are still running on your old policy without telling them of building works I suspect it will be invalid.

Ah yes, no I took out a separate insurance for the build process (indeed the old, standard insurance would be void if I started modifying).

I thought somehow the 'mortgage trouble' would impact my ability to claim...

[K78]

The last thing a mortgage company wants is to repossess a house, especially a part built house. The cost to them is huge. The insurance on a empty house with a £300k loan attached to it is not cheap and they ask the selling agent to value at a price that will sell in current market conditions. 

 

Most agents go in ridiculously low and sell to a investor who gives them a fat envelope.  

 

As long as you keep up your repayments and have a clear schedule of works you should be ok imo. 

 

 

Edited May 16, 2019 by K78

[John Cain]

3 hours ago, JSHarris said:

The only way to know for sure what the part-completed house is worth is to get it valued, as-is, which is something a lender might ask for, perhaps. 

 

When we applied for a self-build mortgage we had the plot valued after we'd completed the ground works (which cost around £55k), so the services were in, the site had been levelled and boundaries were all fenced.  The valuer gave two values, an initial plot valuation that set how much we could borrow based on just the current site value, plus a speculative value for the completed house, based on the plot value plus the house design drawings.  The value of the plot was about 40% of the completed house value, and we live in an area where plots are pretty expensive.

 

I'd suggest that a current value, as-is, might well be between 30% and 50% of the estimated value when the work is complete.

Thanks JSHarris, but that indeed is what I was assuming/counting on too. Meaning:
 

House purchase price: 500K

House future price: 700K

House current price: 350K

 

Seems about what i had in mind... I'm aware that's the high end of your estimate but when looking around, many sites seem to land at "plot value is over 50% of the total value", even when the house is acceptable or even brand new. Instead, my house is terrible (currently) so while I was clearly too optimistic with my "90% plot value, 10% house" estimate, I think maybe 50-50 is indeed a safe bet, where 60-40 is my current best guess, at least in my location where plots are really expensive.

[John Cain]

5 minutes ago, K78 said:

The last thing a mortgage company wants is to repossess a house, especially a part built house. The cost to them is huge. The insurance on a empty house with a £300k loan attached to it is not cheap and they ask the selling agent to value at a price that will sell in current market conditions. 

 

Most agents go in ridiculously low and sell to a investor who gives them a fat envelope.  

 

As long as you keep up your repayments and have a clear schedule of works you should be ok imo. 

 

 

Exactly what I wanted to hear!  (but ha, I'm aware of what confirmation bias is.. I think I want to play it a bit more safe..)

. 

It sounds like a sensible point though that indeed repossessing is a major headache for mortgage companies so as long as they don't see their payments drying up and don't see evidence of financial trouble otherwise, it does seem like they'd prefer a smooth solution rather than the 'litigious' approach.. 

 

 

[MJNewton]

50 minutes ago, K78 said:

Most agents go in ridiculously low and sell to a investor who gives them a fat envelope.  

 

Are you sure? My understanding was that lenders have a legal obligation to get the highest price for a repossession hence they are always sold on the open market or at auctions within the aim to achieve (and prove) this. Any valuation thus has no bearing on the final outcome.

[Ferdinand]

>Clearly I'm exhibit A for risk... (although I guess we'll have to see how bad this bad situation turns out. ) 

 

Not sure of that; you have resources and the ability to pay. 

 

You could of course insert the extra "Mc" in your name and try the "Yippie-Ki-Yay Mortgage Sucker!" tactic. (Do you like sequins?)

 

At which point, I withdraw ... having made the objoke that everyone else is too careful of their reputations to mention. 

Edited May 17, 2019 by Ferdinand

[Onoff]

Bare in mind I don't know what I'm taking about here...

 

Could you apply for outline planning permission for a knock down & rebuild, then get it valued on the basis the valuation should be higher with pp.

 

Then present that valuation as how you're mitigating risk to the lender.

 

?

[K78]

13 hours ago, MJNewton said:

 

Are you sure? My understanding was that lenders have a legal obligation to get the highest price for a repossession hence they are always sold on the open market or at auctions within the aim to achieve (and prove) this. Any valuation thus has no bearing on the final outcome.

 I’m 100% sure. Rules are bent and broken all the time. Fake offers, viewing etc. 

 

As long as the property is advertised with a 28 day notice of the final price. The agent is covered. 

[MJNewton]

Uugh.. Makes a sad situation even sadder.

Edited May 17, 2019 by MJNewton