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General: Finance for self-build

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  1.  
    • CommentAuthorsidtheglass
    • CommentTimeApr 12th 2012 edited
     
    My green build is going to happen on a piece of land hived off from my existing property. Ultimately, the build will be financed by the sale of my existing house but nobody wants to buy a house with a self-build going on next door. So... I have been trying to get finance so I can do the build first before I market the original house.
    The best finance packages I have been offered so far are either 14% or 18% interest but then there are about £13,000 worth of charges on top of that (brokers fee, valuation fees, legal fees, arrangement fees, inspection fees, exit fees etc) which bump it up to about 30% which is clearly ridiculous. Has anyone out there managed to get reasonably priced development finance and if so, where from?
  2.  
    Could you get or extend the loan on the original house as this might be easier and/or cheaper than going for a self build loan
  3.  
    I tried that but they considered my income insufficient to service a larger mortgage. The fact that it will all be repaid from the sale of the house rater than from income is not relevant when they are assessing your eligibility for a bigger mortgage.
  4.  
    What about asking for temporary PP for a mobile home on the site of your new home/studio (you might have to agree to a time limit), to be removed when the house is built, sell the original house, buy a mobile home and start building. You sell the original house before building starts so 'kerb appeal' won't be lost!
    • CommentAuthorCWatters
    • CommentTimeApr 12th 2012
     
    Why is the rate so high?..

    http://www.money.co.uk/mortgages/self-build-mortgages.htm

    If you own the land already the LTV should be fine.

    I assume you plan to live in the new build but if you plan to sell it as well do make sure you understand any tax implications of selling the existing house first.
  6.  
    Posted By: CWattersWhy is the rate so high?..


    Possibly because

    Posted By: sidtheglassI tried that but they considered my income insufficient to service a larger mortgage.


    Posted By: CWattersI assume you plan to live in the new build but if you plan to sell it as well do make sure you understand any tax implications of selling the existing house first.


    an absolute must - but I think there is provision for some time between property roll-overs - needs a tax expert.
  7.  
    The rate is so high because it is classed as "development finance" rather than "mortgage". I only need the loan until the end of the build when I can sell my existing house and pay it off.
    Mortgage providors are not interested if you only want the money for a short time. I could pretend I wanted it for longer and apply but then my existing mortgage would mean I was already borrowing more than my income can justify so they wouldn't lend anymore.
    I haven't started the build yet - the house is already on the market but I can see purchasers faces fall as I tell them what is about to happen next door and they are then put off by it.
    I am going to live in the new build so there should be no adverse tax implications.
    It seems crazy when people are struggling to get 3% on their investments that I can't get a reasonable rate on this project. Interestingly, I spoke to a development finance company yesterday who sounded all interested until I mentioned the word "eco" at which point he said it was not for them as they "did not lend on "eco" projects".
    •  
      CommentAuthorSteamyTea
    • CommentTimeApr 13th 2012
     
    Posted By: sidtheglass"did not lend on "eco" projects".

    Never use that word again, or 'green', 'sustainable'...
    Just say your building a house to at least current standards.:wink:
    •  
      CommentAuthorDamonHD
    • CommentTimeApr 13th 2012
     
    They'll be making the assumption that you're a tree-hugger who is uncomfortable with maths and other tricky facts rather than a hard-nosed banker type. Except that plenty of those can't do their sums right either...

    Rgds

    Damon
    •  
      CommentAuthorSteamyTea
    • CommentTimeApr 13th 2012 edited
     
    Posted By: DamonHDExcept that plenty of those can't do their sums right either...

    Can anyone, I can't :shamed:
  11.  
    ....and I always thought honesty was the best policy. Two days into my membership of the forum and I have already learnt loads!
    • CommentAuthortony
    • CommentTimeApr 13th 2012
     
    I would go to a high street bank and ask them
    • CommentAuthorCWatters
    • CommentTimeApr 13th 2012
     
    How about renting out the existing house? See if they will lend against the increased income?
    • CommentAuthoradwindrum
    • CommentTimeApr 13th 2012
     
    I am in similar position splitting plot but need to rebuild current house as well. I probably won't develop both though as building two houses in a row seems like too much stress. However for you how about renting your house until built second one. Rent covering excessive self build mortgage costs? Or sell the house for less and offset the lower market price against your higher mortgage rate. Bridging loans didn't look too bad to us either.
    • CommentAuthorCWatters
    • CommentTimeApr 13th 2012
     
    Posted By: sidtheglassThe rate is so high because it is classed as "development finance" rather than "mortgage". I only need the loan until the end of the build when I can sell my existing house and pay it off.


    You have enough equity in the existing house to pay off both mortgages?
  16.  
    There is enough equity in the house that, if I get the build right and don't go over budget, I should be mortgage free at the end of the build.
    Because of this I thought I would have no problem raising funds but they all seem to take income (rather than assets) into consideration and, as a typical craftsman, my income has always been low
    •  
      CommentAuthorDamonHD
    • CommentTimeApr 13th 2012 edited
     
    Sounds like you want to go to one of the eco-friendly building societies or a place like the Nationwide that is prepared to talk about "affordability" rather than pure income multiples. (I also, being freelance, could not get a mortgage easily even though I am by no means poor.)

    Rgds

    Damon
    •  
      CommentAuthordjh
    • CommentTimeApr 13th 2012
     
    Posted By: DamonHDSounds like you want to go to one of the eco-friendly building societies

    It does, doesn't it. But when I approached Ecology, I found they have a catch-22 that meant they were no use. Somebody else mentioned a similar problem on here as well, IIRC. Somebody needs to catch their board's attention and get them to look at whether they can broaden their outlook. But it could be worth approaching Nationwide or Co-op.
  19.  
    I found the same catch 22 with Ecology. I haven't tried Nationwide or co-op yet. I will get the last few bits of the jigsaw into the budget costings and cashflow and get on to them. Thanks for the suggestion.
    • CommentAuthorEd Davies
    • CommentTimeApr 13th 2012
     
    What's the catch 22?
    •  
      CommentAuthordjh
    • CommentTimeApr 14th 2012
     
    In our case, that they won't fund the acquisition of land unless you already have full planning permission for what you want to build. By the time you got that the land would have been sold ten times over!
    • CommentAuthorCWatters
    • CommentTimeApr 14th 2012 edited
     
    Very risky to buy land that doesn't have planning permission. Were they worried you might not get it?

    If it's got planning permission just tell the bank the land does have permission for what you want to build .. and then change your mind.
    •  
      CommentAuthordjh
    • CommentTimeApr 16th 2012
     
    Posted By: CWattersVery risky to buy land that doesn't have planning permission. Were they worried you might not get it?

    No, it had permission.

    If it's got planning permission just tell the bank the land does have permission for what you want to build .. and then change your mind.

    That's the catch-22. What it has permission for is not an ecological build, and they require to see the permitted plans first.

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