Build from Loan or mortgage

  • Thread starter creamybeamy
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creamybeamy

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I am currently 3 years into a 40 year mortgage with UB and would like to build a house.

I owe approx 220k on the current mortgage. House is worth maybe 205 max.

The mortgage I have is in my name but would like to self build with partner.

At the minute I have no loans outstanding other than mortgage and 5k car loan.

I am saving €700 a month in the credit union since Nov and have maybe €1k in savings. My gross wage is approx €50k, partner is only in full time employment since nov and takes home approx €500 a week.

I am confused as to what to do if it makes more sense to keep saving and get a loan from cu for site and build as i go along but i dont think i would ever get to finish a house if i did that.

I think i would be hard pushed to sell the house i live in and if i did i wouldnt clear the mortgage and would still have auctioneers and solicitors fees to cover.

Even then i dont know if we would get a mortgage with our earnings.

Any advise on the best course of action?

thanks
 
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With €50k wages and a mortgage of €220k to service you can't afford to build another house.

Best route is to sell the house, carry the loss in a personal loan and apply to the banks for a new mortgage.

But, as you say, banks may refuse you and you'd end up with nothing.

Personally, I think you'd be mad to try and build with a €220k loan (and a €5k car loan) hanging over you.

Also, you also have no real savings to cover a new mortgage.

My advice ... consolidate what you have, save, save, save and live in the €220k house.
 
In my opinion with a mortgage you won’t get another mortgage and you will find it hard to get a loan from a credit union for house building. Many have bee instructed not to give money to members for such purposes by the regulator and to stay out of the property market. What value roughly is the site?
 
Corkmike we will be paying roughly 25k for the site but it will be of higher value.
 
My advice mustn't be the advice the OP wants to hear as it didn't merit a response ....

however ...

  • How do you propose to pay the €25k?
  • Where will you get the deposit to pay for the new build?
  • Will your partner be bringing some finance into the deposit/build?
 
Sorry Paddy, we would either take out small personal loans to pay the 25k over maybe a year or i would pay the cash up front on my side and partner would get a small credit union loan. Honestly am blind to this.. didnt realise i would need a deposit for a new build. Have bought 2 houses but somehow i have completely forgotten this aspect. Yes myself and partner will be 50/50 in this. The mortgage would be in both our names.
 
25K over a year, thats more than 2k a month, plus car loan, plus mortgage.

I dont mean to burst your bubble but its not going to happen. You're currently saving €700/month. Wheres the rest going to come from?

You will not get approved for another mortgage while you still owe that much. Are you sure your house is worth €205K. Its only worth what someone is willing to pay for it. Remember, your negative equity will have to be repaid before you are back to ground zero. Thats another loan. Solicitors fees for mortgage and site transfer??

You dont seem to have thought this through and to be fair a decision of this size shouldn't be based on advice from an internet forum. Have a chat to an independent financial advisor before you do anymore.
 
Trilogy, 25k over a year between 2 people is not more than 2k a month. Like i mentioned we will be both paying for the site. I am not interested in a second mortgage, as in the original post im not looking for advise on a second. I am simply looking for some feedback on whether in the current market i would be better to sell the house and look for a new joint mortgage or stay going as i am paying the current mortgage and saving and getting loans from the credit union to build as i go along. Obviously my decision will not be based purely on the advise i will receive here but may make me consider factors which i had not originally done. I appreciate all the feedback that has been provided.
 
creamybeamy said:
didnt realise i would need a deposit for a new build
Click to expand...

There is no deposit for a new build - once you own the site then the bank can lend 100% of the build costs. This will usually only work for sites that you are gifted or already own i.e if you are borrowing to fund the site purchase then it is very unlikely that you will get 100% of the build costs.

You will need savings to cover overruns though.

To have any chance of the build you will need to sell. To sell you will have to make up the difference in the sale price and the amount outstanding i.e €15k. As you do not have this in savings then you should shelve any idea of building for the time being.

On your €700pm savings - if the interest on the car loan is higher than the interest being earned on savings then pay off the car loan. Once this is done you can start saving again.

Whatever way you look at it creamybeamy, you are stuck where you are for the time being, you are not in a position to finance a self build.

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In addition to the advice on paying off the car loan, you have a crazy length of mortgage at 37 years remaining. You should start overpaying your mortgage to bring down the negative equity (which may be rising) and also to bring down the term. Meanwhile if you can also afford the site, buy that and sit on it until your finances are better.
 
unfortunately on this mortgage ub would only give me it on grounds of 7 year fix over 40 year term. Far from ideal but i agreed. The car payments are only 256e so would be happy enough paying that off every month its very affordable>i would rather keep saving than plough it into the mortgage as then i have nothing to show when i approach any mortgage providers.
 
If you're on a fix Ulster Bank will charge you a penalty to exit the 7 year fix term (even if you are lucky enough to sell the house and pay off the mortgage) ... another factor to consider.
 
Well your fixed rate looks even cheaper now Ulster bank have upped their rates. Most banks allow you to sell and remortgage on a new home without penalty even if on a fixed rate. There is normally a clause in the contract about that.

I do not see your logic in not paying down the car loan if it avoids paying more interest. There is no way you are getting more than 3.5% on your savings and your car loan must be what 10%?

Have you thought about saving for a couple of years, sell the house when out of negative equity, buy the site meantime and then build when you can afford it. Curious as to why you want to build now when you've only purchased 3 years ago?
 
Bronte,Its not an actual car loan its financed with lombard. I have been trying to ring ulster bank mortgages to clarify in relation to any penalties incurred by selling before the fixed term is up and cannot get them, ive been on hold for 20 mins each time. Its a joke. I think ill have no choice but to save and buy the site now, maybe things will be different in 2-3 years. To be honest i had sold a rental property about 4 years ago and the profit i had made on it was sitting around, i was still living at home and decided to buy. I bought a lovely house in small housing estate but really want to build in the country as i have never gotten used to living in the town.
 
Might have changed but UB policy on fixed rate breakage costs was to charge them up front if the mortgage was to be cleared and refund on drawdown of new mortgage within 6 months for equal or greater amount.
 
When one looks at recent mortgage interest rate rises this week, having a 40 yr mortgage that is fixed. Who knows where rates will be in 7 years time. You are best to save and get a small credit union loan that you can pay off in the short term for the new site. Then look at different stages for building it. 1) look at planning and getting it, you could spend a lot of time at this unless you already have approval approved if there are any hick ups, then once the loan is cleared look at putting down a foundation, that could be a years time, by then you will have a good start made and who knows where the economy will be and your exposure to loans and the economy will be limited.
 
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