Building a new house

C

Capet

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Just looking for some advice/see if anyone has done something similar or if it's even possible:

We are currently living in our house with mortgage, we would like to buy a site and build a house to move to Inthe next few years. So just thinking about how that could possibly work and trying to get finances etc in order to hopefully reach that goal.

Our current house (pre covid) value 350k, mortgage 195k, per month 850 euro.

Our total income is 185k per year, approx 9600 net per month. We have 3 children aged 7,3,1.

We own an apartment in dublin-used to live there, was in negative equity when we moved out of Dublin so it's rented out. Value (precovid) 350k, mortgage 290k. Rent is 1550, mortgage is 1450.
We had planned to sell this and cut our losses but covid happened so that plan was put on ice.

I suppose I was just wondering if anyone has applied for a self build mortgage whilst owning and living in their own house. I know that bridging loans etc are a thing of the past for good reasons. I just wonder whether we should aim to save to buy a site outright, then apply for self build mortgage or apply for mortgage for site and build costs. I assume we would have to sell our own house at that point and rent somewhere during a potential build etc. And would obviously like to minimise any disruption as much as possible.

Any pointers as to whether all of this is possible or where to start/what to consider would be appreciated,
We had intended to use and funds left from sale of apartment to fund a site but now that's on hold will have to save, currently saving about 4k a month,

Thank you
 
Capet said:
currently saving about 4k a month,
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I read all the way to the end, and saw this. No exactly normal circumstances, so the experience of most people isn't going to provide much insight.

Any idea what you'd be looking for mortgage wise for the new build? Unless it's an obscene number, you should be able to get a mortgage, but you'll need 20% (of the total site + build cost). A lot of people aim to have enough cash savings to cover the site cost, and adding finishes.

Is the apartment on a tracker rate? The yield is very low (5.3%). And it's cashflow negative. You might need to get rid of it to improve your chances with mortgage.
 
No apartment not on tracker rate. We were stuck with it when we moved initially as it was in negative equity. We had it up for sale in February and had lots of interest and then covid happened so decided to rent it out for a year and re-evaluate then. The rent is below market level because we had a good tenant paying below market rate at the time rent pressure zones were brought in. So we'd be glad to see the back of it whenever that may be.

And I do appreciate that our income may not be average and we would hopefully pass an affordability evaluation for a self build mortgage.
But I suppose we initially decided to sell apartment and put profit into buying a site. Now that has fallen through for a year or so I'm wondering if there are other options.

We had met with someone in our bank before we put the apartment up for sale earlier in the year and they were a bit perplexed by the thought of us owning a house and wanting to build another at the same time. They came back to us a little while after saying that pending sale of apartment we would qualify for a self build mortgage potentially.

If we had saved 20% of site cost is there any point in pursuing buying a site and getting a mortgage for the rest of site cost/applying for planning permission and selling our own house at that stage- pre build. I'd like to minimise the length of renting and storing belongings as much as possible.
Or would this kind of mortgage only be entertained for site+build cost?

I know that's all very long winded.
I suppose we had a plan A in mind and now trying to formulate a plan B
 
The proposal is relatively simple if your income supports it. What you need to be able to afford based on the banks criteria is your existing mortgage, the mortgage on the new house including site less overall deposit require at stress tested rates, the mortgage on the apartment less whatever rental the bank will allow as income, if you had sufficient income for all those repayments then there is no reason why you cannot get a mortgage to build the new house and stay in the old one until ready to move in and sell it.

The problem arises where some one of those falls down and your borrowing capacity is not sufficient for the total amount of those borrowings then you have to either sell something to bring down your repayments. It makes total sense to stay in your existing house while building if you can afford it but if you don't meet the lending criteria for the total debt then that may not be a runner.

Might be a case to run by a broker to see if the figures fit rather than depending on your existing bank trying to figure it out as sounds like you weren't talking to the most experienced person there anyway!
 

Thank you, yeah the person on the bank wasn't overly helpful. I didn't think the scenario would have been that unusual. A broker with some experience might be a good idea. If we were renting we would be renting a smaller house than our own currently and paying more in rent than we currently pay for our mortgage. Along with hassle of moving/storing belongings. So I'd really like to minimise the time doing that if at all possible.
I
 
Capet said:
If we had saved 20% of site cost is there any point in pursuing buying a site and getting a mortgage for the rest of site cost/applying for planning permission and selling our own house at that stage- pre build
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Yes, you can get a mortgage for the balance of site. It's an expensive enough process - stamp duty on land is 7%, and you'll have legal fees. Few grand for architect, and planning application. I know you're asking about the mortgage, but have your eyes wide open. Whatever you think it's going to cost, add loads to it (both money & time!).
I've heard of people having nightmares trying to draw down the final stage of the mortgage, which is why I'd recommend that you try to have your own savings for finishing up the house after 'builders finish'.

Capet said:
the person on the bank wasn't overly helpful.
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Make sure you were dealing with a mortgage specialist. Some banks don't have mortgage people in every branch.
Self build mortgages are unusual enough in their own way, and I'd imagine the majority are first timers who are building on parents land. But what you're talking about is not unheard of!

Not surprising that the bank suggested getting rid of the rental. Without it, you'd have no problems borrowing 450k. Over that would depend on stress testing and your ages.
 
We suggested getting rid of the apartment to the bank! Very reluctant landlords and had more or less just been stuck with it. Would have been delighted if we'd sold it this year. Hopefully next year we'll still be able to sell it.
Thanks for all the advice. At least it's not a completely unheard of scenario. I'm going to look into broker as the first step.
And I totally realise that the whole thing will likely end up costing much more than anticipated.
We're 37 and 36. Wouldn't want to have mortgage on the potential future forever house for more than 25 years max.
 
Capet said:
Wouldn't want to have mortgage on the potential future forever house for more than 25 years max.
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You're being far too sensible!

You might want to apply for the maximum term for affordability calculations, but then reduce the term when you are near finishing the build.

If anything, I think your ability to borrow is more likely to be limited by how much deposit you can come up with than any affordability considerations. Remember, you might have the apartment back on the market before you've got the foundations in for house.

Best of luck with it.
 
You are probably right about deposit being likely limiting factor. I will look into it anyway. Need some sort of a plan to work towards. Even if it will be another year or longer down the road.

Being stuck with an apartment in negative equity will definitely make you wary of future mortgages and debt! Life lesson learned!
 
Just to give an update on this. Still looking for somewhere to buy!
Have now sold the apartment. Between proceeds from the sale and savings we now have 140k savings.
Mortgage on our house is 188k now, repayment 830/month.
Considering now buying a house and renovating/extending. Would like to do this whilst still living in our own house. And then selling it when new house would be completed.
Have contacted a broker and getting paperwork together. Although she didn't necessarily sound too encouraging on the phone.
I'll update on here as it goes along in case anyone (most likely noone!) is interested
 
Ok. So apparently what I'm trying to do is very unusual and seems pretty impossible?
Has anyone ever either bought a site and built a house or bought a house to renovate and extend whilst already owning and living in your own house? Will I have to sell up and rent to make this happen? I'd like to move in when new home ready and then sell current home. Have spoken to couple of banks and just doesn't seem possible?
Does anyone have any advice?
Are recommendations for brokers allowed?
Is this scenario impossible?
 
What sort of money will you be paying for a site, and will it have PP. Does it connect to all the services and is the site a good one, eg, level, not low down, etc.? Are you going to build it yourself?
 
its very doable as long as you can afford (in the banks eyes) both mortgages at the same time, and one will be at a higher rate id guess as you can only have one PPR.

have you got any figures of what your maximum indebtedness would be under your current plan?
 
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