quirky mortgage question - need advice

DotNetter

Hi all,

My wife and I are currently in real financial difficulty and have spoken to the CCCS regarding starting a debt management plan (DMP). We're not currently in a DMP however we're looking at it as an option depending upon the answer to my 'quirky questions' below.

Our home is worth approx £160k and we have a northernrock 'together' mortgage which totals £160 (£130k mortgage and secure loan and £30k as a 'personal loan').

We also have an additional £30k of debt mainly in the form or credit cards.

We're tied in with Northern rock until January 2010 at which point we move onto their variable rate which is actually 2% lower than our fixed rate!

Anyhow, the above is just a little background...here is the quirky mortgage question!

my wife's parents have a plot of land which has planning permission for a 3 bed house (there is currently a building on the land which would be partly converted/extended).

We have the opportunity to by this land and develop the property as per the plans.

given the location of the property etc it's market value once completed would be at minimum £200k (the cheapest in the same area and of same size but with less garden space recently sold for £220K so I think I'm being very restrictive with my pricing).

The total cost to buy the land (from family) and develop the property would be around £125k.

My plan would be to sell our current house and pay up northern rock.

The first part of my question - do I need to repay northern rock in total or just the mortgage part? I'm assuming I have to pay it all back as the personal loan must be linked to the main mortgage in some way??

The second part of my question is if the plot of land is to bought for £90k but we need a total of £125k to complete the work - would any lenders do this or will they only lend on what is currently there rather than what is 'speculated' to be there once the work is done?

Finally...the last part of my question.

Given our financial situation we currently have a poor credit rating. I've looked at my credit report and I have NEVER missed any payments and my poor score is due to the amount of outstanding debt rather than anything else. Due to this we have no way of raising any funds for a deposit towards the mortgage - is there anyway we are likely to be able to borrow the money?

It's SO frustrating that by doing this we could go from being in real financial difficulty and struggling with payments and lviing in a small house to living without debt (other than mortgage which would be smaller than it is now) and no debt - this is based on a eventually borrowing enough on the house to fully pay off all credit card debt - so we would have a £155k mortgage on a property worth at least £200k (more likely £220+) and NO CREDIT CARD DEBT.

sorry, I'm beginning to ramble...just lots going through my mind with the thought of the possibilities and trying to get my head around how we can do it.

Cheers,


Wayne

Radiantsoul

You are going to need a broker. My gut feeling is you currently have assets of £160k with liabilities of £160k secured and a further £30k unsecured. Selling will probably leave you with £40k of unsecured debt. You are then looking to borrow an addition £95k to buy a piece of land, plus an additional £35k to invest(assuming costs don't mount up). If I were a mortgage company I would be very wary as there is going to be a huge increase in their unsecured risk. The mortgage company might release the funds as the work is completed, but you probably need to be sure your sums are correct. £35k does not seem like a lot of money to pay for quite a lot of building work.
In terms of options perhaps the land could be gifted to you, you could do the development, sell it and then repay the £95k. There is obviously some risk in this, but the if the inlaws won't bear the risk then why should a mortgage company?

DotNetter

Radiantsoul wrote: »

You are going to need a broker. My gut feeling is you currently have assets of £160k with liabilities of £160k secured and a further £30k unsecured. Selling will probably leave you with £40k of unsecured debt. You are then looking to borrow an addition £95k to buy a piece of land, plus an additional £35k to invest(assuming costs don't mount up). If I were a mortgage company I would be very wary as there is going to be a huge increase in their unsecured risk. The mortgage company might release the funds as the work is completed, but you probably need to be sure your sums are correct. £35k does not seem like a lot of money to pay for quite a lot of building work.
In terms of options perhaps the land could be gifted to you, you could do the development, sell it and then repay the £95k. There is obviously some risk in this, but the if the inlaws won't bear the risk then why should a mortgage company?

Thanks for the reply.

I think some of your figures may be wrong inititally. To buy the land and borrow enough to complete the work will cost by your figures £130k - that's the same secured amount that we have - where is the 'huge' increase?

Unless you're talking about when we come to consolidate the credit card balance but that would only be on the completed house with a value of £200K+ so it's still nowhere near the 100% mortgage we have now?

Also I'm not worried about spiralling building costs as the builder has been in the business for over 20 years and is also a very good friend and he understand my current situation and will advise me beforehand if he thinks there are any risks involved of escalating costs.

I shall seek the advice of a broker as soon as I can.

poppy10_2

How do you know the property will be worth £200k when you develop it?

DotNetter

poppy10 wrote: »

How do you know the property will be worth £200k when you develop it?

It's a guess but an educated guess (I'm not an estate agent or surveyor).

The area is sought after and there are no properties within the immediate area of equivalent size and 'spec' (same street or next few streets) that have sold or are on the market for less than £220k.

It will be a generously sized 3 bedroom house with large garden and garage - all newly fitted kitchen and bathroom etc.

I'm underestimating the price if anything as I like to ebb on the side of caution. If I were to be a little less cautious I wouldn't be surprised if it was valued at over £220k.

I do agree that that this is all guess work. However, even if I'm out with my guesstimate and it's actually valued at £180k, I still only require a mortgage of £155k which is still less than the 100% mortgage I currently have (in terms of % of house value and amount we currently owe!)

I hope this helps.

Regards,


Wayne

Cannon_Fodder

Suppose you sold up and were lucky with the sale price, so cleared NR in full.

That still leaves £30k (non-NR) unsecured/CC debt and you have no deposit.

That is a non-starter for getting a mortgage. Irrespective of future value.


You should take advantage of your rate dropping in January to pay off the most expensive debts first. That will free up interest payments, that in turn go against less expensive debt, in a snowball effect.

I'm sure your in-laws would be prepared to wait a couple of years, as the likelihood is that prices will go up in the longer term, so if for some reason you couldn't proceed later, they'd still be able to find someone else to buy the land/PP at a decent price.

benjo

35k to build a generously sized 3 bed house with a garage - I doubt this estimate is realistic, unless you are going to do all the building work yourself, in which case how will you earn money to service your 30k CC debts + 125k mortgage?

Self build prices are quoted (Im being very approximate here) around 1k per internal square meter (assuming you dont require hand made bricks, exotic timber doors, solid gold taps and there isnt anything unusual in the build). So for a two storey house, with a foot print of 9m x 9m you would be looking at 150-180k finished (that wouldnt include service connections) - for the shell alone 80-90k.

Perhaps if you wifes parents were to gift you the land and you remortgage once the build is complete to pay them 90k - I dont know if this would work, you would need a broker for this.

Ultimately, whatever you choose to do, you absolutely are going to need some cash - legal fees etc.

Exciting project that will almost certainly cost you more than you realise. Goodluck.

DotNetter

benjo wrote: »

35k to build a generously sized 3 bed house with a garage - I doubt this estimate is realistic, unless you are going to do all the building work yourself, in which case how will you earn money to service your 30k CC debts + 125k mortgage?

Self build prices are quoted (Im being very approximate here) around 1k per internal square meter (assuming you dont require hand made bricks, exotic timber doors, solid gold taps and there isnt anything unusual in the build). So for a two storey house, with a foot print of 9m x 9m you would be looking at 150-180k finished (that wouldnt include service connections) - for the shell alone 80-90k.

Perhaps if you wifes parents were to gift you the land and you remortgage once the build is complete to pay them 90k - I dont know if this would work, you would need a broker for this.

Ultimately, whatever you choose to do, you absolutely are going to need some cash - legal fees etc.

Exciting project that will almost certainly cost you more than you realise. Goodluck.

Just to clarify.

The cost to convert (not build from scratch) the existing bulding is correct - the existing building is the footprint of the house - it's all internal work required. It was designed and built as a house but is currently used as a workshop. I don't want to go into specifics as I think we're getting off topic.

Just assume that the figures I have quoted are correct.

I think what everyone is basically saying is that we're going to need some money of some sort so it looks like this 'dream' isn't going to get off the ground anyhow.

Thanks to all for your responses.

Regards,


Wayne