Raising money on mortgage free house?

sculler007

Is it possible to raise funds using a mortgage free house as collateral? We want to buy a plot of land and build our own house in the next couple of years and assumed that we'd need to sell our current house to raise the needed cash. However, could we use it as capital to raise funds instead? It would be good to hang on to it as a long term investment if this were possible - we would rent it out to help with the repayments.

We could get a self-build mortgage but the high LTV required for most mean we would probably struggle finding the deposit (the mortgage was recently paid off, so we have not had a chance to build any substantial savings yet). Also, although my partner is employed, I am self employed which would probably have a negative effect on the amount we would be offered by a lender.

Any advice on this would be very welcome.

getmore4less

You would need to mortgage your house to raise any capital.

Wh05apk

getmore4less wrote: »

You would need to mortgage your house to raise any capital.

Thats what they asked!

You could remortgage your existing property to either fund the build or the deposit, lenders may query the amount and purpose, they may view it as business type lending if they feel you will sell, or feel that you will move into new property renting out the current property.

Halifax will lend at decent rates, but only once you have purchased the land, and got upto floor level, so a combination of mortgages on your existing property and the self build could work.

Do not budget too tightly, ensure you have 20-25% surplus as build costs always escalate.

Your income will have to support both mortgages, if you are self employed, you will need to produce at least 2 years accounts if you income is required.

herbiesjp

What figures are you looking at:

What is your current property value?
How much is the land purchase?
How much will the build cost?

What is your gross annual income?
Any other debts?

sculler007

Many thanks for those responses. As regards more specific costings,
our house is worth approx £250k; we plan to build a small straw bale house - we could probably do this for under £100k by doing the less skilled work ourselves (we have spoken to other straw builders re. costs so this is reasonably realistic). We would look to keep land costs under £100k if possible, though if there is enough in the budget we may stretch a little further for a good plot.

My partner's employed earnings are £42k pa, my self employed earnings are around £15k. We have no other debts.

Any further thoughts on whether we need to sell up or not welcome.