Redemption Penalties to Self Build

rpeckham

I have an offset mortgage with First Direct, taken out over 10 years commencing in 2007.

I have recently gain planning permission to demolish the house and rebuild a significantly larger house on the plot and have been in touch with First Direct to seek an extension to the mortgage to fund this. The undeveloped plot has been valued at twice the mortgage I require.

However, First Direct have refused to extend the mortgage and state that if I demolish the house I will be in breach of their T&Cs as they will not have adequate security over the property (regardless that as an undeveloped site it will be worth twice the mortgage secured on it). They say I need to remortgage to a self- build mortgage but will charge me a redeption penalty of £8000 for doing so.

I had no idea of these t&cs at the point that I took out the mortgage. Where do I stand on this?

kingstreet

In 2007, did you intend to embark on this plan and did you ask the solicitor or the lender about your plan to demolish and build from scratch?

rpeckham

No I didn't. It was always our intention to extend the house quite significantly, however, we ended up with an architectural design which involved an extension to the footprint and reconfiguring of the roof etc. and it is more cost-effective to demolish and rebuild (but retain the existing footings). It still could be built as an extension as necessary but VAT would be payable where as if demolished it would be zero-rated.

The bank say that when the house is demolished the security will not be adequate, however, the value of the plot is significantly greater than the mortgage (2* approximately). The plot also contains a detached 2-bed annex plus a double garage and other outbuildings so it's difficult to understand their rationale.

I've written to them explaining this but perhaps the best I can hope for is that they'll allow me to return to them after the build and refund the redemption penalty.

Thanks for any assistance you can provide.

biggustimmus

I am in a similar situation, we need a small amount of funding to get us over a hump, effectively when the house has been demolished, which we can cover with a mixture of borrowing against the plot and our own cash. We have approached our lenders with whom we have been since our first house, and they have said no. This is despite the fact that when the build is finished we will only be looking at a 47% loan to value.

It also seems to be a no brainer as far as VAT is concerned.

What i don't understand is that various comparison websites suggest that they offer self build mortgages to existing customers. I am not inclined to give them any further business to be honest and may wait until there are no redemption charges.

I am currently investigating further and will post with update

swanny65

rpeckham wrote: »

No I didn't. It was always our intention to extend the house quite significantly, however, we ended up with an architectural design which involved an extension to the footprint and reconfiguring of the roof etc. and it is more cost-effective to demolish and rebuild (but retain the existing footings). It still could be built as an extension as necessary but VAT would be payable where as if demolished it would be zero-rated.

Can it be cheaper knocking down and starting again? Even with VAT at 20%?