Retention on Mortgages

marathonic

NOTE: I accidently posted this on the Home Buying Board and re-posted here as I thought it would get a better response.

https://forums.moneysavingexpert.com/discussion/3998263

I’m on the market for a house at the moment and there’s an estate near us where the developer went bankrupt and a lot of houses are for sale that are incomplete. One that I’m looking at is just the shell and needs EVERYTHING done inside – plastering, bathrooms, kitchen, etc.

A mortgage broker has told me that I’d get approved for a maximum mortgage of £110,000 or so for a ‘normal’ house that doesn’t require work.

One of the incomplete houses is up for sale for £120,000 and, due to the un-mortgageable nature of the property and the length of time it’s on the market; I’d guess £100,000 might secure it.

If I had enough money to complete the works but required the full £100,000 mortgage, what are my options?

From reading other threads, I wouldn’t be able to get £100,000 until the work is complete and, in fact, am likely be able to get no mortgage as it has no bathroom, kitchen, etc.

A family member has sufficient money to purchase the property but I wouldn’t like to proceed without a GUARANTEE from a bank that I will, in fact, be able to get a mortgage on completion of the work – so that I could pay him back his money (with interest of course).

Considering the fact that the eventual mortgage would be the same as the initial purchase price, what are the chances of getting approved for a £100,000 mortgage with a 100% retention and, if it’s possible, how long do the banks typically give you to complete the works and draw down the mortgage?

The eventual LTV would be less than 60%.

Joe_Bloggs

If you fully build the house and nobody else builds the rest of them then what effect would that have on the neighbourhood ? Would it still be a ghost town of half built properties.
J_B.

ACG

No lender will give you a guarantee until its been valued, the building work has been checked and you have passed a credit check and the underwriters checks.

Could you not agree that if you cnt get a mortgage you would pay £xxx amoutn each month until you can get one?

edit: new builds tend to have a lower maximum % lenders will put up - so you need to bare this in mind.

Thrugelmir

Is there no way you could inject more capital into the project?

marathonic

Sorry, I must have been unclear in my initial post. There is no need to inject more capital into the project as the house would be completed with the capital (mine and the family members).

The advice on agreeing that I would pay £xxx each month until I can get a mortgage sounds good. I don't see any issues with eventually getting a mortgage, especially at less than 60% LTV.

I suppose I could view the property and come up with some sort of agreement along the lines of, I pay £xxx each month until I can get a mortgage and, in the unlikely event of me not getting the mortgage, the family member can request that the house be put on the market after a certain time period.

I just don't like lending money of anyone with too much uncertainty on their part about when they'll get it back.

marathonic

Regarding the estate, it's in a REALLY good area. It's just the developer had extremely bad timing. Most of the houses have been sold off and completed. At the moment, there are still three partially finished houses and two sites in the estate for sale. I wouldn't imagine they'll take too long to sell off. In fact, two of the partially finished houses were sale agreed but came back onto the market - presumably because the buyer hadn't realised that they were unmortgageable in the current state.

Thrugelmir

marathonic wrote: »

Sorry, I must have been unclear in my initial post. There is no need to inject more capital into the project as the house would be completed with the capital (mine and the family members).

I was thinking that perhaps you could engineer a way of reducing 3rd party exposure, i.e. live in a caravan while work was completed. In order to inject more of your own funds into the project.

As there's no way you can guarantee your family members a return of funds. Until the property is complete its saleability is limited.

marathonic

Thrugelmir wrote: »

I was thinking that perhaps you could engineer a way of reducing 3rd party exposure, i.e. live in a caravan while work was completed. In order to inject more of your own funds into the project.

As there's no way you can guarantee your family members a return of funds. Until the property is complete its saleability is limited.

Sorry, I get you now. That's a good idea but, if I go for the idea, he'd have significant exposure anyway, regardless of how much I could save.

I see completed houses for sale in the same estate for £250,000 so I should have no problem getting a £100,000 mortgage on my salary of £26,600. However, in this day, nothing is guaranteed.

I'll speak with the family member anyway because this is spare money he has in the bank earning next to nothing interest. Perhaps he'd see it as an investment, i.e. I pay him, for example, 8% on the £100,000 until I get the mortgage (however long that may take) whilst giving the option for him to request me to put the house on the market if the mortgage isn't approved within a year.

marathonic

Just out of curiousity, what is the general rates for bridging finance? I’d like to offer the family member a similar deal to what I’d pay for bridging finance.

I know it’s expensive but I don’t mind paying it considering the risk he’d be taking and the fact that, should everything go according to plan, I could see the mortgage being approved with 5-6 months - and it's better giving it to family than some company

kingstreet

I'm not sure I understand the problem here. You expect a 100% retention and have the cash to bridge it?

Why not just proceed on that basis and get the funds released once the property is mortgageable, when the plastering is done and the kitchen and bathroom are fitted?

You'll have twelve months to have it reinspected and to draw down the mortgage funds.

marathonic

kingstreet wrote: »

I'm not sure I understand the problem here. You expect a 100% retention and have the cash to bridge it?

Why not just proceed on that basis and get the funds released once the property is mortgageable, when the plastering is done and the kitchen and bathroom are fitted?

You'll have twelve months to have it reinspected and to draw down the mortgage funds.

Hi,

The problem is, I don't want to loan the money from the family member and then be turned down for the mortgage in 6 months time....