Remortgage or Bridging Loan?

Jbc

Hi,

My husband and I currently own a 3 bed semi and have a residential mortgage on the property. In the past year, we have half erected an extension over the attached garage. The extension has a roof and is about to be rendered and have windows put in. When completed, it would make our house a 5 bed property. Over the winter we had a brainwave of seeing if we could split the house into two 3 bed properties sitting side by side. We had planning permission approved for this in March, and now need to remortgage in order to get the funds released to finish the works.

We hold a £125k mortgage on the property. As a 3 bed, it is worth in the region of £230k. If we split the property, one house (14) would be worth £200k and the other (14a) worth £220k. We have calculated we would need £30k to do the works of splitting the house (new kitchens, bathrooms, plastering, decorating, new utilities etc). My husband is a builder so would do the works himself.

The amount we therefore need to remortgage for is £155-160k (70% LTV if house is currently worth £230k).

Here is where it gets tricky... Once the houses are split (hopefully by early 2015), we plan to sell the original property (14) and move into the new property (14a). That way we will avoid any CGT liability. We would remortgage again at this point. The title deeds will therefore need to be split once the works are completed, however the Land Registry says they will need written consent from whomever has a charge on the property in order to split the deeds. If we go for a standard residential remortgage at this point, we get the impression that they won't consent to us splitting the asset (our current mortgage provider has said no). Our IFA says that we would simply have to split the deeds the same day that we refinance at the end of the project, but I'm confused as to how this could be if somebody always has a charge on the property at every step along the way?

In conversation with development finance broker Buildstore, they have told us that what we need is "short term bridging finance". This will allow us to pay off our current mortgage provider and provide us with the extra needed to finish the works. At the end of a 12 month period after works are completed, we would then split the deeds - the Buildstore rep said the bridging loan company would have no problem consenting to splitting the title as by doing so will enable them to be paid back. We would then sell 14 and move into 14a and have no mortgage left.

The only issue is that bridging finance seems VERY expensive, with interest in the region of 1% per month (as opposed to typical mortgage rate of 4% APR) as well as hefty/exit sign-up fees.

My (long winded) question is this... Despite being a lot more expensive, is bridging finance the only real solution to this? If we went for a simple residential remortgage instead, how would we get around the splitting the title deeds issue?

Apologies if the above is TMI or rather nonsensical... I have a constant headache from all the different options and feel like I need impartial advice from people who aren't trying to sell me something! Oh, and another baby due in September... AAAH!

Thanks all.

Thrugelmir

Have you started the works of splitting the property already?

Jbc

Thanks Thrugelmir.

We haven't actually started splitting the house up yet, but we have got a half built side extension on top of the garage that we started last year when the plan had been to keep it as one house. Roof is on, windows are in, outside is rendered, but the inside is just a shell right now. Building control have already been out once to approve it.

amnblog

It is a commercial arrangement and bridging is what you need.

You will not get a residential mortgage to do this.

Stop fretting - if the plan works financially on bridging then do it. Otherwise, start saving.

Land_Registry

I appreciate that you are probably looking to others for advice here but it may help if I set out a few of the registration issues you allude to as well.

In most cases when an owner sells part of their registered title this will trigger a split and the mortgage lender will discharge the part being sold from the existing security (mortgage).

If you seek to split the title first then the lender's consent is likely to be required as per the terms of the mortgage.
The difficulty this poses is that the 'new' lender is unlikely to approve a new mortgage on the new house until such time as the title is split. In the past they seemed more amenable to the idea of offering in effect a 'charge of part' against a registered title but that no longer appears to be the case with many lenders.

In the circumstances it may be worth double-checking with the potential new mortgage lender as to what their stance is on this
or
Consider completing the sale of the old house under the terms of a Transfer of Part (form TP1) whereby the existing mortgage is either redeemed in full or the security is left against the new house and remaining part of the title only.

amnblog

Our LRR has just explained why you need a bridging loan.

Jbc

Thanks amnblog.

My IFA is saying that going down the residential mortgage route would be fine and that the works we want to do fall into a "grey area".. Are you saying this is incorrect? My concern is how it would work when it comes to splitting the title - could they impose a fine if they don't agree the works we carried out?

In your experience, would you agree with Buildstore that a bridging loan company would have no problem consenting to the splitting of the title deeds?

Many thanks.

Jbc

Thanks Land Registry rep! Our issue is that if we cannot split the deed until the exact date when we complete a sale, this will put off potential buyers and their lenders. A big worry.

Land_Registry

Jbc wrote: »

Thanks Land Registry rep! Our issue is that if we cannot split the deed until the exact date when we complete a sale, this will put off potential buyers and their lenders. A big worry.

It is a tricky situation as I have noticed in the last few years a tendency for lenders to want to deal with a single title in this way.
However it does beg the question as to why such issues do not tend to arise on larger developments where buyers are buying a single plot in a larger development and securing mortgages in the normal fashion - perhaps your lender or broker could explain this?

If it is likely to pose a problem for you in selling part only then the way forward appears to be either the bridging loan you refer to or convincing the current mortgage lender that their existing security is adequately protected against the new house/part remaining in the title. However I suspect the current lender would take the same view as a potential new lender in that they would want the title split first before they decide - Catch 22 and as amnblog suggests the bridging loan option is the only way forward?

amnblog

Jbc wrote: »

Thanks amnblog.

My IFA is saying that going down the residential mortgage route would be fine and that the works we want to do fall into a "grey area".. Are you saying this is incorrect? My concern is how it would work when it comes to splitting the title - could they impose a fine if they don't agree the works we carried out?

In your experience, would you agree with Buildstore that a bridging loan company would have no problem consenting to the splitting of the title deeds?

Many thanks.

Your IFA knows the case, but if you are saying you want funding for a single dwelling that you intend to spilt into two distinct dwellings that cannot be the impression that your IFA has.

Jbc

@amnblog

Actually he knows all about it! This is where I am getting confused. He is saying we should be fine with a residential mortgage, but the Buildstore broker is saying definitely we need a bridging loan. It is just difficult to know who to believe, as both want to sell us something so I feel as if nobody is truly impartial.