Building a new house in the garden (Nationwide mortgage)

markocosic

Hi folks,


I own a house with a large rear garden. It's worth ~£350k and I owe Nationwide ~£115k on a 4 year fixed rate nationwide mortgage taken out in Feb 2014.

I'd like to build a second house in the back garden, sell the original house, move into the second house, and put the cash aside for a rainy day.


There are a couple of snags that I'd like some thoughts on:

Capital Gains Tax

Original house was bought at £210k back in the day and is likely to sell at £350k. I'd rather not pay capital gains tax on this and as it's my principal dwelling if I sell it before/on the moving date I can do this just like any other move.

I'd like to move before the fixed mortgage term ends to do this.


Early Repayment Charge

Nationwide's current Early Repayment Charges are reasonable:

nationwide.co.uk/support/support-articles/rates-fees-charges/mortgage-fees-and-charges/ending-your-mortgage

(they fall the closer you are to the end of your fixed term)

Unfortunately their 2014 terms weren't so reasonable: key £115k and Feb 2014 into this page and it shows a whopping 4% early repayment charge:

nationwide.co.uk/products/mortgages/our-mortgages/mortgage-calculators/early-repayment

I'd like to avoid the early repayment charge by continuing the mortgage if possible. I'd rather not pay it off at all actually.


Porting - Affordability and not "Buying" the new house

Porting the mortgage to the "new" house in the back garden could avoid the Early Repayment Charge.

However:

1) I wouldn't be "buying" this as such. I'd already own it.

Q1) Can you even port a mortgage to a house that you already own outright?

2) I'd probably fail the affordability checks spectacularly because since obtaining the original mortgage I've now started a business, am a Director with >20% shareholding, and pay myself a minimal salary.

In practice it's a complete non-issue: £550 a month is no problem (you can rent a room for more than that around these parts), the Loan to Value is <40%, and there'd be a pile of cash under the mattress for sale of the original property that more than covers the sum outstanding, but the computer won't care and I'm not sure what power the branch has to override this.

Q2) If I'm maintaining the same (or better) LTV as when I took out the mortgage and I'm not extending the term or increasing the borrowing - i.e. naff all changes from where I am today - does the branch have an discretion whatsoever?

I'd like to keep the mortgage for this reason to be honest. In the event I move again before Feb 2018 (if things go well maybe I could take the cash from the original house, sell the second house, port the mortgage and jump to a third...) and I'm still in the same position employment wise £115k might be a faster process than going via a specialist broker


How do you split a mortgaged title anyhow?

As far as I can see there's very little that Nationwide can do to prevent my building the second house.

What's the process for then splitting the title? Is there scope here for not porting the mortgage at all on paper?

i.e. Nationwide agree that I can transfer out some of the title (the original house and part of the land) and they retain security over a suitably valuable piece. (the second house and part of the land)


I'm not expecting any of this to be a routine enquiry for the folks in the branch so would like to go in armed with more information than they have in the first instance, so that I can ask for a sensible thing/point them in the right direction etc.


Thanks for bearing with me.

Hopefully there's a Nationwide insider on the forum or somebody else who downsized into the back garden whilst mortgaged with an ERC. :-)


Cheers,


--
M

Thrugelmir

markocosic wrote: »

As far as I can see there's very little that Nationwide can do to prevent my building the second house.

Have you read the terms and conditions of your mortgage contract. By the sounds of it you haven't. Be a good place to start before getting carried away.

markocosic

They reserve the right to be unreasonable:

---

nationwide.co.uk/~/media/MainSite/documents/about/media-centre-and-specialist-areas/information-for-lawyers/Mortgage%20Conditions%20Eng%20and%20Wales%20-%20Feb%2012.pdf

(same as mine)

property
all or any part of the property comprising our security under the mortgage

we/us/our
Nationwide Building Society and its successors

you/your
the person named as the borrower in the mortgage and that person’s successors

9. Care of the property
9.1 Youmust:
(ii) not carry out any structural alterations or additions to the property or change its use without our written consent and all other necessary consents;

---

Adding a conservatory or driveway won't incur their wrath. On some planets people might even ask first. It's arguable whether a conservatory or driveway is structural.

Knocking down the original house and rebuilding it without asking would definitely incur their wrath. You'd get no sympathy from the Ombudsman. Don't do that.

Adding a second, separate, building on the same land wants asking. The Ombudsman would have a field day if Nationwide said no to the value of their security increasing. Not to be unreasonably withheld and all that. Hence "very little" they can do rather than nothing.

I'll be asking that question at the same time, but want to know more about the rest of the process before I go in.


In the limit I repay the mortgage (eating the ERC and cursing a lot), split the title, sell the original house, then build the second one. I'd rather live next door until it's complete though!

Owain_Moneysaver

markocosic wrote: »

Adding a second, separate, building on the same land wants asking. The Ombudsman would have a field day if Nationwide said no to the value of their security increasing.

The value of the security will increase once the new house has been built and got its completion certificate so it can be legally occupied and/or sold.

A partly-built or unoccupiable building taking up half the garden, however, may temporarily decrease the value of the security below the equity remaining in it. This is why self-build mortgages have different and very cautious tems as until the building is completed it may have even less value than the vacant plot.

markocosic

Potential reservations understood.

In practice they've got >£200k in equity available and >£100k more than when they first provided the loan and that more covers clearing the garden even if this all went fabulously wrong.

They may say no but this will not be for a lack of security. I'll ask this question and am confident I know what to ask.


Can anybody help with my other questions please?

I'd rather not sidetrack the thread into discussion about whether Nationwide will exercise their right to be unreasonable under clause 9.1 - it's what to expect when it comes to splitting/porting that I'm interested in here.


Thanks,

--
Marko

Thrugelmir

markocosic wrote: »

They reserve the right to be unreasonable:

Standard wording. Perfectly reasonable given the property as it stands is security for the money owed. Never been any different. FOS won't get involved as not their remit. Breach of contract is core pillar of longstanding English law.

davidmcn

markocosic wrote: »

I'd rather not sidetrack the thread into discussion about whether Nationwide will exercise their right to be unreasonable under clause 9.1 - it's what to expect when it comes to splitting/porting that I'm interested in here.

In theory, there shouldn't need to be anything done to the mortgage account. All that needs to happen (for a sale to take place) is for them to agree to release their security over the plot being sold. Not sure of exact process for splitting title (i.e. whether the lender needs specifically to agree to that for the purposes of registration, or if you can just do it subject to their existing security remaining in place), but again it needn't necessarily involve a new loan being set up or any "porting".

But I don't know how in practice Nationwide handles these things, and I'm not even going to ask whether you've investigated the likelihood of getting planning consent...

amnblog

Marko

If you are serious about this you need to get advice from a qualified accountant, a solicitor, and a whole of market mortgage broker.

Why

1. How do you keep your CGT bill down?
2. How do you keep Nastionwide happy?
3. How do you split the title?
4. Have you planning permission?
5. Have should you pay for the build?
6. What is the best 'exit' after the build?

markocosic

Thanks davidmcn and annblog,

Reading around and picking a few more brains:


The ideal route is discharging Nationwide's interest in the half of the garden that would become the new plot. This leaves the mortgage as-is and means Nationwide aren't on the hook for anything that happens on the half that would become the new plot. (finding an insurance policy to cover both the existing house and a new build in progress is a ball ache etc, and the less involvement banks have the better)

I could DS3 it: remove their charge from part of the title, which would probably get us two separate titles but it isn't guaranteed.

I could TP1 + DS3 it: remove their charge from part of the title and transfer the new half to SWMBO (currently everything is in my name) which would definitely get us two separate titles.

No change in title. Probably no need for a Deed of Substitution as the Title number would remain the same as per here:

forums.moneysavingexpert.com/showthread.php?t=4312823

nationwide.co.uk/~/media/MainSite/documents/about/media-centre-and-specialist-areas/information-for-lawyers/specimen-of-deed-substituted-security.pdf

No SDLT implications if I TP1 it because the mortgage is <SDLT threshold. Valuation came back at £335k with half the garden hived off so security ought not to be an issue but that enquiry is the first port of call.


Then do our thing with the new half, funding the build with savings.
Then flog the original property (no CGT as it's the primary dwelling) and either repay the mortgage or port it to the new property.
Then move into the new one.
Then maybe another.

Ideally we port the mortgage as that'll leave the option open for moving along again should an opportunity arise. (I can service the mortgage but wouldn't quality for another one from a high street lender sue to employment circumstances)


Therefore the plan of attack is now:

0) Make enquiries at Nationwide, armed with the information needed to make a specific enquiry rather than ask vague questions of somebody who probably won't know what the options are. (£0)

(this is risk #1 - I've no idea what to expect)

1) Outline drawings (Google Sketchup grade only) to take to through for pre-application advice. (me)

2) Pre-application advice (£100+VAT for a letter, £240+VAT in person)
cambridge.gov.uk/content/pre-application-advice
cambridge.gov.uk/sites/default/files/documents/Pre-application-charges-schedule-Oct14.pdf
cambridge.gov.uk/sites/default/files/documents/Pre-application-advice-developer-request_1.pdf

(this is risk #2 - I don't think there'll be any issues we can't overcome)

3) Proper/revised outline drawings by architect (£1000), detail drawings (me) and full planning application (£385+VAT)

cambridge.gov.uk/sites/default/files/documents/planning-english-application-fees.pdf

(it's tempting to go straight for a full application, but I think adding £240 + VAT for 2 hours looking at a couple of Google Sketchup ideas is worth it to understand their potential concerns)

4) Land is worth something now.

CIL and now S106 are dead for self build but this is the time to go through all the little ticket items.

5) Set all the utilities in motion:

Water and drainage: £1000 apiece
Electricity: £1200
Data: Lay ducts and invite them in later. (as good as FOC)
Gas: don't bother; just throw a heat pump at it

And away we go. :-)