Mortgage in principle cert for new build purchase (being seen as proceedable)

Mistermeaner

Mortgage in principle cert for new build purchase (being seen as proceedable)

Originally posted in wrong forum.....


Hi All

Would appreciate some thoughts and comments on the following:

Me and my partner each own (with mortgage) our own houses. Finances as follows:

House 1: Value £135K, mortgage balance £40K, therefore equity, £95K
House 2: Value £140K, mortgage balance £110K, therefore equity £30K

We currently have between us cash savings of about £30K


Collectively we earn £110K+ per annum and after pensions and savings have about £6K a month to cover everything (mortgage, bills, food etc.) We have no other debt (i.e. no loans, store cards, credit card debt etc.). Having checked noddle I think out credit ratings are pretty A+++ with both of us having met all payments going back years. (These amounts ignore bonuses which can be around £50K per year between us)

Our current plan is roughly as follows (for practical reasons).... sell house 2 and use the equity plus our cash savings to pay off the mortgage on house 1 (with us then both living there), meaning our situation would then be:


House 1: Value £135K, mortgage balance £0K, therefore equity £135K.... plus we would have cash savings of approx £20K


We are looking to buy a new build house on a development which is releasing properties variously over 2017 and 2018... the property we are interested in is going for about £380K

In order to be able to secure a plot we will (when the time is right) need to pay a pittance of a reservation fee of about £5K but most importantly be able to demonstrate that we are 'proceedable' - in the developers eyes this means that we must effectively be cash buyers (i.e. not need to sell a property to proceed)... understandable as if we needed to sell we would be a bigger risk to them than someone who is renting etc.

We are loathe to go into rented accommodation so the plan was to try and get a mortgage in principle certificate for the full value of of the house we want to purchase (without needing to free equity in house 1).

With soon being mortgage free we will be easily about to save about £3K-£4K per month so would estimate that:

at Sep '17 we would have £50K cash (plus £130K equity in house 1)
at Sep '18 we would have £80K cash (plus £130K equity in house 1)

In a nutshell with this plan do you think it would be feasible for us to get a mortgage in principle certificate or whatever they are called to be able to demonstrate to the developer that we are proceedable such that they will allow us to secure a plot, without us needing to sell house 1 (i.e. we would need a mortgage in principle certificate of around £350K)?

NB: In reality once we have been able to secure a plot we will have a date for completion which will be about 6-9months away, we will then sell house 1 and move in with parents for a bit if required so when we actually execute on the new property it would be with ~£50K cash + £130K equity from house 1 + mortgage of balance (~£200K)

PS: We are also well aware of the need to stump up approx £20K cash for all the extras and £12K stamp duty etc. - for simplicity I've kept these amounts out of the above calcs (we have the cash to cover this)

Thanks all

kingstreet

You will be expected to pay 10% deposit to exchange contracts 28 days after reserving.

Can you do that?

Mistermeaner

Hi: not aware of this. Perhaps I'm mixing up terminology - they refer to 'early birding' the plot well in advance of it being built, approx 6-9months out. This is for a pretty nominal fee (5k)

Paying this means they won't market to anyone else?

To 'early bird' we must be able to demonstrate we are proceedable (essentially either a cash buyer, moving from rented or first time buyer) - you cannot be considered proceedable if your purchase is conditional on a sale.

Hence our desire to have a mortgage in principle cert to cover the whole value of our desired property (without needing to sell house 1)

As soon as our early bird is accepted (which could be 2017 could be 2018) then the clock starts ticking for an exchange date (set 6-9 months later) - only then would we sell house 1

To answer your question we will have about 15k-20k in cash at the end of this year and grow that amount by about 4k per month thereafter - I'm not clear when this 10% would be required but I'm guessing we'll be OK for it (plus another 20k for fixtures and fittings)

I would also hope to sell house 1 pretty sharpish after early birding so would have another 130ish k hanging around

Does this help answer the question ?

kingstreet

An EB doesn't secure the price. That won't be confirmed until release. An EB fee is more like £100 to £250 in my world, not £5k.

When you make a formal reservation (not the EB) you will be expected, within 28 days, to hand over 10% cash deposit or to exchange contracts with your buyer at the same time and their cash deposit will pass up the chain.

When you say;-

As soon as our early bird is accepted (which could be 2017 could be 2018) then the clock starts ticking for an exchange date (set 6-9 months later) - only then would we sell house 1

Do you mean exchange date, or completion date?

You need to establish with your builder or broker exactly how the newbuild purchase process works as you won't be able to reserve unless you are in a proceedable position as described above.

You won't be reserving then setting off to sell your home. You'll need it to be SSTC first.

Having a DIP cert confirms the mortgage, but not the whole purchase price so the builder will be checking proceedability as well.

Mistermeaner

Thanks for help - I think as you suggest I am unclear on the process so will seek more info. FYI its redrow .

I've probably not explained it well but our hope is to be proceedable without needing to sell - on the basis we will be mortgage free, have a pile of cash and a mortgage cert decision in principle that more than covers the price of the house (nb broker told us we should be good for a mortgage up to 570k)

While we want to be proceedable without needing to sell (so we can early bird and reserve) we would then hope to sell before completing / exchanging to minimise mortgage avoid second home stamp duty etc

Canary_Yellow

Early birding gives you the chance to have first dibs on a particular plot that you like the look of. The fee for early birding is low.


When that plot is released (off plan) you will then be given the chance to reserve it if you wish. The price for the plot is determined until it's released.


Having reserved, you will then be expected to exchange within 6 weeks of paperwork going out and will be required to pay the 10% deposit to Redrow. Completion will take place once the property is built, so no fixed date. I think they give you 3 weeks notice, or something like that.


I don't know about your ability to demonstrate you're able to proceed without selling your other house - to me it sounds possible but I'm not an expert. Coming up with the 10% deposit when required will be the key and is what makes buying a new build very difficult for a lot of people (unless you're able to move into rented or are a first time buyer).