Flat and Self Build help with options

r0wly86

My wife and I have found ourselves in potentially a very good position.


We have submitted planning permission for a new build on my mother-in-law's land, which will be gifted to us if permission is granted. It's only a small 2 bed house but in a very nice area of Greater London.


We also own 35% with a small mortgage of a flat in Hounslow.


Through savings and a lot of help from both our parents we also have a substantial amount of cash, that has been earmarked for property. We can afford to pay for the build or buy the rest of the flat and pay off the mortgage.


We would ideally like to keep the flat and rent it out as well as building the new house (I know it's greedy, but if it could be done it would set our family up for life and help our future children)


I came up with an idea, but not sure if the banks would gop for it, so any help from someone who knows a lot more than mew would be greatly aprreciated.


Could we buy the flat outright to start with, then remortgage it releasing the required funds to build the new house. The rental income would cover the mortgage repayments, plus we would have our incomes to supplement any other costs.


I'm not sure if banks would like it, because the use of equity i.e. the building I believe is considered risky, and would the fact the the flat would become a rental property make a difference, compared to if we released the equity and stayed living there

Fuzzyness

why not look at obtianing a self build mortgage for the new build house. you can borrow against cost of land and cost of building it. either put the money you have to pay of existing flat or lessen size of new self build mortgage by using the cash to pay builders.

r0wly86

This was one of the options I had come up with, my thoughts were that the money to buy out the flat would pretty much wipe out our savings.


From looking online we would need around a 20% deposit for a self build mortgage. So approx. £35,000.


We could keep our current mortgage and would probably be able to do that, it's just the thought of having 2 mortages I don't like, I know it's no different from having one bigger mortgage.


I just don't the know the pros and cons of having a large self-build residential mortgage and no/very low BTL mortgage


versus a large BTL mortage and no residential mortgage

Pixie5740

Is the flat in Hounslow shared ownership? Would the lease allow you to sublet the flat?

r0wly86

currently is it a shared ownership, but I believe if we stair case up to 100% we can sub let it

Fuzzyness

i'd look at the interest rates on a self build mortgage. when we built the self build rate was higher than a traditional residential mortgage, so as soon as the house was built we remortagaged to a better rate. likewise you'll need to see what rates you can get on the buy to let. loan to value would be an issue here and could mean a lower rate if you had a better ratio. the peeps on the mortgage forum may have more useful insight than me.

Pixie5740

Read the lease and make sure then otherwise your plan is a non-starter. Not all shared ownership contracts let you staircase to 100% and not every lease allows sub-letting even if you do own 100% of the lease.

r0wly86

we definitely can staircase to 100% but I will check the lease again about sub letting, cheers

r0wly86

the three options I had come up with were:


self-build mortgage and cash buy flat
cash buy self build and extend mortgage on flat
cash buy flat then remortage to cash pay self build


I'm not adverse to either option, just have no idea which is the most efficient/least hassle for getting the funds