Subdividing a property plot while having a mortgage

allan154

I am looking at purchasing a semi detached property that has a large side plot to the right which is part of the property.

We are looking at purchasing the house and land then referb the house and build a bungalow on the plot.
The property did once hold outline planing a few years ago (mow run out) so I have submitted new outline planning which I should here from in the next week.

The whole purchase price for the property and the land held on one deed is £170,000.

We would be funding the majority of the purchase with a £150,000 mortgage the rest been made up of savings.


I have spoke to estate agents and the value of the house with a drive but no land would be in and around £170,000 but I would think it would be worth £160,000-£165,000 for a quick sale.
So in theory the lender wouldn't have a problem getting their money back.
Now for the sticky bit,
I know developers don't face this problem as they buy cash but were do I stand ?. Do lenders allow this ?.
I will be owning the property for 6 month my son is moving in to take care of it but once the 6 months is up we would have to be ready with the subdivide done n dusted so we can sell the house minus the land and we can develop the land ourselves.

Can anyone please tell me if its possible subdivide a property while holding a mortgage then sell the house alone to pay the lender then keep the land to develop whenever.

Thanks for your time, much appreciated 

Doozergirl

Yes.   It's exactly what we did. 

You'll use your solicitor to subdivide the plot with the land registry and your mortgage lender will want to come out and revalue the property.   If you're confident that you have the equity to afford the drop of losing the additional land, it should be fine.  

It takes time, so do it before marketing the property.  

allan154

Thank you for the quick reply.
I'm pretty much sure the property once referbed to a very good standard will achieve well over the £148,500 based on estate agents valuations of £170,00 minus the land and house sale prices in and around the area. 

I'm local to the area born and bred and live a mile away so I have very good local knowledge of what similar properties sell for.
The bungalow would be a retirement home for me and my wife we wouldn't be looking at trying to develop for monetary gain. My next move after that would be in a wooden box .

My current home has over £120,000 of equity that we would carry over at some point that would to go towards the cost of the new build plus savings.
Regarding timescale ?, how soon did you start the whole process of subdividing ?
How long do land registry take to process the paperwork ?
Did you employ architects or surveyors to measure mark out exact figures?
And how long did the whole process take from start to finish ?
Again thank you for the advice 

eddddy

Based on your second post... it sounds like you are not planning to sell your current property (i.e. your main residence) at this stage.

i.e. You just plan to buy the new property, refurb it over 6 months and sell it with a reduced garden size - but live in your current property during that period.  Is that right?  If so, that would be a development project.

What type of mortgage are you planning to get for the new property? That might be a challenge.

I guess you could try for a 'second home mortgage', but could you convince the lender that the new house would be a second home / holiday home? And would you pass the affordability tests?  (And a purist might suggest that it's fraud to apply for a 'second home mortgage' when you're really planning a development project.)

You could look for some kind of short-term development finance, but that's expensive and you wouldn't get anything like an 88% LTV (i.e. £150k loan for a £170k house).

Maybe you could remortgage your current house to raise funds - but if it only has £120k of equity, it sounds like that won't be enough.

allan154

Hi,
The mortgage would be a joint mortgage of my son and my wife an 85% mortgage am not included in this mortgage. 
The shortfall would be made up from savings and a smallish bridge loan from our current home.

My son would move in and live in the property once its made habital i.e. kitchen which is in a very poor state to say the least. This I'd say 4 weeks to put everything right then work jn it from there.

He will then live in the property for 6 months in this time we would be hopefully splitting the land and apply full planning following what was granted in outline planing some years ago, a bungalow. The original outline was against 2 storey due to overlooking another bungalow but that suits us just building a bungalow.

Am I right in thinking that my wife would face stamp duty charges due to a second home?.
At some point we would be eventually selling our home to fund a new build.

We are trying our hardest not to sell our home just incase we fall flat on our face. We we live and property is lovely and once gone it's gone that's it, it's gone forever.
Depending on the length of time it takes to process all of this we might sell our current home and move in to the property along with my son while the build takes place and if needed sell the new property and move into a caravan on site while building takes place.
To be honest, I'm new and green to all buy and build this hence I need all the advise I can get right now. I'm sure 1000' do similar yearly so it's interesting listening to people's experiences and expertise advise.

 I have bought and sold 3-4 over my years but never anything like this.

We're not trying to develop say cash in. The whole thing wouldn't drastically improve our equity much from were we are now.

 I'm trying to make one final move from a 3 bed detached to hopefully a 3 bed bungalow somewhere for us to retire.
Thanks again for the replies and advise I'm taking them all on board.
If there's ways round certain things don't hesitate to say,

Thank you

greatcrested

You started by saying "I am looking at purchasing " yet it seems now it will be your son and wife who buy the property an land?

I'm not sure bout the devekopment project aspect - perhaps doozergirl will return and say more- but additional 2nd property SDLT jump to mind, as soes Capital Gains Tax.

allan154

My wording, apologies,
My son is making the purchase along with my wife who is making up the shortfall to his borrowing power with an 85% mortgage.


My son intentions are to move into the property and live there for a minium of 6 months that isn't a debate. Who's to say he doesn't stop for there longer ? I just don't know he's keen on the property so we won't know at this stage.

So all's I can say is, he will be living there for at minimum of 6 months that isn't debatable.
In that time he is hoping to split the land with the consent of the lender who I'm lead to believe would need to look at the property again once we make them aware of our intentions and value the property without the adjoining land.


Considering the property would be originally purchased with the side plot land been offered at "potential building plot" (a large garden) no planning then I can't see there been a huge price difference in comparison to it have full planning.

 The property would still have a big back & front garden, a driveway down the side and parking for 3.

The property I have been told by 3 estate agents would be worth anywhere in the region of £170,000 (without land) that's what they would market it at but realistically I would come in around £160,000+ without the land so paying the lender back what their owed £148,500 wouldn't be an issue that's if he decides to up sticks after 6 month, I can't at this stage say whether he will or wont.

 
I hope it makes sense but there are so many variables and legalities I'm getting confused myself. 
Thanks again

allan154

I have been told that we would liable for stamp duty second home based on my wife's input but that has been factored into the equation

Doozergirl

allan154 said:

I have been told that we would liable for stamp duty second home based on my wife's input but that has been factored into the equation

If your wife isn't living in it, there's going to be a greater tax liability than that.  I suggest you seek proper advice before the purchase as the plot will end up related to a 'flip' and subject to income tax.  I'm not even going to pretend I know how that gets calculated.  

The property we subdivided was our home for several years before we split the land and the new house is our home, so it's less complicated.  

The land registry is slow.  I have no idea what the current turnaround time is, but when I did it, it was supposed to be about 8 months.  They expedited it for us as we were going to sell the original house.  Maybe it took a couple of months in total.  The Land Registry rep on this board was hugely helpful to me, feeding back on the file so I could chase our solicitor.  

I did the drawings for the two plots.   I just drew over my site plan for the planning application and detailed actual measurements on the same paper for the solicitor.  

Thrugelmir

allan154 said:

I have spoke to estate agents and the value of the house with a drive but no land would be in and around £170,000 but I would think it would be worth £160,000-£165,000 for a quick sale.
So in theory the lender wouldn't have a problem getting their money back.

Mortgage lender isn't going to agree to the split unless the property provides adequate security for the debt owed.  Based on the potential price appears as if you are around the 90% level at £170k.   Borrowing a £150k provides little margin for error in the short term.  Take a while to add a good amount of equity. 

allan154

£148,500 borrowed on a £170,000 purchase price on a property when renovated will bring in £160,000+ depending on finish. This is the peoprty valued without the land. 3 Estate agents I asked valued it higher around the £170,000 but I think they are been optimistic. They informed me though, at the moment there is no better time to sell with house prices rising daily and not enough stock to go around. My own was valued 12 months ago at £140,000 to achieve £135,000 this week its been valued at offers on or over £170,000. How long will it last is like asking for 5 and 2 bonus balls for tonight.
I do not confess I know the legal side of buying houses because I don't so I will employ the right people when needed someone who does and they can point them out to me the bad and the good points. I am listening to all views and take on board peoples comments so thanks for the advise I do appreciate people taking their valuable time to advise and help me. thank you