Can you get a build mortgage against investments?

PappaLazz

Hello all, first time poster!
I am very lucky to have a fixed 10yr at 2%.  8 years remaining.  Absolutely don't want to remortgage this for obvious reasons.
The thing is, our house is too small for our growing family and it's in a bad way with water ingress and structural problems!
Ideally we would like to build an oak timber framed property on the same site, live in our current bungalow for the approximate 2 years to build it and then knock the bungalow down, port the mortgage to the new build.
Unfortunately we maxed out on our current mortgage.
I am however, in a very fortunate position that I have a substantial amount of money locked away in stocks and shares ISA.  Enough to cover the build cost completely.
BUT!  This has taken me a lifetime to accumulate and I don't want to remove from an ISA as it provides me with wonderful tax free returns.
Can I get a second mortgage against this ISA?

• So just to re-cap, we have a lovely 8 year fixed mortgage currently at 2% which I don't want to lose

• I have a large ISA and want to keep it 

What are my options?

Thank you all!

ACG

You can get a secured loan I imagine. You might not have the pick of lenders due to the intended reason for the borrowing.
But that will probably cost more than your returns (off the top of my head I would say about 8%). 

Also on a side note, I could be wrong but I think what you plan to do could be against the terms of your RBS mortgage. I remember when I worked for another bank, we had a customer who knocked down his house and then wanted to raise more money. Initially we said no, but his argument was if we dont our mortgage is secured against land which is obviously worth a lot less. It was less risky to give him the extra money to complete the build than not as he would never have been able to raise it elsewhere. 

jrawle

I don't quite get this. Even if you knock the bungalow down, you still have to repay the money to the lender that you borrowed to buy it. If you port the mortgage to the newly built property, how do you pay off the mortgage on the bungalow? You can't sell it to anyone as it will be demolished.

Also, is the tax you might eventually have to pay on some re-acquired investments, were you to cash in your ISA, really going to be higher than the money you'll have paid out in interest on this non-standard mortgage (if such thing even exists, it's likely to be a high rate, I'd imagine)?

Hoenir

Creative idea unfortunately unworkable. 

What's more important. Building your dream home for your family or protecting the tax free status of your investments. The value of which could fall at any time. 

jimjames

I'm in a similar situation but one idea I'm looking at is moving the S&S ISA to a flexible cash ISA so that I can take the money out and then repay it back in once I remortgage the property to get the cash back out. As long as it's done within the same tax year it should work ok and allow you to retain the ISA allowance. It will mean selling all the investments and rebuying them later on.

PappaLazz

Follow up on this..
I went to self build show yesterday at Kent County Show and spoke with some mortgage advisors.  They really liked my idea but agreed it was unworkable 😂
They did say I would most likely be able to get a bank loan against it though and yes - port mortgage over after build.  Also I forgot to mention that we have an 8 acre paddock next to the house.  They were on separate deeds, when we bought they were joined.  If mortgage provider agree that we can separate deeds again, we could mortgage against the paddock potentially.  Although that wouldn't cover the build to be honest , but interesting nevertheless.
Well if Rolls Royce keep rocketing, I'll sell half my ISA for the build ✈️

MWT

PappaLazz said:

Also I forgot to mention that we have an 8 acre paddock next to the house.  They were on separate deeds, when we bought they were joined.  If mortgage provider agree that we can separate deeds again, we could mortgage against the paddock potentially.

If the current mortgage security includes the paddock they are very unlikely to agree to separate.

BikingBud

jrawle said:

I don't quite get this. Even if you knock the bungalow down, you still have to repay the money to the lender that you borrowed to buy it. If you port the mortgage to the newly built property, how do you pay off the mortgage on the bungalow? You can't sell it to anyone as it will be demolished.

Also, is the tax you might eventually have to pay on some re-acquired investments, were you to cash in your ISA, really going to be higher than the money you'll have paid out in interest on this non-standard mortgage (if such thing even exists, it's likely to be a high rate, I'd imagine)?

When you demolish it ends up that you have paid the cost of the house and land for the just land doesn't seem like good value, equity in case of default, for the lender. Hence they will not let you demolish when you have the debt, there is likely something in the contract.

The anticipation that a poor house on a good plot, size and location, can be replaced by a newer better house with greater value can make it attractive to do this and the higher mortgage raised against equity in the new house can cover the costs of clearing the old mortgage. 

The problem often though is cash flow getting funds to build while paying mortgage 1 can be difficult and you cannot clear mortgage 1 until house 2 is viable as an asset.

jrawle

BikingBud said:

jrawle said:

I don't quite get this. Even if you knock the bungalow down, you still have to repay the money to the lender that you borrowed to buy it. If you port the mortgage to the newly built property, how do you pay off the mortgage on the bungalow? You can't sell it to anyone as it will be demolished.

Also, is the tax you might eventually have to pay on some re-acquired investments, were you to cash in your ISA, really going to be higher than the money you'll have paid out in interest on this non-standard mortgage (if such thing even exists, it's likely to be a high rate, I'd imagine)?

When you demolish it ends up that you have paid the cost of the house and land for the just land doesn't seem like good value, equity in case of default, for the lender. Hence they will not let you demolish when you have the debt, there is likely something in the contract.

The anticipation that a poor house on a good plot, size and location, can be replaced by a newer better house with greater value can make it attractive to do this and the higher mortgage raised against equity in the new house can cover the costs of clearing the old mortgage. 

The problem often though is cash flow getting funds to build while paying mortgage 1 can be difficult and you cannot clear mortgage 1 until house 2 is viable as an asset.

When I say I don't "get" what the OP is trying to do, I actually mean I understand what they are saying but think it's nonsense. Your last paragraph is making a similar point.

The key phrase for me is that the OP has "maxed out" their current mortgage. To me, this implies they are already borrowing the maximum a lender would lend on their income. Even if lenders would use savings as further security (which they won't) they still won't lend the OP more than the maximum mortgage.

OP: just use the ISA investments for the build, then re-build the savings using the money you won't need to use to make additional mortgage payments. Presumably you won't have more than £20,000 spare each year, otherwise your mortgage wouldn't be "maxed out"...

Shoddie

Did you solve this?  What about building a new, well insulated, envelope around the existing house to include an extension and / or an extra floor.  Existing space remains in place and is still usable.  Damp problems go away (subject to the design of the new exterior) and you can do the rebuild in stages as capital allows.  Problems with the mortgage go away as you are renovating rather than obliterating.  You'll need to get an opinion from a structural engineer on what the existing foundations will take and base your design on what he says.

I had a relative who tried what you're planning and his company went bust in the middle of it.  He ended up being the proud owner of a big hole in the ground!