Will a bank such as Halifax allow this?

tina92

Hi there,

I am enquiring on behalf of a friend. She has a 250k house with only a 30k mortgage on it, so basically a lot of equity there, has about 17 years left on mortgage with halifax.

She wants to build a new house on a site which she owns, but doesn't have the cash to do so, will cost about 120k.

What she wants to know is could she borrow the 120k from say the halifax and maybe get them to agree to just add up the monthly interest payments, and then when her new house is completed, she can just sell the old one for near 250k and just pay them off the full amount owing?


thanks
Tina

herbiesjp

So she would have a new mortgage of £150k?

Yes - really straightforward as long as her income can support her new mortgage and any other credit commitments she may have

Just re-read - they will not add the mortgage payments to the mortgage amount each month. These would have to be made.

Conrad

They wont add 'payments' however she may simply borrow the extra by just increasing the loan size - do not mention the extra is to fund the payments.

All subject to affordability and income of course.

I wouldnt think they will accept 'property development' as acceptable. Others Ive known do this simply put 'purchase of another property'.

Equity has nothing to do with anything - this is a common misconception. In the event of repossession being sought the lender needs to be able to demonstrate it leant based upon what the person could afford.

If she wants a purely equity based lender that does not take account of ability to pay, then there are some but the rates are about 12%

tina92

Hi again,

thanks for quick reply.

No her income wouldn't support her new mortage of 150k. What she would be hoping is her bank would defer all payments of her new extra mortgage of 120k until such times as she sells her old house for 250k mark and they take all outstanding amounts out of it.

In the meantime she would continue to pay her old martgage of 30k, but it seems getting the extra 120k and defering payments on it may not be possible by looking at your answers..

thanks
tina

silvercar

sounds like she is looking for a commercial loan and offering her home as security, rather than a standard residential mortgage. If she borrowed sufficient money for what she needs and the interest repayments until sale she should be OK.

Option B would be to find a builder to do the development in partnership with. She supplies the land, he builds the house and they agree a split of the profits.

chappers

Maybe she could take out a self build mortgage or as silvercar says some sort of commercial/development loan with rolled up interest, I could put you in touch with some property finance people who will defer payments and roll up the interest.
I would investigate the possibilty of a self build mortgage first as the commercial/development loan will be expensive(with rolled up interest 1.2-1.6% per month.)

chappers

Just to add has she any idea what she is going to build is this 120K just afigure or does she have some firm plans. Planning permission would add value to the land so no harm in progressing that anyway.

UK007BullDog

Or sell the house, rent and use the money to build the new house. Problem solved and no pressures of any debt repayments and she can use her whole time with the project of building a house.

HelpWhereIcan

If her income will not support a total of residential mortgages of 150k it may be possible to get a lender who will do a remortgage on the current property for part of the money (based on whatever income she does have) and a second who will do some development finance on the building plot for the rest.

The bridging/development lender will only be interested in the way that the deal stacks up as a 'business plan' which could be a problem if she cannot prove experience of developing a property in this way.

Depending on the value of the 'building plot', she may be able to get the full build cost financed with the payments rolled up but it is likely to cost up to 2.5% per month.

She will have more choice of bridging lender if she does not need to roll payments up. Normally she would need to look to borrow less than 70% of the plot's current value but there may be lenders who will base it on a developed value or offer a floating charge over both properties.

Basically the fewer 'whistles and bells' she needs (eg rolled up payments, 80% lending, 12 month term, floating or double charges) the less it will cost her each month.

She will have to be very accurate with the expected build time as finance is generally restricted to 3-6 months and can become even more expensive if it exceeds that term (although it is common and normally involves a revaluation to ensure that the project remains within required loan to value limits).

chappers

HelpWhereIcan wrote: »

the payments rolled up but it is likely to cost up to 2.5% per month.

Ouch thought it bad enough when Davenham quoted me 1.5%, mind you they did say they thought they would be cheap compared to others.Luckily managed to sort out some more conventional finance instead.

To the OP Bulldog probably has the best solution to the whole problem, along the lines of selling up and renting.