View more on these topics

This Week&#39s Problem Case

Ian and Claire require a self-build mortgage, which is a product designed primarily for people who are building a property from scratch. The lender will base its decision as to how much to lend on the cost of buying the land plus the estimated cost of the building work, but will also require the valuer to provide a projected &#39when finished&#39 value, all subject to the applicant(s) having an adequate income. The lender will make an initial advance based on the land value, followed by subsequent advances at various stages of the building process.

Any prospective self-builder needs to be prepared to either spend a considerable amount of time project managing the build process, probably making mistakes and learning as they go, or else employ a specialist project manager. Using a project management service such as Buildstore will often be money well spent for the novice self-builder. Buildstore offers a self-build package that covers everything from finding the plot to organising builders, buying the materials and organising the finance. It offers mortgages funded by Mortgage Express, Skipton Building Society and Britannia and the mortgage package offers up to 95% LTV at every stage, including the cost of the land.

The normal situation with a self-build mortgage is that, before the lender will make a stage payment advance, it requires the valuer to re-inspect the property every time further funds are required, in order to put a current value on it. Any delay in this process and a consequent delay in the release of funds to pay the builder or tradesmen, or for materials, may delay the building work. Of the other self-build providers the one that stands out, particularly for borrowers with a high LTV requirement, is Norwich & Peterborough Building Society. N&P offer a choice of any of its mortgage products and will typically lend 85% of the land value and then 100% of the building costs as long as the combined amounts do not exceed 95% of the completed property value.

Based on their salaries the most Ian and Claire will be able to borrow would be approximately £200,000, subject to them not having any other significant commitments apart from their existing mortgage. However, as they are paying £150,000 for the land alone I assume they will want to spend rather more than £50,000 on building their new home. Therefore in order to achieve their objective they will have to find some cash from elsewhere. The most obvious, and possibly the only, place would be their existing property, assuming they have enough equity in it.

Ian and Claire would need to proceed on a two-stage process – firstly remortgaging or taking a further advance on their existing property to inject some cash into their self-build project. One advantage of this is that by having the extra cash they could reduce the loan-to-value on the self-build mortgage from 95% and this would give them more choice of lenders and hence mortgage products. However, using lenders like those already mentioned, who are experienced in the self-build market, may well still be most appropriate.

Recommended

AssureSoft withdraws mortgage platform

Misys-owned software supplier AssureSoft is to wind up its present AssureWeb mortgage service. In a letter circulated to business partners and associated lenders, commercial director David Child explained its plans to discontinue the existing AssureWeb mortgage service “in the early part of next year”. The firm will concentrate its efforts on a single electronic trading […]

Secret memo shows SPML up for sale

Southern Pacific Mortgages Limited – the last independent sub-prime lenderis up for sale for an undisclosed sum, Mortgage Strategy can reveal. MS has seen a confidential memo circulated to potential buyers by the company&#39s major shareholder, Lehman Brothers International. Dubbed project &#39Samoa&#39 – a tiny island in the South Pacific Ocean – commercial secrecy means […]

Immediate action from intermediaries

The clock is ticking, counting down the months, weeks and days to a brand new system of mortgage regulation. But many mortgage intermediaries still seem to have the impression that the new rules are irrelevant for them, because they do not have to be authorised by the FSA. This is dangerously complacent. Now is the […]

Estate Agents putting on the pressure

Estate agents are putting commission payments ahead of customer service, research from national accountancy group Hacker Young has revealed. First-time buyers are pressured into buying uncompetitive insurance policies and other products which they could get cheaper elsewhere. A spokesperson for Hacker Young says: “The estate agent may simply promote a product because they are gaining […]

Health - thumbnail

Absence management systems gone AWOL from UK’s SMEs, reports Jelf

A quarter (23 per cent)* of the UK’s small to medium-sized enterprises (SMEs) do not have an absence management system in place, according to new research from Jelf Employee Benefits. Despite 69 per cent* of organisations having a system in place, three-quarters (75 per cent) report that it is not providing them with sufficiently empowering absence or health data to inform an effective wellbeing programme.

Newsletter

News and expert analysis straight to your inbox

Sign up