Self build mortgage

padraig.od

Hi, with the first time buyers reflief changes I'm thinking of getting a move on and building my very own house. I'm not sure what the process is in relation to the banks and how they value a self build and how the mortgage is disbursed.

My budget for the build would be about 225k. Do I approach a bank and look for this amount? How do the banks value a self-build from plans only?

Secondly, assuming they agree to lend me the money (big assumption!) how is the mortgage disbursed over the lifetime of the build. Do they just give you the full amount and let you draw down to pay suppliers/contractors as you need, or is it drawn down in stages? If it is drawn down in stages how is interest calculated? Is it calculated against what you have drawn down or calculated v the full amount?

Finally if the build if under budget (some chance) can you just hand them back what you haven't spent. So say I borrowed 225k, but only spent 200k, could I hand back the 25k?

Thanks,

Patrick

killers1

Hi Patrick, Hopefully I can point you in the right direction. Do you own the site outright at this stage & what is it valued at? Are you entering into a fixed price contract with a builder to deliver the completed house or are you using contractors (i.e. Direct labour)? The bank will allow you to draw down the loan in stages so long as you don't exceed their loan to value requirements at all times. You will have a supervising architect or engineer who will oversee the works and sign off that €x value of works have been completed and that the property is worth €x amount at each stage. You only make repayments on whatever portion you have drawndown @ the agreed interest rate as per your loan offer. Most banks will allow you to repay the mortgage on an interest only basis whilst the property is being built to factor in that you may be paying rent elsewhere at the same time. In the event that you get mortgage approval for €225k but only end up needing €200k you just either don't draw down the final €25k or alternatively if you do you make repay €25k off the mortgage immediately (presuming you're on a variable rate). In order to obtain mortgage approval & loan offer in the first place you will need to have the Bank's valuer do a valuation on the site & plans for the house & also have your supervising architect/engineer provide accurate costings for the project whether its by way of fixed contract or direct labour. Hope this helps, if you need anything else let me know.

padraig.od

Thanks for the information, I'm completely clueless with this.

killers1 wrote: »

Do you own the site outright at this stage & what is it valued at?

killers1 wrote: »

In order to obtain mortgage approval & loan offer in the first place you will need to have the Bank's valuer do a valuation on the site & plans for the house & also have your supervising architect/engineer provide accurate costings for the project whether

I own the site, but since it doesn't have planning permission I'd assume it would have just agricultural value? With planning permission (another big assumption) I suppose the Bank's valuer will place a value on the site and include that in the overall value of the proposed completed property? Will this then reduce my LTV with the bank?

My plan would be to have an architect draw plans and self build bringing in my own contractors. In this case I would have to hire an engineer to sign off on value of the works complete over the different stages, is that right?

killers1 wrote: »

You only make repayments on whatever portion you have drawndown @ the agreed interest rate as per your loan offer. Most banks will allow you to repay the mortgage on an interest only basis whilst the property is being built to factor in that you may be paying rent elsewhere at the same time.

I am fortunately living rent free at the moment, which is a big help saving for the deposit. Do you know if it be possible to pay interest and capital on the portions that I do draw down? So say I have a rate of 5%, over 25 years and draw down the first 60k, could I start repayments on this (350/month) until I draw down again.

So say I draw down 60k and pay capital and interest on that for 4 months. My payments will total 1,400 (350 * 4) over the 4 months, of which 400 will be capital. So if I draw down a second 60k at the beginning of month 5 I would then be paying interest and capital on 119,600, rather than 120,000?

One final question - is there industry wide set draw down stages? Or would it be up to the individual bank? Say could I draw down as I need it, or every 50k? I don't think I get the concept enough to ask accurate questions!

Patrick

killers1

Hi Patrick,

First thing you do is get planning permission on the site to build your house. The Banks valuer puts an overall value on the site & house on completion e.g. site value €80k, cost of build €225k, value on completion circa €305k+. The bank will want the overall loan not to exceed 92% (some banks have lowers limits) of the completed value i.e. 92% of €305k i.e. €280,600. Given that you only need €225k to build your loan to value wont be an issue. It is possible to pay Capital & Interest on the mortgage. Again you only make repayments on whatever you have drawdown and as the amount you drawdown increases so will your repayments. The principle of your calculations are correct in so far as if you are repaying an element of the capital from day 1 when you have fully drawdown the loan your repayments will be based on whatever is o/s & not the total amount borrowed (as you've started to reduce this already). There's no set number of stage drawdowns and some banks are more fussy than others around this. Typically you would have a stage drawdown at foundation, wall plate, roof, 1st fix, completion. The bank usually retain a % of the loan amount (circa 10%) until the property is completed and the valuer has signed off to say it is worth the same amount as per their original valuation report. Yes, you will need an architect/supervising engineer to sign off on each stage payment for the bank. You will also need the architect to draw up the plans & deal with your planning application in any case. If you need anything else let me know..

padraig.od

killers1 wrote: »

Hi Patrick,

First thing you do is get planning permission on the site to build your house. The Banks valuer puts an overall value on the site & house on completion e.g. site value €80k, cost of build €225k, value on completion circa €305k+. The bank will want the overall loan not to exceed 92% (some banks have lowers limits) of the completed value i.e. 92% of €305k i.e. €280,600. Given that you only need €225k to build your loan to value wont be an issue. It is possible to pay Capital & Interest on the mortgage. Again you only make repayments on whatever you have drawdown and as the amount you drawdown increases so will your repayments. The principle of your calculations are correct in so far as if you are repaying an element of the capital from day 1 when you have fully drawdown the loan your repayments will be based on whatever is o/s & not the total amount borrowed (as you've started to reduce this already). There's no set number of stage drawdowns and some banks are more fussy than others around this. Typically you would have a stage drawdown at foundation, wall plate, roof, 1st fix, completion. The bank usually retain a % of the loan amount (circa 10%) until the property is completed and the valuer has signed off to say it is worth the same amount as per their original valuation report. Yes, you will need an architect/supervising engineer to sign off on each stage payment for the bank. You will also need the architect to draw up the plans & deal with your planning application in any case. If you need anything else let me know..

Thats great info, thanks again. Lots of questions cleared up.

killers1

padraig.od wrote: »

killers1 wrote: »

Hi Patrick,

First thing you do is get planning permission on the site to build your house. The Banks valuer puts an overall value on the site & house on completion e.g. site value €80k, cost of build €225k, value on completion circa €305k+. The bank will want the overall loan not to exceed 92% (some banks have lowers limits) of the completed value i.e. 92% of €305k i.e. €280,600. Given that you only need €225k to build your loan to value wont be an issue. It is possible to pay Capital & Interest on the mortgage. Again you only make repayments on whatever you have drawdown and as the amount you drawdown increases so will your repayments. The principle of your calculations are correct in so far as if you are repaying an element of the capital from day 1 when you have fully drawdown the loan your repayments will be based on whatever is o/s & not the total amount borrowed (as you've started to reduce this already). There's no set number of stage drawdowns and some banks are more fussy than others around this. Typically you would have a stage drawdown at foundation, wall plate, roof, 1st fix, completion. The bank usually retain a % of the loan amount (circa 10%) until the property is completed and the valuer has signed off to say it is worth the same amount as per their original valuation report. Yes, you will need an architect/supervising engineer to sign off on each stage payment for the bank. You will also need the architect to draw up the plans & deal with your planning application in any case. If you need anything else let me know..

Thats great info, thanks again. Lots of questions cleared up.

No problem Patrick, send me a message if you've any further queries at any stage, thanks