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Loan To Value vs Build Costs

  • 23-07-2018 11:10pm
    #1
    valbo
    Registered Users Posts: 5 ✭


    Hi

    My wife and I just sold our house in Galway City. After clearing the mortgage and two other loans, we will have some savings left over to put towards our next home. We are now living out the country in a fairly rural area (temporarily renting) and would love to buy a site here and build our own house. For a half acre site, it would probably cost around €30k. We would be looking to build a house of approx. 2000 - 2500 sq ft. which could potentially cost €300k - €350k based on what I've learned so far.

    What I can't get my head around is the Loan To Value rule. As second time buyers, we would be in the 80% Loan To Value category. But its the 'value' part that I'm pondering over because of the rural location we live in. I believe the resale 'value' of houses here will never be huge (no matter how much you spend on building them), so if banks will only lend you 80% of the 'value' (rather than the actual build cost), how do people normally fund their self builds or make up the difference? Costs are so incredibly high, particularly when you have to allow for the site purchase, professional fees, environmental reports, connection fees, the actual cost of building itself (particularly if going for fixed price contract with a builder) and of course allowing for a 10% contingency fund.

    For example, if the build cost is €350k, but the actual resale valuation on the house when finished is just €300k, then the bank will only lend up to €240k (80%). So how do people make up the difference of €110k to get the house built (and allow for purchasing the site, contingency fund etc).

    I should point out that we have yet to buy a site, get a house designed, get it through planning and then hire a builder on a fixed price contract (we wouldn't have the knowledge or time to manage the build ourselves)

    Really confused and feeling that I'm misunderstanding something!! Help please! Thanks.


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