Client case study: Draw-down self-build mortgage
Inherited estates can often be a tricky; not only does it normally involve the loss of a loved one, leaving an emotional impact on you and your family, but the process of receiving inheritance can be complex and overwhelming.
Here is an example of a client’s experience of inheriting land and a derelict building following the loss of his elderly parents. One of our Mortgage Advisers removed much of the stress in helping him understand what to do with this inheritance, and helped the clients go on to build their ‘forever home’, despite having a few elements stacked against them.
Mr & Mrs M* and his sister inherited a derelict house and 4 acres of land following the loss of his parents. The client decided to split the title with the sister, so they would retain the house and 1.6 acres. Part of that agreement meant he inherited a barn which was not habitable, and left the client concerned about what to do with this.
After a period, Mr & Mrs M decided that they could perhaps build their ‘forever home’ on their inherited land, not far from where they currently lived. They were getting to a stage where their children were growing, and they knew it wouldn’t be long before their existing house would be too small. As a result, Mr & Mrs M obtained planning permission to build their own house on the land, but a condition of the planning was that they had to demolish the derelict house on completion.
They sourced a building contractor and agreed to build a house for £375,000, with the aim to complete the project in 9 months.
There were several issues for Mr & Mrs M; their primary concern was how they would fund the build, while maintaining their own mortgage payments. They were prepared to sell their house to fund the build but would have to find somewhere for the family to live throughout the project.
Furthermore, there was the underlying fear of their capability to help and fund building their own house, having never ventured into the world of property development before.
In the initial consultation, our Mortgage Adviser sat down and looked at their options, which ranged from remortgaging their current home to pay for the build and borrow family money. From that discussion, our Mortgage Adviser was able to determine the following objectives for Mr and Mrs M:
- To raise £400,00 on top of the current residential mortgage to fund the build and furnish
- If this was not possible, raise £375,000 (or as much as possible) to complete the build, so they can sell the home address to release cash to furnish fully.
- To have a mortgage that helps them build the property that has a term length of 12 months or less, with no Early Repayment Charges, as the build was projected to take 9 months. The plan was to then remortgage onto your ‘standard residential mortgage’.
- To keep monthly payments to a minimum during the property build, by opting for an interest only mortgage
- To borrow the money on a staged process, to avoid paying extra interest when funds are not being used.
The Mortgage Adviser explained there are specific Self Build mortgages that allow you to “draw” down monies as the build achieves certain stages. This facility was secured from a national Building Society on a competitive rate with the option of Interest Only payments until completion and no early repayment charges.
With access to the whole of market, our Mortgage Adviser got to work and was able to secure such a mortgage with a national Building Society. He was able to do so at a competitive rate with the option of interest only payments until the build was complete and no Early Repayment Charges. The plan was to remortgage the property upon completion of the build with more flexibility for the client on whether to sell or rent out their existing home.
Unsurprisingly this resulted in extremely satisfied clients. By taking the time to talk to that individual client, fully understanding their situation and truly grasping what they wanted to achieve, our mortgage adviser was able to deliver a first-class service.
We can help your customers too:
Your customers could benefit from this service too, and their could be some benefit to you too. Get in touch to find out more by calling 01823 271 880 and ask to speak to our Business Development team.
*The names and some details have been altered to protect the identity of our client