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Q&As
Do We Have to Sell Our Current Home to Finance Our Self Build?
We own our current property outright and are looking to purchase a plot to build a new, smaller house. What's the best way to finance this? Is there an alternative to selling our existing house first?
2 Answers
that’s a good question. I faced with similar isue
Without knowing your full circumstances, the answer to this is yes there are alternatives that you can consider.
Depending on your income and affordability situation, it is possible to borrow the funds the you need via a self build mortgage before you sell your existing property. You would need to be able to borrow enough to purchase the plot and complete the build. Once you have finished the new property, you can sell your existing mortgage and reduce or clear the self build mortgage.
When assessing your affordability, the lender will also need to take into account the amount you currently pay on your existing mortgage. This is to ensure that, during the period of the build, you can afford the new mortgage plus the continued payments of your existing mortgage. If this isn’t affordable, there are some lenders who can/will ignore your existing mortgage payment if you can demonstrate you have enough savings to cover two years of your mortgage payment – ie if your mortgage payment is £750 per month, you would need to evidence savings of £18,000.
Alternatively, again subject to income and affordability, you could potentially remortgage (raise funds against) your existing property, subject to there being enough equity in the property to purchase the land and complete the build. Typically lenders could release up to 90% of your equity this way.
Finally, if the income and affordability are not enough to support either the self build mortgage or the remortgage, then a regulated bridging loan against your existing property may well be possible. With this route, the lenders would typically only be able to release around 60% of the current value of your existing home. So, again, you’d need to be sure this amount is enough for you to purchase the land and complete the build.
However, it is important to note ther term on a bridging loan can only be for a maximum of 12 months. So, you would need to complete the build and sell your existing property within 12 months to ensure the loan is repaid before the end of the term.
Rachel Pyne (BuildStore director of financial services)