Building a house while already owning one!

voodoo

Hi all,

Call me stupid, but I was wondering if anyone could help me with a minor issue I have. I am a house owner for the past 2 and a half years or so and we are now looking at the possibility of maybe building a new house.

What implications am I subjected to in this circumstances? What I mean by this is, how do I get a mortgage, which allows me to remain in my current dwelling, while still enabling a builder to carry on work on a new house (let's take it for granted that I have a site - I dont, but never the less).

Are there any tax implications in doing so? How do I arrange with a financial institution to enable me to borrow for the building, while remaining in my dwelling?

Thanks in advance for any advice you may have....

Victor

Originally posted by voodoo
Call me stupid, but I was wondering if anyone could help me with a minor issue I have. I am a house owner for the past 2 and a half years or so and we are now looking at the possibility of maybe building a new house.

Do not put you home at risk. If you are married / not the sole owner, you may need permission under the Family Home Protection Act if using your home as collateral (probably not necessary in this case, as the other site can be collateral). Beware that house prices may fall and that you may have a consequent liability - only go ahead if you stand to make at least 15-20% profit.

Originally posted by voodoo
What I mean by this is, how do I get a mortgage, which allows me to remain in my current dwelling, while still enabling a builder to carry on work on a new house (let's take it for granted that I have a site - I dont, but never the less).

There shouldn't be a major problem as the other site will act as collateral.

Originally posted by voodoo
Are there any tax implications in doing so?

Yes. If you are building a house to sell, you will pay 20% Capital Gains Tax (CGT) - building to move may avoid this as principal residence sare exempt from CGT. Improved properties (in this case the improvement is construction) are subject to VAT at 13.5% (against Stamp Duty at up to 9%).

Originally posted by voodoo
Are there any tax implications in doing so? How do I arrange with a financial institution to enable me to borrow for the building, while remaining in my dwelling?

Just talk to your bank (but shop around), but have your numbers worked out before hand. Would you want a short term loan (1-3 years) or a mortgage - you might be only able to get a 10-year mortgage on a second property. There is no tax relief for second properties (unless the site has special designation), but you should be able to write off the interest against income.

voodoo

Hi Victor,

Thanks for your information on this. I would actually be looking to build to move as apposed to build to sell. Essentially, our (I am married) plans were to buy a house in a development, hold onto it for a couple of years and then look at building our own house to our own specifications.

daveg

Originally posted by voodoo
Hi Victor,

Thanks for your information on this. I would actually be looking to build to move as apposed to build to sell. Essentially, our (I am married) plans were to buy a house in a development, hold onto it for a couple of years and then look at building our own house to our own specifications.

then (I'm 99% sure) you will not be subject to capital gains tax.
We too built our own house which was finished last April.

Lets break the building process up into payment stages (this is assuming you have a building contractor. If you building with direct labour your payments will obviously be in different stages):

Stage 1 - buying a site - Planning permission

Stage 2 - Foundation

Stage 3 - Before the roof goes on.

Stage 4 - completion

Stage 1 - You only need to borrow for the site initally (say €50K). Realistically it'll probably be a year or so before you have site tests done (slump tests)... draw up plans... submit plans... await planning permission... (probably) be asked for more information from the planning office... recieve planning and then you have to wait another month to see if there are any objections. So bascially for the first year or so you only draw down €50K approx from your mortgage.

Stage 2 - When the foundation is complete you will have a stage payment.

Stage 3 - Another stage payment before the roof goes up.

Stage 4 - completion - final stage payment.

My point is the building process (from stage 1 to 4) may take 1-2 years. You will not be paying the full morgage for the whole of this time.

Hope that helps.

Victor

Originally posted by daveg
Lets break the building process up into payment stages (this is assuming you have a building contractor. If you building with direct labour your payments will obviously be in different stages):

There are different possibilities available, you need not stick to any particular form until you agree a contract with the builder. The RIAI contract usually have monthly payments. You could ask to pay a lump sum at the end (you would end up paying a premium for this).

Originally posted by daveg
My point is the building process (from stage 1 to 4) may take 1-2 years. You will not be paying the full morgage for the whole of this time.

Most bansk will only give you 1-2 takes on the mortgage, you may end up with a €200,000 mortgage @ 4% and a €200,000 deposit account @ 2%.

alir123

I am in the delimma. I bought my house a year and a half ago. I have a E95000 mortgage (I paid alot down). Its currently worth E190,000.

I bought a site a couple of months ago, and now wondering what I'm going to do.

1. Will I sell the house and free up all my equity, move into rented accom. and build?

2. Or get a second mortgage, build my new house and sell the first?
(I would be able to pay off first mortgage + big % of second one ?

3. Or get a second mortgage, build my new house and rent out the first?
(The rent would pay for the first mortgage + abit of the second one ?
The third option would put alot of strain on me though, while building

PhilipMarlowe

I am in a quite similar situation too (approx 70k mortgage & 130k equity) with 8 years remaining & own a site.

By the time I will have a house finally designed, planned and built (approx 400k), I reckon it would be so near payed off that I would try and keep the first house (as a pension).
You didn't mention it but what I might look into is paying off the original house and only having one mortgage - would need to have big boots on when going to my freindly bank to encourage them to accede...

It's a tough one to decide - maye an interest-only mortgage at the time of building might make it more affordable for you to keep both going.
Also, if you are going to rent your house out, the extra bit that the rent would cover above your mortgage may need to go into a sinking fund (at least for a while) so that you are not screwed if people move out / something breaks / etc.

alir123

Originally posted by Licksy
It's a tough one to decide - maye an interest-only mortgage at the time of building might make it more affordable for you to keep both going.
Also, if you are going to rent your house out, the extra bit that the rent would cover above your mortgage may need to go into a sinking fund (at least for a while) so that you are not screwed if people move out / something breaks / etc.

Thats a very good point, thanx

I'd probably b able to pay off most of the mortgage in 3-4 years (savings + ssia)...and think about it again.

I'm 26, so there is no panic now....at least i have a roof over my head

Victor

Originally posted by alir123
1. Will I sell the house and free up all my equity, move into rented accom. and build?

Don't think sop, unless renting from a frined / family member (keeping hte money in the family).

Originally posted by alir123
3. Or get a second mortgage, build my new house and rent out the first? (The rent would pay for the first mortgage + abit of the second one ? The third option would put alot of strain on me though, while building

Looks like an oiption, talk to bank manager about "managing it". Or take in lodgers and avail of the €6,000 tax free. Once new house is built, reevaluate.