Mortgage Question

whitelightrider

This may get confusing so bear with me.

Is it possible to put down the price of your site as more expensive than it actually is? Example - We are buying a site for 71k but we know it's worth 120k (really nice old farmer is selling it to us to give us a start). We will have to pay 14k and get the remainder (80%) from the mortgage as this is all they will allow.

My sister is buying her site (130k) and her mortgage advisor told her it was possible to put the site down as say 160k, so she would not have to pay the 20%. In effect she would get the 100% for the price of the site.

Is this possible?

sas

whitelightrider wrote:

This may get confusing so bear with me.

Is it possible to put down the price of your site as more expensive than it actually is? Example - We are buying a site for 71k but we know it's worth 120k (really nice old farmer is selling it to us to give us a start). We will have to pay 14k and get the remainder (80%) from the mortgage as this is all they will allow.

My sister is buying her site (130k) and her mortgage advisor told her it was possible to put the site down as say 160k, so she would not have to pay the 20%. In effect she would get the 100% for the price of the site.

Is this possible?

When you apply for a mortgage on a site the lending institution will require that an evaluation be done by one of a panel of auctioneers that they have approved.

The valuer will value the site against what its worth in the market, they're not supposed to care what you paid for it.

whitelightrider

So it is possible to tell the lending institution that the site is worth 120k, pay 70k for it and send in the valuation to the lending institution as the site price? That way we could get the 100% price for the site as part of the mortgage?

secman

Hi,

We purchased a site in April 05 for €100k, it had outline pp. We were unable to use the site as collateral for a mortgage as, the lender explained " until it had a complete house on it " it could be valued at €5 k as agri land. It would only have the real value when it had a house on it. So we had to borrow the €100k on our existing house .

whitelightrider

secman wrote:

Hi,

We purchased a site in April 05 for €100k, it had outline pp. We were unable to use the site as collateral for a mortgage as, the lender explained " until it had a complete house on it " it could be valued at €5 k as agri land. It would only have the real value when it had a house on it. So we had to borrow the €100k on our existing house .

This is our first time out and we are going to be self building. So the advisor told us we can get 100% of the house build and approx 80% of the site. But some people have managed to get 100% of the site cost because they told the lending institution that the site was valued at more than they actually paid for it. Im just wondering if this is possible.

muffler

This is a finance related topic so I will move it to accommodation & property

seamus

It could be tantamount to fraud. When applying for a mortgage, the bank are only interested in the *cost* of the property which you are buying, not the value of it. They then send a valuer out to establish whether you are being ripped off, or in plain terms whether the bank can sell it off and get all of their money back.

This has legal implications in terms of maximum loan amounts and especially stamp duty. You would need to have the mortgage broker and your solicitor in on the scam in order to pull it off without someone raising the alarm.

I would suspect what secman alludes to is the issue of planning permission and resale value. If the site you are buying isn't zoned as residential and/or doesn't have full planning permission on it for a house, then it's not worth a whole lot of money. If the bank loaned you 200k to buy and build on a site, and then PP was turned down, the bank could be out a lot of money.

seamus

seamus wrote:

You would need to have the mortgage broker and your solicitor in on the scam in order to pull it off without someone raising the alarm.

You wouldn't need to have a solicitor 'in' on it. The solicitor who takes it on himself to check matters like what the bank valued the site at clearly has way too much time and not enough clients. They just check the title, give the undertaking, and drawdown the loan. Matters like rechecking the info given to a bank or verifying the truth of matters disclosed to the bank are way way outside the solicitor's remit.

whitelightrider

But is this common practice? I know my sister and her husband seem to have no trouble with their mortgage advisor telling them he can sort this out for them.

uberwolf

seamus wrote:

It could be tantamount to fraud. When applying for a mortgage, the bank are only interested in the *cost* of the property which you are buying, not the value of it. They then send a valuer out to establish whether you are being ripped off, or in plain terms whether the bank can sell it off and get all of their money back.

Two concepts, LTV (value), and LTC (cost).

In home loan circumstances the bank will presume for the best part that LTC = LTV, and will be sceptical about the nice old couple story. As seamus says there interest in the value is the risk they're taking of not being able to recover their capital + costs of disposal in the event of default.

Valuations are largely accepted to be an administrative exercise, required by the regulator to control banks lending against property. In nearly every circumstance a valuer will have his valuation match that which is required for the loan, unless you're off by miles.

The mortgage advisor the OP refers to is paid commission against the size of the loan, so they're working in their own interest not your sisters.

A bank will be more circumspect about lending against a site as there is an additional risk in developing out the site. The bank would have massive difficulty flogging foundations should you run out of money at that point.

Different banks will have different policies on the matter. I don't work in home loans so I'm not in a position to point you in the right direction.

You would be liable to the stamp duty on the open market value afaik, less c.€3k gift from a stranger which you could write off against it.

I would have a thought a bank, presented with a value on the site, a value on the completed property, costings for the build, and evidence of repayment capacity would look positively on the exercise. If not PM me.

whitelightrider

The site we are buying is being bought subject to planning permission. This basically means that the site will have full planning permission on it for a 2300sw ft house when going forward for the mortgage. That increases the value of the site straight away.

Im assuming there are other people out there who have told mortgage brokers that the site is worth say 100k so that the mortgage will cover the full price of the site, say 70k??

sas

secman wrote:

Hi,

We purchased a site in April 05 for €100k, it had outline pp. We were unable to use the site as collateral for a mortgage as, the lender explained " until it had a complete house on it " it could be valued at €5 k as agri land. It would only have the real value when it had a house on it. So we had to borrow the €100k on our existing house .

It is incorrect to say that the site would only be valued at €5k until it had a completed house on it. A site with full planning permission can be extremely valuable depending on where in the country you are. And alot of lending institutions will lend you up to 90% of the cost of a site with full planning permission.

We bought a site (outright) with OPP last august and we were able to borrow 70% of the value of the site to enable us to purchase it. Some lending institutions won't give mortgages on a site until full planning is granted, some will.

whitelightrider

sas wrote:

We bought a site (outright) with OPP last august and we were able to borrow 70% of the value of the site to enable us to purchase it. Some lending institutions won't give mortgages on a site until full planning is granted, some will.

sas, did you have to come up with the extra 30% for the site on your own?

sas

whitelightrider wrote:

sas, did you have to come up with the extra 30% for the site on your own?

I checked our figures again and it was 60%, not 70% that we were loaned.

We borrowed the remaining 40% against the equity in our current house.

Also, to clarify, what I said in my original post was incorrect, I checked into it.

What you are asking about is common enough practise I'm told. I'll post later with how it works.

I'm getting the details later.

whitelightrider

sas wrote:

I checked our figures again and it was 60%, not 70% that we were loaned.

We borrowed the remaining 40% against the equity in our current house.

Also, to clarify, what I said in my original post was incorrect, I checked into it.

What you are asking about is common enough practise I'm told. I'll post later with how it works.

I'm getting the details later.

Thats excellent sas. Thanks again for that. Ill check in later to see what you post.

sas

whitelightrider wrote:

Thats excellent sas. Thanks again for that. Ill check in later to see what you post.

Ok, here's how it works.

The assumption I am making here is that you (and your partner) have sufficient income to cover the cost of the site and the build. I.e. you already gotten approval in principle from a mortgage lender as to how much you can borrow.

So its 3 months from now and you've received your full planning permission.

You go to the mortgage broker for a mortgage on a site with full planning permission that will cost 120K. The lending institution will send out a valuer to confirm that the site is worth 120K. If it is then they are covered.

Typically banks loan 90% on sites with full planning.
So they will be willing to loan you 108K.
The first potential problem is that the bank could request proof that you have the other 12K. They would be looking for bank statements for example. People get around this by getting a gift letter from a parent for example.

All goes fine and the loan offer arrives from the lending institution to your solicitor. The solicitors job is to witness you signing the loan offer. You need a solicitor that won't mind that not all the funds will be going to the site seller. The solicitor will be releasing the remainder of the money less stamp duty (37K - stamp duty) to yourselves. The stamp duty is based on the contract price i.e 71K. This sounds dodgy but is relatively common practise.

You might want to use the same solicitor as the others you've mentioned just to make things easier

I hope this clarifies how people are doing. We all have to do what we can so we can have our grand design...

Ginger83

A bank will lend you 80% of the value of what they estimate the sites market value is as a site with full pp (if granted) regardless of what you pay for it. They cover their own investment. Then 100% of the construction costs up to your mortgage allowance. Some lenders vary. Many will advance 90% of the full value the house is worth when built.

Eg- Site €100k Deposit €20k Mortgage required €80k
Site valued by bank with full pp €150k, mortgage allowance @80%-€;120k-no deposit required, however most banks will want to see your proposed €20k deposit upfront.

Victor

The bank is primarily interested in Loan to Value. If you are able to buy for 71k, so are other people. The bank will want to know that you have a savings history.

Ginger83

I agree there must be a saving history but as whitelightrider stated a very good neighbour is offering the site to only them for €70k and could be well aware the sites value is €120k to anyone else if the put it on the market.

whitelightrider

Ginger83 wrote:

I agree there must be a saving history but as whitelightrider stated a very good neighbour is offering the site to only them for €70k and could be well aware the sites value is €120k to anyone else if the put it on the market.

Exactly Ginger. He is well aware of the value of the site but is giving a young couple, as he puts it, a start in life.

I have a history of saving with the bank so that wont be a problem if they look for it.