Final Stage Drawdown

mr_edge_to_you

Hi guys, we're getting near the very end of our build. Our lender had a clause in the agreement that they may not release the final drawdown in full if the house doesn't reach it's expected valuation. I was just wondering if anyone who recently finished a build had money held back by their mortgage provider because in theory the house may be worth less now than was anticipated when the house was started? I hope i'm explaining myself properly! Thanks as always. Mr Edge.

ThePiedPiper

mr_edge_to_you wrote: »

Hi guys, we're getting near the very end of our build. Our lender had a clause in the agreement that they may not release the final drawdown in full if the house doesn't reach it's expected valuation. I was just wondering if anyone who recently finished a build had money held back by their mortgage provider because in theory the house may be worth less now than was anticipated when the house was started? I hope i'm explaining myself properly! Thanks as always. Mr Edge.

I'd say it's unlikely that it should happen Mr Edge.. The valuation will include the value of the house and that of the site together whereas the mortgage will probably have only been for the building itself? Possibly have a chat with the valuer you intend to get out, let him/her know what the story and I'm sure they'll not undervalue the property. There's plenty of valuers around also so I'm sure you'll find a valuation somewhere that'll do for your purpose

mr_edge_to_you

Thanks for the feedback Forrest.

JuniorB

We had to get a second valuation done as we had not drawn down our first stage payment within 6 months of the initial valuation.
The valuer told us that the value of all property is coming down so he would have to drop it 'slightly'.
He was supposed to consult us before he put in his valuation but just fired ahead and sent it in. He knocked us down by 5%. I'd say that's the sort of percentage that you might be talking about.
This affected our LTV and interest rate. In the end we had to reduce our mortgage by 5% to qualify for a better interest rate. We were hoping not to draw the whole mortgage anyway ... needless to say he wont be doing our final valuation.
Best of luck with it Mr_edge.. thread carefully !!

mickdw

If your mortgage is anywhere near the actual value of the finished property, it might well be an issue. Self build mortgages typically were only a fraction of the property value in the good time and so this was never an issue. They were also offering 92% - 100% mortgages. If you have signed up for an 80% mortgage, I fear you will only be able to drawdown 80% of the final valuation figure

sydthebeat

Most self builds are not speculative. It shouldnt matter one iota whether the finished product meets the contemporary market value once the borrower can meet the repayments. The 'current market value' is a non sequitur anyway. it means absolutely nothing in the context of someone building a family home.

by definition this should never pose a problem anyway.

Firstly a breakdown of costs is to be provided to the lender before any work begins on site. The site purchase value, if any, should be clearly defined here. If the lending institution feel the site is over-valued they should highlighted it at this stage and refuse the mortgage on this basis.

The site value is the only element of a house build that can fluctuate to a significant degree as to cause the finished product to be over valued. The actual build costs will remain fairly static. By definition a house cannot be valued for less than the value of material and labour required to build it.

If monies are being drawn down which do not match the value of work on site, then the certifier is leaving them self open to a world of trouble and it would only be a very foolish certifier that would allow this situation to occur.

homewardbound11

Your legal representative or engineer sohuld have made the final drawdown very small. I.E if you required 4 draw downs then make it 5 drawdowns and take 10k out of the 4th and make this the fifth.
This would have caused you no issues if the bank refused the final or made it difficult on you,.
There may be a minimum amount you can draw down but this is what i am doing.
Sorry if this is little help to you now.
regards

sydthebeat

homewardbound11 wrote: »

Your legal representative or engineer sohuld have made the final drawdown very small. I.E if you required 4 draw downs then make it 5 drawdowns and take 10k out of the 4th and make this the fifth.
This would have caused you no issues if the bank refused the final or made it difficult on you,.
There may be a minimum amount you can draw down but this is what i am doing.
Sorry if this is little help to you now.
regards

its always possible to do this by adding another draw down at the end....

this is commonplace in self builds where credit is not held by the client...

mr_edge_to_you

We are in the process of getting a mid-stage drawdown which is common enough. We gave our engineer instructions to arrange 5 stage payments. However, he only registered 4 with the lender. We were left with a very large final 4th stage - almost 25% of our borrowings!! In fairness the engineer has no issues signing off work that is completed. We were terrified that the project would come to a standstill because if it stopped it'd be harder to get going again. The build hasn't stalled luckily and fingers crossed it continues.

At the moment we just want to know that the money is there before you go and do things like get the driveway done.

The last thing you want to do is leave a decent tradesman/builder short.

In the current environment, it's hard not to be nervous.

mr_edge_to_you

sydthebeat wrote: »

Most self builds are not speculative. It shouldnt matter one iota whether the finished product meets the contemporary market value once the borrower can meet the repayments. The 'current market value' is a non sequitur anyway. it means absolutely nothing in the context of someone building a family home.

by definition this should never pose a problem anyway.

Firstly a breakdown of costs is to be provided to the lender before any work begins on site. The site purchase value, if any, should be clearly defined here. If the lending institution feel the site is over-valued they should highlighted it at this stage and refuse the mortgage on this basis.

The site value is the only element of a house build that can fluctuate to a significant degree as to cause the finished product to be over valued. The actual build costs will remain fairly static. By definition a house cannot be valued for less than the value of material and labour required to build it.

If monies are being drawn down which do not match the value of work on site, then the certifier is leaving them self open to a world of trouble and it would only be a very foolish certifier that would allow this situation to occur.

Cheers Syd,

my own opinion is that if you have a mortgage on which you can make the repayments and it your family home then market value is irrelevant. its our home!

i would also expect that the minimum value of the property is the cost of building it.

maybe i'm worrying about nothing!

mickdw

Family home or not, there is no way a bank will give you more money than the house is worth when completed. You might not be in that situation but it will apply re loan to value etc. If for example you had qualified for a good rate due to a 70% ltv, you might find yourself on the higher rate as someone has said already.

mr_edge_to_you

mr_edge_to_you wrote: »

i would also expect that the minimum value of the property is the cost of building it.

I'm sorry to say that that is one thing that you can't depend on anymore, thers's plenty of housing out there (in unfavorable locations) going for less than the build cost.

But having said that, an unfinished house would be worth much less, so it'll be in the banks interest for it to be finished.

sydthebeat

Deleted User wrote: »

I'm sorry to say that that is one thing that you can't depend on anymore, thers's plenty of housing out there (in unfavorable locations) going for less than the build cost.

But having said that, an unfinished house would be worth much less, so it'll be in the banks interest for it to be finished.

the only cases of this happening is where builders in so much trouble that they will take anything.

mosts cases the build costs of an avergae semi d is roughly €70K.. its the site costs that bumps it up to....

mr_edge_to_you

Hey guys,

just as a follow up the bank are withholding 7% of the mortgage until we get the final valuation then!

Given the sums involved 7% is still a hefty amount if you are close to overrunning your budget.

gman2k

I won't be drawing down the final stage (75k), as I'm going to finish off the house with what I have. It'll mean a few corners will be cut, but that's the times we live in!

Naux

mr_edge_to_you wrote: »

Hey guys,

just as a follow up the bank are withholding 7% of the mortgage until we get the final valuation then!

Given the sums involved 7% is still a hefty amount if you are close to overrunning your budget.

Edge,

I assume that you do not have a tracker mortgage based on a LTV??

If you do have a tracker be very careful to come in under your LTV or the banks will be able to move you off the tracker rate onto standard variable.

mr_edge_to_you

we're on standard variable anyway. thanks for heads up Naux!

gbarr

Hi i was wondering how you got on in the end,
Im having a similar problem with the bank and cant get any answers that i believe,they dont make any sense,
We bought a very old house for 180000 euro in 2009 and got a loan off the bank that would see the mortgage go to 260000,and the valuation of the house was 300000 by the time we would be finished.When we finally got to the final stage drawdown which had to be 30000 euro(their rules) the house had to be revalued and it was considered to be 285000,
We expected a valuation drop no problem,but the bank then had stopped
12000 out of the 30000 because of this decrease.
I would understand if the house was valued less than the 260000 loan but not when the house is still valued 25000 in positive equity.
We owe this money to contractors who are now left in the lurch because of this and im a contractor myself who knows what it feels like when people cant or just wont pay you,
Can someone shine some light on this for me,Thanks