Self Build Second Mortgage Approval?

cork2013

Hi,
First post but just looking to know if someone has been in a similar situation and been successful or others who may have advice.
So...
My husband bought a house back in 2006 (height of the boom!) with his sister. There is 350k still owing on this. This is rented at the moment, monthly repayment is €1800. On a monthly basis they are receiving €1200 in rent and top it up with €300 each.
We are in the middle of planning a self-build, coming in after tender with what will most likely cost us €310k. We have just over €30k in savings and another €25k saved for contingency which we hope to not have to touch. The site was gifted to us with a value of €30k and is currently in our names. We have a joint income of €96k yearly.
So my question is, how likely are we to be successful in securing a mortgage for this? We have no loans, credit card debt, just that mortgage with his sister. We are paying €850 currently month in rent and saving €700.
Anyone been in a similar situation? Any advice?

ShiverinEskimo

You might be better off in the Personal Finance forum but here goes:

Using AIBs crude mortgage calculator the repayment on a mortgage of 280,000 over 35 years is €1162 per month based on current interest rates.

Your outgoings are 1550 a month currently on rent and savings.

They will stress-test you by doubling the interest rate to say 7% which would then mean your repayments would be €1788 (handy calculator on the Guardian site)- beyond your current outgoings excluding the mandatory mortgage protection insurance of about 60 to 70 a month.

There are more factors than the above - but it's a good place to start.

It will depend on the value of the built house, the length of time you've been in your jobs, your age which dictates the term of the loan - 66 minus your age is the limit of the term roughly. If you're 31 or younger you still qualify for a 35 year mortgage for example.

Best person to speak to is a financial/mortgage advisor that maybe a friend can recommend perhaps? They can do many of the premliminary checks before making the application to the bank and will tell you what's what.

Getting a lower mortgage and using your 25k extra savings might be worth considering given the extra 25k in mortgage will cost you about 40k to get over the term. Also 25k today is worth less than 25k in a year.

Not saying blow all your savings but a lower mortgage means a lower repayment and a better chance of getting it. If you were to ask for a 255,000 mortgage instead of the 280,000 it would improve your situation no end because the Loan To Value ratio would increase in your favour and make it more appealing to the bank.

Final note - 310,000 sounds like a very large and/or high-spec house. Re-examining the build and dialling down a bit to reduces costs might best be your first port of call.

muffler

ShiverinEskimo wrote: »

You might be better off in the Personal Finance forum

Sounds good to me

Moved from Construction & Planning

killers1

cork2013 wrote: »

Hi,
First post but just looking to know if someone has been in a similar situation and been successful or others who may have advice.
So...
My husband bought a house back in 2006 (height of the boom!) with his sister. There is 350k still owing on this. This is rented at the moment, monthly repayment is €1800. On a monthly basis they are receiving €1200 in rent and top it up with €300 each.
We are in the middle of planning a self-build, coming in after tender with what will most likely cost us €310k. We have just over €30k in savings and another €25k saved for contingency which we hope to not have to touch. The site was gifted to us with a value of €30k and is currently in our names. We have a joint income of €96k yearly.
So my question is, how likely are we to be successful in securing a mortgage for this? We have no loans, credit card debt, just that mortgage with his sister. We are paying €850 currently month in rent and saving €700.
Anyone been in a similar situation? Any advice?

What ages are you both & do you have any dependents?

cork2013

Hi Killers1,
I am 30 and my husband is 36, no dependants. Thanks for your help

cork2013

ShiverinEskimo wrote: »

You might be better off in the Personal Finance forum but here goes:

Using AIBs crude mortgage calculator the repayment on a mortgage of 280,000 over 35 years is €1162 per month based on current interest rates.

Your outgoings are 1550 a month currently on rent and savings.

They will stress-test you by doubling the interest rate to say 7% which would then mean your repayments would be €1788 (handy calculator on the Guardian site)- beyond your current outgoings excluding the mandatory mortgage protection insurance of about 60 to 70 a month.

There are more factors than the above - but it's a good place to start.

It will depend on the value of the built house, the length of time you've been in your jobs, your age which dictates the term of the loan - 66 minus your age is the limit of the term roughly. If you're 31 or younger you still qualify for a 35 year mortgage for example.

Best person to speak to is a financial/mortgage advisor that maybe a friend can recommend perhaps? They can do many of the premliminary checks before making the application to the bank and will tell you what's what.

Getting a lower mortgage and using your 25k extra savings might be worth considering given the extra 25k in mortgage will cost you about 40k to get over the term. Also 25k today is worth less than 25k in a year.

Not saying blow all your savings but a lower mortgage means a lower repayment and a better chance of getting it. If you were to ask for a 255,000 mortgage instead of the 280,000 it would improve your situation no end because the Loan To Value ratio would increase in your favour and make it more appealing to the bank.

Final note - 310,000 sounds like a very large and/or high-spec house. Re-examining the build and dialling down a bit to reduces costs might best be your first port of call.

Thanks for your input ShiverinEskimo, much appreciated

killers1

cork2013 wrote: »

Hi Killers1,
I am 30 and my husband is 36, no dependents. Thanks for your help

In a worst case scenario the banks will asses the mortgage as follows;

Combined net monthly income - circa €5,700
Stressed Repayments on €350k @ 6.45% over 25 yrs (max term allowable for inv property loans) = €2,352.30pm
No rent will be factored in a property is in negative equity for monthly deficit created by Inv Property is €2,352.30
Stressed repayments on €280k over 29 yrs (max allowable AIB) €1,699.61

Net income minus combined stressed repayments on both loans i.e. €5,700-€2352.30-€1,699.61 = €1,648.70 which is the monthly disposable income you have to live on. Their guideline is that a couple with no dependents should have €2,050pm to live on so this would be declined.

At best case would be if they took account of your husbands sisters income & financial status. If you can show that she is in good employment with strong earnings and no overly indebted an argument could be made to reduce the deficit from the inv property by 50% so €2,352.30 divided by 2 = €1,176.15. When you subtract the 2 new combined stress tested repayments (50% for Inv prop) you get €5,700-€1,176.15-€1,699.61 = €2,824.24 (which would be within policy). Where you fall down is that the repayment capacity you are showing of rent €850 + savings €700 + €300 (Husbands contribution to INV loan) = €1,850pm. You would need to increase your savings by circa €1k per month for a 6 month period to have a decent chance of approval and your husbands sister would need to be in a strong financial position in her own right to convince them to only make him 50% liable for the debt for calculation purposes.

Whilst some of the other banks may take a percentage of the rent into account they will ALL make your husband 100% liable for the inv property loan and will not be open to viewing it in any other way. In either scenario you are currently not showing a strong enough repayment capacity at the moment and 6 months of increased savings of €1k+ (I know very easier said than done) would give you a much better chance of approval..

cork2013

So what you're saying is there is 'some' hope!!
We could add our SSIA savings of 25k to this, reducing mortgage required to 255k.
Increase savings over next six months. Therefore having more savings again reducing mortgage required!
We live in hope!!!
Thank you very much Killer1, that took time and effort and it's very much appreciated. We will apply the way we are and let them come back with a refusal,at least we will know where we stand and what we need to for the next six months.

killers1

cork2013 wrote: »

So what you're saying is there is 'some' hope!!
We could add our SSIA savings of 25k to this, reducing mortgage required to 255k.
Increase savings over next six months. Therefore having more savings again reducing mortgage required!
We live in hope!!!
Thank you very much Killer1, that took time and effort and it's very much appreciated. We will apply the way we are and let them come back with a refusal,at least we will know where we stand and what we need to for the next six months.

No problem at all, let me know when you hear back from them.. I wouldn't go applying everywhere now as you've a better chance of gaining an approval with a strong application in 6 months time as opposed to trying to convince them to change a decline decision 6 months previously..

PJMR

Hi, im trying to do a self build at the moment, all planning, costings etc in place, looking for a €100K, we have €95K saved and €70K after tax income (self employed) . Build cost €185K. Yet 7 months on from our initial application we are still providing documents, and explanations for the bank. Have had to supply the planning docs 3 times, many letters from my accountant, and each query only gets a response back from the bank after about 2 weeks. We haven't had any queries on financials / ability to pay, they just seem to be stalling and dragging the process out. What infuriates me is that the builder is hanging on for this work to keep afloat and all the other providers and local business that would benefit from the build are denied the business. We are paying massive taxes to bailout these banks and yet they are holding back on viable business / credit. Be prepared for a lengthy and arduous process. Good luck

ShiverinEskimo

PJMR wrote: »

Hi, im trying to do a self build at the moment, all planning, costings etc in place, looking for a €100K, we have €95K saved and €70K after tax income (self employed) . Build cost €185K. Yet 7 months on from our initial application we are still providing documents, and explanations for the bank. Have had to supply the planning docs 3 times, many letters from my accountant, and each query only gets a response back from the bank after about 2 weeks. We haven't had any queries on financials / ability to pay, they just seem to be stalling and dragging the process out. What infuriates me is that the builder is hanging on for this work to keep afloat and all the other providers and local business that would benefit from the build are denied the business. We are paying massive taxes to bailout these banks and yet they are holding back on viable business / credit. Be prepared for a lengthy and arduous process. Good luck

From purely a risk point of view that's not a good scenario for you as the employer to any contractor.

In the mean time, cancel your application and contact a mortgage broker. They should be able to get answers and will have a direct line to someone in the bank. They will also do the chasing for you. We went from application to approval within about 6 weeks using a mortgage advisor and dropped all documents in just the once.

PJMR

Good point re the contractor, thanks. The application was actually done through a broker. Ill give it a couple more weeks then start the build from the savings I think

killers1

PJMR wrote: »

Good point re the contractor, thanks. The application was actually done through a broker. Ill give it a couple more weeks then start the build from the savings I think

Sounds like your applying through AIB? The problem with their process is that every time new information is received it needs to get scanned onto their system and goes into the Underwriters queue and that is why it's taking 2 weeks for responses to come back. If they are continuously looking for further info either your broker isn't fully aware of their credit policy and doesn't know everything they require for self build approval or alternatively the information you are giving them is giving rise to further questions. Either way the process shouldn't be taking that long... From an income point of view the application is fine so it's obviously just in the finer detail that delays are being caused. I wouldn't recommend starting the build without having finance in place to complete but I'd certainly be looking for answers from both your Broker & subsequently the bank to see exactly what's required to get this moving along.

PJMR

AIB allright, Thanks for the advice