Finance for development land with our new home

[Red456]

Hello

First post and wondering if you could help?

We have agreed a price on land with one existing house (to become our new home) and outline planning for 2 other houses. Seller will only sell as one lot and not split the land for separate purchases.

A traditional mortgage may restrict us from then separating/selling some of the land as it makes up roughly half of the overall value.

Are you able to advise what the best options are here? I've just been looking at the idea of a bridging loan to buy the lot (roughly 50% deposit / 50% bridging loan), then separate the existing house and get a traditional mortgage for it to be our new home. Use the raised mortgage funds to pay off bridging loan (should just cover it). Is this a good option? Would we need to set up a company to do this? Do you have any better ideas?

Also, with a bridging loan, would personal bank statements be required or would the security on the property be sufficient? After the stock market crash, February through to April, I've been rebalancing my shares in an IG index account, selling some, but buying more, with a transaction on bank statement for each purchase/sale. I took out a personal loan and also went into overdraft while waiting for money to come through from a savings account, which it now has and these have been repaid. Also a few deposits into bookmaker accounts for some lockdown entertainment. Bank statement just looks pretty crazy with all these transactions and I'm worried a lender would look at this and red flags would appear without knowing the context. Now being in the position where I'm after new finance, I obviously realise this far from ideal.

Thank you for reading and any advice you can offer!?

All the best.

 

[Mark T Jones]

@Gordon - Commercial Finance is your man

 

[estwig]

Outline planing permission means very little.

I could get outline PP for a block of flats in my garden, the chances of progressing that through the planning system to full planning permission, with all the associated bells and whistles, is zero.

Beware!

 

[Red456]

Thank you for both your replies!

 

[DontAsk]

A traditional mortgage may restrict us from then separating/selling some of the land as it makes up roughly half of the overall value.

Why?

Remortgage when you come to split the land.

 

[Gordon - Commercial Finance]

Hi there - thanks Mark for highlighting me here.

A complex situation here for a number of reasons. A bridging loan or development finance may be appropriate here, but because of your intention to make part of the overall development your own home, any loan secured against it would be a regulated mortgage contract. That brings with it a bunch of red tape, and would bring your own personal credit up to view. The gambling transactions isn’t an issue unless it looks problematic - I managed to get a mortgage myself at one point without issue when the bank statements I submitted had the first 10 transactions going to Betfair! I was running a syndicate at the time during the World Cup I think...

If you were a developer with the intention of buying the parcel, building the houses and then selling the whole lot, then the project is far more important than your personal credit situation - but you’re not. I’m guessing as well that you don’t necessarily have a lot of experience in developing property? Ground up developments such as this one, and especially when we’re talking more than one unit, takes a very different set of skills than the kind of “property development” most commonly though of (buy a flat, lick of paint, new carpets, sell it). Any lender extending finance to you in order to do something like this will want to know you can deliver, and so development finance is almost exclusively reserved for “experienced developers”. Don’t take this personally, it’s not supposed to be a dig, but you don’t come across as that.

Your suggestion of a 50/50 bridging loan to split the site and then mortgage to pay it off might have legs - I need to give that one some thought, and it will invariably rise and fall on the numbers. The seller is most likely overvaluing the outline planning and therefore you’re technically overpaying. A lender won’t be up for sharing that risk with you.

Finally, the planning being at outline stage puts some spanners in some places where work should be in commencement. Full planning is required for development finance to be paid out. As I’ve alluded to above, outline planning isn’t worth much, and most like it being overvalued.

If you have the funds to do a 50/50 bridging loan, then couldn’t you buy the place with a traditional mortgage but on 75/25 or something like it, then make tracks to getting the planning in place knowing you have the funds to at least start building works if it all comes through? Additional Finance can be raised against the project down the track, without land needing to be parcelled out formally.

I need to give it all some more thought and see if I can think of a better solution, but that’s the thoughts that spewed forth when this was brought to my attention....!

 

[Red456]

Thanks DontAsk, a valid point!

Thanks Gordon for your detailed reply!

10 transactions to Betfair and you were fine - that's reassuring.
Ok, so the red tape because of the home intention isn't great. It wouldn't have to become our home until a mortgage was achieved and the bridging loan / development finance was paid off, but the intention would still be there.

No, we are amateurs. No offence taken. We've done renovations, but that's it. The intention is to put the services in, sell off a plot and build a home for ourselves, then sell existing house.

I get your point on the outline not being as good as full permission and there are obviously risks with that.

Indeed, a traditional mortgage was our first idea. We're concerned they may just value the house as it is and downvalue it due to not recognising the potential to develop, which would make a big difference. As DontAsk commented, we could always remortgage after again if they refused us to sell part of land, so that covers our second main concern.

Thank you for taking the time to respond and greatly appreciated to see these different ideas.

 

[estwig]

I get your point on the outline not being as good as full permission and there are obviously risks with that.

It's more than a risk, it can be a very old con, selling land with outline PP that has no chance of getting full PP

Planning is a dirty business, take professional advice before committing, do not allow the heart to rule the head.

 

[Red456]

Estwig, Thanks for this and yes we need to be aware of this. The property/land is being sold by the local council and the site is listed on their annually produced list of land earmarked for development. This offers some reassurances, although we appreciate it is still not a guarantee.

 

[NortonBishop]

It's more than a risk, it can be a very old con, selling land with outline PP that has no chance of getting full PP

There's plenty of cons re buying land to develop but I've never heard of that one.

10 years ago I was involved in dozens of sales of land that only had outline consent and house building companies never queried it - they looked at the conditions of course - but everyone took the view that if there was an outline consent for x then detailed consent was not in doubt.

There might be other reasons for not being able to build - contaminated land, ownership issues, costs of complying with conditions etc. - so any buyer should be careful.

Can you give any specific examples, Estwig? Maybe things have changed in the last 10 years?

(Having said that, the OP has now indicated that there isn't a Outline consent - it's just "earmarked for development", but I'd still be interested to learn)

 

[estwig]

No, I can't be bothered.

I'm trying to help, but I'm not the yellow pages!

 

[Red456]

We've run into problems.

We applied for a mortgage, but the valuation has come back at £0!!! Even though we intend to live in the existing house, the valuer has said that as it is being advertised as a development opportunity it is not mortgageable - "The property does not comprise a single residential property due to the consent for redevelopment of the site and is therefore considered to be outside lending policy and is therefore declined as suitable mortgage security".

To us, this is nonsense, but our appeal has returned the same verdict. Surely it is our intention for the property not what the advertiser suggests to do with it!?

So we're considering applying with another mortgage company, although are we just going to run into the same problems!?

That would leave a bridging loan to buy the lot, then to try and get a mortgage on just the house and immediate garden, although perhaps this isn't even guaranteed and then we hit more issues.

Any thoughts?
Thanks

 

[Gordon - Commercial Finance]

I would have thought you will get the same result from another lender, as it actually sounds like that's a surveyor's view on it. You could potentially ask the opinion of another surveyor?

I would be having a very frank discussion with the agent that's selling this plot. They're supposed to be the experts no? If they're advertising something for sale that no one is going to be able to buy, then they're clearly thicker than most estate agents (and that's saying something!) so they need to get their act together. Its not like they can just say ok fine we'll sell it to someone else - every other buyer is going to have the same issue.

 

[Red456]

Thank you Gordon for looking at this!
It seems it would have been wise early on to point out to us that a traditional mortgage would be unlikely. We are set on this property now and it's frustrating that finance is the problem.

 

[Gordon - Commercial Finance]

Wait hang on - I’ve just read back through some previous posts. Wasn’t the PP just at outline?

If so then the surveyor or whoever has judged it to be un-mortgageable has their ar$e out the window (if you’ll pardon the expression).

 

[Red456]

Sorry for delayed reply - just trying to sort these crazy kids out before bed. They're wild this evening.

Yes the PP is only outline!

I had to google the out the window expression... not heard that one before although assumed what it meant. Well I'm glad you have that opinion! Maybe there is hope elsewhere.

 

[Gordon - Commercial Finance]

I had to google the out the window expression... not heard that one before although assumed what it meant. Well I'm glad you have that opinion! Maybe there is hope elsewhere.

I think it’s only really an expression here in Scotland among us uncivilised....

 

[NortonBishop]

...... the site is listed on their annually produced list of land earmarked for development.

I don't think it was established that the site actually even had outline planning.

Has it, Red456? That is, an actual consent saying, "Outline Planning Permission granted" not just a listing as "earmarked for development"?