Knocking Down House - Not Telling The Bank
Discussion
Hey everyone, posting on an alternative account just in case...
I've had planning approved to demolish my knackered old house and replace it with one nearly 4 times the size. I currently have a residential mortgage with a 50% LTV based on the purchase price of the house although the land with planning is now worth considerably more.
I'm considering just knocking the house down and getting on with it without going down the route of a self build mortgage. My reasons are as follows:
I don't need any additional borrowing and have the savings to complete the project. Could also fall back on family if I were to run out for unforeseen reasons.
I'm a self employed builder with a lot of experience. The project will be done with the help of the family business and the only labor costs will be plumbing and electrics. Obviously, I won't have any income for a year but that's not something I'm worried about.
I'm worried that if I start making inquirers to banks, I may end up in a "computer says no" kind of situation and then there's no pleading ignorance if I decide to crack on, if that was ever really an option in the first place.
I'm worried that because I'm doing the build myself, they may decide that only my wife's income can be considered because I'll have no income during the project.
I'm worried that because my estimated build cost will be so low due to minimal labor costs and well sourced materials, they won't take it seriously and will insist on lending more that I don't actually need.
There's also the increased cost of a self build mortgage, the early repayment charge for the current mortgage, and potential difficulty changing back to a regular mortgage on completion due to having no income while doing the build. This is not my primary concern though, my concern is asking bank, bank saying no, and then not being able to just get on with it.
I will obviously be doing everything through building control and getting a structural warranty. Just to be perfectly blunt here, I'm hoping to just get on with it and the bank not find out for the first year, or rather while I'm doing the job, until I have the warranty. Once I have the warranty, I'd still just keep my mouth shut although it wouldn't matter as much at that point.
Has anyone experience with this kind of situation? Maybe someone can talk some sense in to me! It could be that I'm actually worrying about nothing and a self build mortgage will be doable, it could also be that the bank would kill the project before it ever starts and so my best option is to crack on and hope to get away with it, that's what I need to decide.
I've had planning approved to demolish my knackered old house and replace it with one nearly 4 times the size. I currently have a residential mortgage with a 50% LTV based on the purchase price of the house although the land with planning is now worth considerably more.
I'm considering just knocking the house down and getting on with it without going down the route of a self build mortgage. My reasons are as follows:
I don't need any additional borrowing and have the savings to complete the project. Could also fall back on family if I were to run out for unforeseen reasons.
I'm a self employed builder with a lot of experience. The project will be done with the help of the family business and the only labor costs will be plumbing and electrics. Obviously, I won't have any income for a year but that's not something I'm worried about.
I'm worried that if I start making inquirers to banks, I may end up in a "computer says no" kind of situation and then there's no pleading ignorance if I decide to crack on, if that was ever really an option in the first place.
I'm worried that because I'm doing the build myself, they may decide that only my wife's income can be considered because I'll have no income during the project.
I'm worried that because my estimated build cost will be so low due to minimal labor costs and well sourced materials, they won't take it seriously and will insist on lending more that I don't actually need.
There's also the increased cost of a self build mortgage, the early repayment charge for the current mortgage, and potential difficulty changing back to a regular mortgage on completion due to having no income while doing the build. This is not my primary concern though, my concern is asking bank, bank saying no, and then not being able to just get on with it.
I will obviously be doing everything through building control and getting a structural warranty. Just to be perfectly blunt here, I'm hoping to just get on with it and the bank not find out for the first year, or rather while I'm doing the job, until I have the warranty. Once I have the warranty, I'd still just keep my mouth shut although it wouldn't matter as much at that point.
Has anyone experience with this kind of situation? Maybe someone can talk some sense in to me! It could be that I'm actually worrying about nothing and a self build mortgage will be doable, it could also be that the bank would kill the project before it ever starts and so my best option is to crack on and hope to get away with it, that's what I need to decide.
I don't know the exact rules here, but what you've described comes close to or indeed may constitute mortgage fraud.
I would strongly advise (With no background but my sentiment) to not hide things from the bank.
It feels the same as 'if I rent out my house as a buy to let and don't tell my bank, how will they know'.
I would be honest and deal with whatever that means for you. As with all of these things it sounds like it comes down to money (Don't want to incur extra costs).
I am also sure you're not the first person to want to knock down their house and rebuild it.. so no doubt there is a process and precedent to follow.
I would strongly advise (With no background but my sentiment) to not hide things from the bank.
It feels the same as 'if I rent out my house as a buy to let and don't tell my bank, how will they know'.
I would be honest and deal with whatever that means for you. As with all of these things it sounds like it comes down to money (Don't want to incur extra costs).
I am also sure you're not the first person to want to knock down their house and rebuild it.. so no doubt there is a process and precedent to follow.
Blank Name said:
I'm a self employed builder with a lot of experience. The project will be done with the help of the family business and the only labor costs will be plumbing and electrics. Obviously, I won't have any income for a year but that's not something I'm worried about.
If you've got "a lot of experience" why do you need "help from the family business" and why will you "not have any income for a year"?
Panamax said:
If you've got "a lot of experience" why do you need "help from the family business" and why will you "not have any income for a year"?
Presume the family business is his building company and he'll have no income as he'll be building his own house instead of someone else's?Edit to add to the OP - won't be much fun for your partner if you knock the house down then you get busted
Banks generally require notification if there are significant changes to the property, such as demolition, which secures the loan. Not informing them could violate the terms of your mortgage and result in consequences.
Self-Build Mortgage offers greater transparency and follows the accepted norms and regulations. The banks usually release the money in stages, aligned to various phases of the construction, which could work to your advantage by keeping you disciplined on your budget.
If the land with planning permission is worth more, it could positively influence the LTV, potentially working in your favour. This might also allow you to secure a more attractive mortgage rate.
Itt is crucial to follow the regulations and ethical norms, especially as you are in a trade where reputation is key...
Self-Build Mortgage offers greater transparency and follows the accepted norms and regulations. The banks usually release the money in stages, aligned to various phases of the construction, which could work to your advantage by keeping you disciplined on your budget.
If the land with planning permission is worth more, it could positively influence the LTV, potentially working in your favour. This might also allow you to secure a more attractive mortgage rate.
Itt is crucial to follow the regulations and ethical norms, especially as you are in a trade where reputation is key...
Looking at it from the bank's point of view, at the moment they own 50% of your house.
You knock it down on the quiet and have a stroke, or break your back falling off a ladder (It can happen).
What then?
Maybe you could pay the mortgage off, from your own savings, but then you possibly would have no house and no cash.
I would be upfront, you may get away with it but do you feel lucky?
You knock it down on the quiet and have a stroke, or break your back falling off a ladder (It can happen).
What then?
Maybe you could pay the mortgage off, from your own savings, but then you possibly would have no house and no cash.
I would be upfront, you may get away with it but do you feel lucky?
In regards to the income part, that doesn’t matter, as soon as a bank approves a mortgage and the purchase is complete, income changes have no effect.
On the actual project part, as long as the bank is still receiving the mortgage payments, nothing will happen. Technically you’ll be in breach of contract but a) The banks don’t go out and check up on all the houses they have a lean on and b) As long as you are keeping up with your monthly payments, they don’t care.
That being said, I’d make sure you have the means to clear the mortgage if the worst does happen. No bank is instinctively going to try and have you prosecuted from the off, if you are in breach of contract, their first port of call will be to request the remaining mortgage balance be cleared, only after failing to do this would it progress to more serious legal proceedings.
On the actual project part, as long as the bank is still receiving the mortgage payments, nothing will happen. Technically you’ll be in breach of contract but a) The banks don’t go out and check up on all the houses they have a lean on and b) As long as you are keeping up with your monthly payments, they don’t care.
That being said, I’d make sure you have the means to clear the mortgage if the worst does happen. No bank is instinctively going to try and have you prosecuted from the off, if you are in breach of contract, their first port of call will be to request the remaining mortgage balance be cleared, only after failing to do this would it progress to more serious legal proceedings.
The right answer is to get the agreement of your mortgage lender or, as seems within your means from what you have posted, pay off the mortgage and secure some form of finance to fund the build.
If you just got on with it you may very well get away with it but there are risks. The risks are principally if something happens to you or to the works before the build is complete. You could die, you could become incapacitated or the works could be damaged or destroyed prior to completion, leaving you without funds to complete a further rebuild.
Also consider the impact on your ability to raise bank finance personally and for your business in future if your bank finds out that you have breached the terms of your mortgage
Essentially it comes down to your own ethics and appetite for risk.
Finally, to all those posting "the bank owns half your house" - it's a subtle but important point but they don't- they have secured a loan for c. 50% of the property's value on the property
If you just got on with it you may very well get away with it but there are risks. The risks are principally if something happens to you or to the works before the build is complete. You could die, you could become incapacitated or the works could be damaged or destroyed prior to completion, leaving you without funds to complete a further rebuild.
Also consider the impact on your ability to raise bank finance personally and for your business in future if your bank finds out that you have breached the terms of your mortgage
Essentially it comes down to your own ethics and appetite for risk.
Finally, to all those posting "the bank owns half your house" - it's a subtle but important point but they don't- they have secured a loan for c. 50% of the property's value on the property
Gassing Station | Finance | Top of Page | What's New | My Stuff