Second mortgage

I have a mortgage which represents about three times my annual salary. I want to build a new house in the next few years and have seen a site that I like. I do not want to sell the house I am in at the moment.

The bank will lend me five times my current income, in theory. The remaining two times my salary which I have not borrowed to date would cover the cost of the site.

My question is whether the bank would lend me that money and allow me just to hold the site until I'm ready to build on it. My plan would then be to convert my existing mortgage into an investment mortgage, rent out the house (at current rates and rent levels this works out) and get another mortgage with which to build on the site.

The reason I want to buy the site now, is that it's exactly what I'm looking for, it has planning permission, and if I don't buy it someone else will.

In theory the banks will lend you what they think you can repay on an asset that is correctly valued in their eyes.

That said - credit crunch and the fact that you will be looking for a second mortgage for a property that will not be generating any income for a few years, you may struggle

Easiest way to find out is to go and ask some of them - as we can speculate here till .......

Good Luck with it

abelard said:

I have a mortgage which represents about three times my annual salary.

...

The bank will lend me five times my current income, in theory. The remaining two times my salary which I have not borrowed to date would cover the cost of the site.

My question is whether the bank would lend me that money and allow me just to hold the site until I'm ready to build on it.

Click to expand...

I doubt it but, as the previous poster says, maybe you should just ask?

Key question is whether or not your existing house is of sufficient value to act as security for the total borrowing. If yes, your plan should work.

If no, you may be able to get a mortgage to buy the site but you'll most likely be forced by the lender to start building fairly soon as a condition of the new mortgage. Banks generally don't like having a field as security.

Ok, thanks everyone. LDFerguson, that is useful information - I hadn't realised that a field on its own wouldn't be seen as good security. My existing house certainly wouldn't be valuable enough either. Perhaps I'll just wait for another while then.