Knocking down a mortgaged house

sigma · 9 Feb 2011 at 17:47

Is the mortgage not secured on the house being the asset though, so surely removing the asset isn't legal?

Would it not be easier to buy the house outright first then knock it down and mortgage the new build?

Requires substantial funds though, but you'd only mortgage for the amount it cost to build the house, not its value, so you could recover some of the initial outright payment if you sold the house.

Is that too simplistic?

Raymond Lin · 9 Feb 2011 at 17:48

Remember that unless you own the house mortgage free, your bank or building society owns it.

What you can do, is explain exactly what you want to do with your bank, with plans, planning permission etc, that way you have a projected value of the new building. You are basically transferring the equity onto the new build. They might want some collateral though, like a second home that you have.

Don't knock it down and hope no one notice, that's just absurd lol.

AtticusFinch · 9 Feb 2011 at 17:50

The loan document will susually pecifically prohibit actions by the borrower to significantly devalue the property (by destryong the house etc) - in effect you are frustrating the terms fo the contract and will owe all the money and have breached the contract.

Definitely do not do this without reading the specific terms of any loan offer to make sure you're OK first.

AtticusFinch · 9 Feb 2011 at 17:54

Not so

Raymond Lin said:
Remember that unless you own the house mortgage free, your bank or building society owns it.

But I agree with the tenor of what you're saying

. The bank doesn't own the property when there's a mortgage on it you do. The bank is simply making a personal loan to you as a borrower.

Over the top of the loan document is a registerable instrument against title in the form of a mortgage. That doesn't mean the bank owns it - simply that it has a right to assert a beneficial itnerest in the property and a contractual right to recover the sums as a priority over other creditors of the borrower and those who also have registerable interests against the property used as collaterol for the personal loan to which the mortgage relates.

The bank as lender does retain certain rights throughout the currency of the loan/mortgage as noted above.

Raymond Lin · 9 Feb 2011 at 17:55

AtticusFinch said:
But I agree with the tenor of what you're saying. The bank doesn't own the property when there's a mortgage on it you do. The bank is simply making a personal loan to you as a borrower.

Over the top of the loan document is a registerable instrument against title in the form of a mortgage. That doesn't mean the bank owns it - simply that it has a right to assert a beneficial itnerest in the property and a contractual right to recover the sums as a priority over other creditors of the borrower and those who also have registerable interests against the property used as collaterol for the personal loan to which the mortgage relates.

The bank as lender does retain certain rights throughout the currency of the loan/mortgage as noted above.

I'm on the train with my iPad so I'm just jumping to the just of it

borich_planner · 9 Feb 2011 at 18:23

You will need planning permission for the rebuilt

Mercenary Keyboard Warrior · 9 Feb 2011 at 18:25

In modern times I have seen the Bank/BS as a joint named owner on the land registration documents.

TBH whilst not strictly legit assuming it all goes well they shouldn't have any issues.
If it went **** up and you defaulted and they failed to realise an asset equal to the value of the loan they would pursue you for the balance (just as they would on a house that went negative equity before being repossessed)

Jez · 9 Feb 2011 at 18:32

borich_planner said:
You will need planning permission for the rebuilt

The quandry is re financing, not permission

robskinner said:
In modern times I have seen the Bank/BS as a joint named owner on the land registration documents.

TBH whilst not strictly legit assuming it all goes well they shouldn't have any issues.
If it went **** up and you defaulted and they failed to realise an asset equal to the value of the loan they would pursue you for the balance (just as they would on a house that went negative equity before being repossessed)

I think this is the crux of it. I do not see that they would even know assuming it all went to plan. You'd simply re-mortgage post build to another normal product.

If they did find out in the event of a default, i guess there is nothing they could do other than to persue.

Raymond Lin · 9 Feb 2011 at 18:39

Jez said:
The quandry is re financing, not permission

I think this is the crux of it. I do not see that they would even know assuming it all went to plan. You'd simply re-mortgage post build to another normal product.

If they did find out in the event of a default, i guess there is nothing they could do other than to persue.

How do you get funds for the new build if you need a mortgage in the first place?

Jez · 9 Feb 2011 at 18:49

Raymond Lin said:
How do you get funds for the new build if you need a mortgage in the first place?

From your bank account, as you have kept enough back by financing a chunk the initial property purchase.

Raymond Lin · 9 Feb 2011 at 18:53

Unless the house is an absolute hole, hence not worth much, by doing what you are doing it seems like an expensive way to get a house that you want. I assume you REALLY want that location?

Burnsy2023 · 9 Feb 2011 at 18:56

I think this opens you up to a number of criminal offences too. Criminal damage and fraud being two of them.

Burned_Alive · 9 Feb 2011 at 19:00

Jez said:
Oh i see, you mean if they found out somehow. I almost want to phone a regular lender and put the situation to them our of curiosity, but i cant imagine how i would speak to anybody who would not simply be a call centre worker reading off a script

Probably would be better off going into a branch to talk to a mortgage specialist, or even going to an IFA.

Jez · 9 Feb 2011 at 19:22

Raymond Lin said:
Unless the house is an absolute hole, hence not worth much, by doing what you are doing it seems like an expensive way to get a house that you want. I assume you REALLY want that location?

Its an extremely common thing to do, planning in a lot of areas is virtually no go. The usual is knock down and replace. A huge number of houses in my area have gone this way to make way for larger ones, as plot sizes tend to be large, but with small houses on them.

borich_planner · 9 Feb 2011 at 19:43

A street in the borough where i work people pay 800k for a plot with a house only to demolish it and build something bigger...

Raymond Lin · 9 Feb 2011 at 20:09

Jez said:
Its an extremely common thing to do, planning in a lot of areas is virtually no go. The usual is knock down and replace. A huge number of houses in my area have gone this way to make way for larger ones, as plot sizes tend to be large, but with small houses on them.

I know it's common, I seen it lots too but the buyer normally buys it out right.

And you didn't answer my question.

psd99 · 9 Feb 2011 at 20:17

exactly at OP why do this? surely this is not financially adequate

EVH did something similar to this (knocked down house and rebuilt)

wonder what he did for his mortgage.....

starfighter · 9 Feb 2011 at 20:32

Fire.

Raymond Lin · 9 Feb 2011 at 20:37

psd99 said:
exactly at OP why do this? surely this is not financially adequate

EVH did something similar to this (knocked down house and rebuilt)

wonder what he did for his mortgage.....

People normally do this when the house is really old and not structurally sound or the house on the land is rubbish. Basically when the house isn't worth much. If it's that then it won't cost much do buy, if the house is half decent then it will cost a lot to buy anyway, then when you knock it down and build a new one you lose a lot of equity in the old house. You then have to make sure the new build is vastly superior to the old one and cheap enough to build or you can easily be in negative equity or out of pocket,