Can I use a site as a deposit for a mortgage?
Q&A: Dominic Coyle answers your personal finance questions
‘I am a first-time buyer and am looking to self-build a small two-bedroom home with my fiance on a small corner site.’ File photograph: Getty Images
I am a first-time buyer and am looking to self-build a small two-bedroom home with my fiance on a small corner site which is in my name. The value of the site is €100,000.
I am just wondering if we are eligible to use the value of the site against the deposit of the overall mortgage? We are also aware of the Help-to-Buy scheme and both of us meet the requirements to avail of it.
Ms AG, email
Everyone is very coy about putting this down in writing but there is nothing to stop you using the site as your deposit. Site costs are among the bigger items in any build project, and as the mortgage loan-to-value (LTV) is assessed on the basis of the final value of the property when built (including the value of the site), the site should certainly be accepted as the deposit that you are providing.
Of course, I’d expect any lender would want to see that there is planning permission for the site if it was being offered as deposit.
And even then, as always, there’s should and could. Lenders should accept it but there is nothing forcing them to do so. You’ll need to approach them to confirm. And you may find a reduced market of lenders happy to countenance self-build mortgages in general. Apparently, they have had a mixed experience in this regard down the years, including homes that have ended up half-built as money has run out.
Still, all other things working out, I would expect a mortgage lender to accept the site as deposit.
You will certainly still be constrained by the 90 per cent LTV ratio as a first-time buyer, though this clearly should not be an issue if there are no site costs.
More importantly, you will still need to come in at or under the 3½ times earnings cap as set down by the Central Bank. There is scope for exemptions but self-builds might find those more difficult to access. It shouldn’t be an issue for a modest home with no site costs, but you still need to do the sums.
And, as far as I can see, lenders will want any mortgage application to build in a contingency for costs that run ahead of budget. In that respect, lenders may have different views, depending on whether this is truly self-build or whether you are contracting a builder to do the work and oversee the project.
Any mortgage agreed will almost certainly be paid in stages as the building progresses.
In terms of Help-to-Buy, you may be eligible as taxpaying first-time buyers of a self-build, but the €100,000 site value means you might not meet other criteria – including a condition that you must be borrowing at least 70 per cent of the LTV. You might need to consider that if the Help-to-Buy is critical to the success of your plan.
Finally, in case of confusion, you should be aware that for loans under the Government’s Rebuilding Ireland scheme – geared at people earning less than €50,000 (€75,000 for a couple) and in continuous employment but who have been turned down twice for a mortgage – a site will not be considered as a deposit. But I gather you are not looking at availing of this scheme, and shouldn’t have to.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email firstname.lastname@example.org. This column is a reader service and is not intended to replace professional advice.