Mortgage broker Floreat

Knock-down-rebuild, and how the money actually moves

The classic Floreat project is buying a tired house on a large block, removing it, and building a new one. The land is doing the work, and the house on it at purchase is close to incidental.

Lenders fund this as a construction loan. They value the finished house as if complete against your plans and a fixed-price contract, then release funds in stages as the build progresses.

1. 1

   The land is valued as land

   If the existing house is coming down, its condition matters little. What matters is what the block is worth and what it will take.

2. 2

   Plans and a fixed-price contract go to the lender

   An as-if-complete valuation needs real documents. Architect-designed one-offs get more scrutiny than a builder's standard plan.

3. 3

   Demolition and the slab come first

   Early stages are funded from your contribution before the lender's money starts flowing. Plan the cash for that period.

4. 4

   Progress payments run to completion

   Slab, frame, lock-up, fit-out and completion, with the loan converting to full repayments at the end.

Large loans, and the lenders who write them

Values in Floreat mean many files are large single loans, and lender appetite thins as the amount rises. Above certain thresholds the proportion a lender will advance drops, and a second valuation is often ordered.

Those thresholds are not consistent across the panel. A file that is routine for one lender sits at the edge of another lender's comfort, and that difference decides both the answer and how long it takes.

Income at this end of the market is often self-employed, or arrives through a company or trust. Lenders read those structures very differently, and picking one that reads yours well is worth more than a small rate difference.

• Reduced maximum lending ratios once the loan passes certain sizes
• A second valuation on higher-value properties, at the lender's discretion
• Referral to senior credit, which adds time rather than difficulty
• Company and trust structures assessed differently by each lender
• Existing investment debt counted against you, sometimes at a punishing rate

Downsizers, equity and staying in the area

The other regular Floreat file is the opposite of a build. Owners who raised a family in the house now want something smaller nearby, without leaving the area.

That is a sequencing exercise more than a borrowing one. Selling first is safer and buying first is easier, and bridging finance is what covers the gap when the two do not line up.

Equity release also comes up, whether to fund a renovation instead of a move, or to help a child into their first property. Both are possible and both need care, particularly where a guarantee is involved.

• Construction finance for knock-down-rebuild and major renovation
• Large home loans placed with lenders whose policy suits the amount
• Equity release funded against the land value you already hold
• Bridging finance where buying and selling do not align
• Expat home loans for Floreat owners posted overseas