Subdivision mortgage question

So just after some advice or if anyone has done this.
What is involved if I have a mortgage with a bank and am going to subdivide that property.
I’m hoping to use a different lender for the build of a new house on the back of the original section.
What do I need to tell the original lender if I’m planning to do this? They will still have an interest in the property right?
Anyone done this before?
Thanks

 

Two aspects. The mortgage and the loan.

You will need to split the existing loan into the relevant portions, I have written a tax tip on this here in tax section and you Will have to discharge the mortgage on the block you are moving to the new lender. To do this u will need to subdivide first.

 

Ok thanks for that.
Right so I need to just go ahead and subdivide then do all this other stuff. Will look up the tip
Chur

 

Sub-divide, clear mortgage on subdivided block and you free to pick any lender!!...

Cheers,

 

Existing bank will need to consent to the subdivision - never had an issue with this as each time the two blocks increase the overall value decreasing the LVR/risk to the bank.

 

Yeah I will need to inform the original bank either way and get consent from them as they have a financial interest on the property right?
Apparently the council is saying I need to build first then I can subdivide.
Kind of traps me with original bank

 

Part of the original loan is fixed interest over 5 years too. But that is getting close to it’s end

 

Existing lender approves the subdivision, this should be fine as the value rises. You'll then likely have one loan with two titles.
You can then adjust the existing loan on existing property so its on one title rather than both (can be done at discharge stage, where they'll make sure the equity position holds).
Then refi the other title.
In short, can be done, few steps to it

 

And since you now have two assets its important that the original loan is split too. Not only this you will need to apportion the original cost of the property into two portions and may need a valuer to assist that proces. It nomral to ask them to apportion the original acqusiition cost into the two portions - ie One new lot of land, no build + existing land and bldg. Important you cease thinking of the property as one. Its like unjoining conjoined twin for tax and for loans. Then refinance on same % basis too. Otherwise its a blended loan. By splitting the two loans then the specific interest for each portion can be individually determined.

Councils sometimes do have a simple subdivision process that requires construction to be completed before they will split the lots for land titles. Other times land alone can be subdivided. Just depends on zone and local govt regs.

 

I wouldn't recommend this usually. I would suggest separate the loan portions relating to each property and then split the loan with the loan relating to property A being secured against property A and the same with B.

 

Right so yeah the council definitely will not let us subdivide an empty space. clears up the question a bit, but thanks everyone.
I will have to use one lender till the process is complete then make sure the two houses are not cross collateralised at the end.
Perhaps split lenders at the end.

 

What council is the property in? Have you got development approval? What has council said is the reason for not allowing sub before construction?

In most situations councils in melb will allow sub before construction to occur for a simple two lot sub, as long as you get development planning permit first, have the approved development linked to the new titles as a restriction or section 173 agreement, and have services ready for connection for both the new lots.

Have you been speaking to a surveyor/architect/planner?

Regards, Land surveyor.

 

Hi
Banyule
Yes we have DA to build 3 bed house in backyard. My wife talked to council and they said we need to construct first. There may be a way around it but I haven’t really dug into it much.
It’s not particularly important when we subdivide, it just constrains is to a single lender during the building phase, we have a fixed term loan with our bank already so it’s possibly restrictive there anyway.
Would cost quite a lot to just provide the connections as we are going to have to pull up the driveway to do this and it’s going to be good to ibclude that cost in the mortgage. Yes all surveys are done, architect Has been incorrect about what he council will approve.
The last thing I want is more delays with council...

 

Thats good news that you have DA and are this far along. If you do want to sub first then this is what I'd do in your shoes.

Have a chat to your surveyor (the surveyor that will be handling the subdivision for you), ask them to contact council to see about subdividing first. When your wife called she would have been put onto the duty planner, did she speak to only them or was she put through to someone else who looks at these type of applications? I ask because the duty planner doesnt always give the correct info, or there may be room to negotiate that they arent aware of. Your surveyor will know the subdivision officer and planners who look at these types of applications and can ask them directly, and possibly negotiate a solution for you to allow sub first if they are hesitant.

 

You can subdivide first. You will need a 173 agreement which is a legal caveat on BOTH lots.
After construction you can get these removed but depending on what’s involved it could be a hassle. I have just left mine and it actually came in handy when it came time to do my stormwater.

With that said it comes at a cost (allow 2k) and ofcourse more time.

I wouldn’t go out my way to do this if I had the funds available to subdivide after construction though. It would be far simpler.
I am unsure what the preference is to construct with a different lender? If anything though I would be looking to just refinance everything to them.