Buy land with a variable loan?

Hello,

We will most likely have the opportunity to buy a developer-free plot without broker fees in spring 2021. The purchase price will be around €80,000. By then, we will have €40,000 in equity and can also pay the additional costs.

We are not in a hurry with the house construction. My first idea would be to finance the plot with a variable loan using the €40,000 equity. Then wait at least 12 months / repay some already to pay the land transfer tax only on the plot purchase, and then convert the variable loan into a normal annuity loan for the house construction.

Do we have any chances of good conditions for the second loan at all? Will banks evaluate us for the second loan as if we had no equity? Or will the already repaid loan portion (say €45,000) be considered as equity?

Thanks for your help

Do banks then assess us for the second loan as if we had no equity? Or is the already repaid loan portion (say €45,000) considered as equity?

Of course, the property value is included in the overall calculation. And thus you also have equity – the amount will depend on the bank's appraisal.

Then wait at least 12 months / pay off something in advance to pay the real estate transfer tax only on the land purchase

As long as the land is not with a developer and not tied to any home building company, you only pay the real estate transfer tax on the land, no matter when you build.

The thing with: "We can wait" depends on the savings rate. If it is higher than the increase in construction costs, you can wait. But if it is lower, then effectively you will pay more next year than if you built right away.

? As long as the property is without a developer and not tied to any home construction company, you only pay the real estate transfer tax on the property, no matter when you build.

I have now read several times that there should be a so-called shame period of at least 12 months between the purchase of the property and the house construction contract; otherwise, the tax office sees a connection and wants the real estate transfer tax for the entire package (property + construction)?

Of course, the property value is included in the overall calculation. And thus you also have equity - the amount will depend on the bank’s valuation.

Okay, let me set up a quick example to make sure I understood you correctly:

We buy the €80,000 property and contribute €40,000 equity to the financing.
After one year, an additional €5,000 repayment has been added to the €40,000 equity.

We now want to build a house for €250,000, so we take out an annuity loan for €330,000.
We redeem the variable loan and the new bank assumes the mortgage.
The new bank now calculates the annuity loan as if we had €45,000 equity. (Let's assume the bank values the market value of the property the same as the sales price).

Is that correct?

Or would the new loan only amount to €285,000?

I have already read several times that there should be a so-called shame period of at least 12 months between the purchase of the land and the house construction contract, otherwise the tax office sees a connection and wants the real estate transfer tax for the entire package (land + construction)?

Nonsense. You buy from and build with completely independent parties. So only real estate transfer tax on the purchase. That has always been the case.

We buy the €80,000 land and bring €40,000 equity into the financing. After one year, in addition to the €40,000 equity, another €5,000 repayment has been added. We now want to build a house for €250,000, so we take out an annuity loan of €330,000. We pay off the variable loan and the new bank takes over the land charge. The new bank now calculates the annuity loan as if we had €45,000 equity. (We assume that the bank values the market value of the land the same as the sale price). Is that correct? Or would the new loan only be €285,000?

Make it easy for yourself and create a financing plan with use of funds and source of funds (status in one year): Use of funds Purchase land €80k House construction €250k total €330k Source of funds Equity €45k Variable debt €35k Fixed debt €250k (or €285k if variable loan is paid off) Although €250k for house construction is probably wishful thinking.