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Self Build Mortgages
Mortgages for self build are a specialist product and many lenders do not offer them. However the self build mortgage market has expanded considerably in recent years and so as long as your project is correctly planned and presented, we should have little difficulty in obtaining a mortgage for you.
The major difference between a self build mortgage and a conventional house mortgage is that with the self build version you will receive your mortgage funds in several stages as your house build progresses compared with a single lump sum. Within this overall structure there are a number of variations.
How do Self Build Mortgages work?
A self build mortgage may cover the purchase of the building plot (depending on the lender). For the build itself, the mortgage will be paid to you in 4-6 stages which coincide with completion stages of the build (eg completion of the foundations). There are two main types of stage payment, the difference between them being in the timing of the stage payments.
Arrears-Based Mortgage - With arrears based payments, you will receive the stage payment after the stage is completed. This is safer for the lender but may cause you cash flow difficulties unless you have sufficient funds of your own.
Advance Stage Payment Scheme - With the Advance Stage scheme you receive your stage payment before you commence a stage. Due to the added risk to the lender, this type of mortgage is usually more expensive.
Most lenders offer the arrears based scheme although an increasing number now offer the advance payment scheme. If you have sufficient personal funds and/or a very understanding builder, you will generally find it cheaper to go for the arrears method.
How much can I Borrow
The amount you can borrow for your self build will vary from lender to lender. Some will only allow you to borrow for the build itself, others will offer a mortgage for both the building plot and the build. You can borrow as much as 95% of the cost of the land and build with some lenders, although many will not lend more than 75%. Remember that if you borrow a high percentage of the cost, it is likely that you will have to pay a higher interest rate.
Mortgage Providers
There are a range of self build mortgages in the UK . Some of these providers only deal with the self build market, but the majority are high street lenders. A few of the providers only deal with a niche of the self build market, such as lenders focused on green self build.
Other funding options
Not everyone wants, or needs a mortgage. You may be able to fund your build in other ways. For example, if you already own a house with substantial equity, it may be cheaper to re-mortgage your house with a larger mortgage and use this to fund your self build. A re-mortgage on an existing property should work out to be less expensive than taking out an equivalent self build mortgage. You may also wish to consider selling your existing property and moving into rented accommodation or a caravan on site.
