Self Build Mortgages

Self-Build Mortgages

Self-build mortgages are becoming increasingly popular due to the interest in people wanting to rebuild a home or buy land and build their dream property on it. 

What is a self-build mortgage?

If you are planning to build your own home, then a standard residential mortgage will not be sufficient. You will need to apply for a self-build mortgage, which is a specialist type of mortgage that funds a property you are going to be building yourself. 

The property doesn’t have to be built from an empty piece of land – self-build mortgages also apply to situations where you are knocking down an existing property and rebuilding it. 

How does a self-build mortgage differ from a traditional mortgage?

The nature of both mortgage types offer one substantial difference. With a traditional mortgage, you essentially borrow one lump sum of money to fund the purchase of a home but with a self-build mortgage, the money you borrow is released to you in stages. 

There are some similarities between the two, as with both types of mortgages a lender will be assessing your affordability in exactly the same way; by looking at your income and outgoings, along with the relevant paperwork such as payslips and bank statements. The location of the property is generally considered by lenders in both types of mortgage applications, when it comes to them deciding whether it’s appropriate to lend to you. 

What is the process of getting a self-build mortgage? 

The first stage in the self-build mortgage process is finding a plot of land you’d like to build your property on. Once you have found the land, you will then need to secure planning permission in order for you to build a property there in the first place. 

An important next step is to assess your cash flow and whether you are able to afford for the project to start. It’s imperative you map out a realistic budget for the house you would like to build as it’s common for projects of this magnitude to exceed the initial costs you plan for if you aren’t clear on your budget from the outset. 

You will then need to find an architect and work out design and material costs by obtaining quotes – which will help you be accurate with your budgeting. 

You will also need to have the right insurance in place, such as site insurance and structural warranty throughout the building process. 

After this, you can reach out to a mortgage adviser who can start looking at the different lenders that are available to you based on your personal circumstances and requirements. 

The Build

There are generally six stages involved with a house build:

  1. Purchase of the land
  2. Cost of foundations
  3. Wall plate level/timber frame kit erected
  4. Wind and water tight
  5. First fixing
  6. Second fixing to completion

There are two different types of self-build mortgages, which determine where in the building process (outlined above) the mortgage lender will release the money:

Arrears – where a valuer will come to your building site after each stage and the funds they deem necessary at those points will then be released to you from your mortgage lender.

Advanced – as the name suggests, this is where you get your money in advance of each stage, so the money is then available for you to use before the building work begins. 

Do you need to sell your existing home while you build your new home? 

It’s naturally common for people to be living in their current property when they decide they then want to build their own home on a piece of land, therefore, you are still able to secure a self-build mortgage on a property while you are living in your existing home. 

How much can you borrow with a self-build mortgage? 

As is the case with all mortgage types, the amount you can borrow will differ from person to person, but generally, self-build mortgage lenders offer between 80% and 90% of the building cost and you can also borrow on the land cost too. 

Can you do interest only on a self-build mortgage? 

As is the case with a standard mortgage, there are interest only and repayment options available on a self-build mortgage. 

With some lenders, you can even opt for an interest only option initially to help you save costs while you build the house, then when the house is complete you can move to a more competitive rate on a repayment mortgage. 

How long does the self-build mortgage process take?

The mortgage process length will differ depending on your personal circumstances, but generally it can take anywhere between 8-12 weeks for you to receive a self-build mortgage offer. 

We have guides available to help you with the initial stages of a self-build mortgage which we send over to all our clients and answer any initial questions. 

Once you’ve found your land, your planning permission is secured and your property plans are in place, we will then work to secure you a suitable lender for your self-build mortgage.