Sammie Ellard-King
I’m Sammie, a money expert and business owner passionate about helping you take control of your wallet. My mission with Up the Gains is to create a safe space to help improve your finances, cut your costs and make you feel good while doing it.
Quickfire Roundup:
If you’re looking to build your own dream home, you will need a truckload of cash and like most of us if you don’t have it lying around then the only other option is a self-build mortgage.
A self-build mortgage allows you to borrow the funds that you need to purchase land and carry out the complete building project.Â
The good news is that there are numerous self build mortgage lenders, so with the right approach and documentation, you could be able to secure the funds that you need.Â
You’ll need to have planning permission granted, and you can expect to pay a larger deposit and be charged higher interest rates than with traditional mortgages.
Self build mortgages typically are required if you’re looking to build your own home.
These mortgage products are different to a standard residential mortgage as the funds released aren’t all in one go: the money is released during different stages of the self build project.Â
This means that you find yourself having the cash flow that you need to pay project costs as and when they arise.
As you read on, I’m going to look a little deeper at self-build mortgages.
You’ll come away with a better understanding of the types of self-build projects, planning permission requirements, lender’s criteria and what to expect in terms of interest rates and mortgage payments.
If you’re looking for a mortgage check out Unbiased. They have access to 1000s of lenders and match you with the right broker for your needs.
Boon Brokers are one of the UKs leading online mortgage brokers. They have a 5-star excellent Trustpilot rating with over 543 reviews.
- No mortgage fees
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- No in person meet ups
Table of Contents
What is a self build mortgage?
As the name suggests, a self build mortgage is a way to borrow money to build your own home.
The funds can be used for the land purchase as well as the building work that needs to take place.
With self build mortgages, there are stage payments. This means that funds are released at certain milestones in the self build project.
The further on you are, the greater the value of your project the lender’s risk falls as there is more security, and less chance of losing money.
The key stages when most lenders will release money are:
- Land purchase
- Planning permission consent, rather than just outline planning permission
- Key stages during the process to cover build costs
- Final release when you have a completed property
What you need to know about a self build mortgage?
If you think that a self build mortgage is the way to go for you, and your plans for your own home, there are certain points that you need to be aware of.
Before you approach a self build mortgage lender, you need to know:
- As part of your self build mortgage application, you’ll need to supply plans for the property. This includes construction drawings. You’ll also need to provide estimated build costs along with the cost of the plot of land. There are numerous online calculators that can help you to your build cost
- Don’t try to save money by borrowing the bare minimum. Ensure that you plan for the unexpected and have a contingency fund
- A self build mortgage will attract higher interest rates than a conventional mortgage. You’ll find that arrangement fees will vary between different lenders
- You may find a self build lender that will lower mortgage interest rates once your project reaches a stage when the house can be lived in
- Using a mortgage broker will help to find the best deals as well as using a mortgage comparison tool. You’ll find that there are fewer lenders when compared to those that offer a conventional mortgage
When will a self build mortgage lender release funds?
When you have a self-build mortgage approved, you’ll have already supplied the estimated build cost.
With mortgage finance a must to get a self-build underway, self-builders will find that the funds are released in stages.
Here’s a more detailed look at stage payments and when to expect them if you’re building a new property:
- When you buy a plot of land with a minimum of outline planning permission, the purchase price is covered (minus your deposit)
- The build project reaches a stage where the substructure is complete
- Wallplate/eaves height – this is the stage just before the roof trusses are added
- Roof completed and is water and wind tight
- First fix
- Second fix
- Certificate of completion
If you’re looking at a self build mortgage for a renovation or conversion project, the stages look like this:
- Funds to purchase the existing structure or existing property
- An inspection and structural survey that comes with estimated costs of the self build works
- Load-bearing elements completed
- First fix
- Second fix
- Certified completion
Which mortgage lenders offer self build mortgages?
There are fewer lenders that offer mortgage products to cover self build project costs.
A mortgage broker can help you to find the ones that offer the best deals, and often it’s building societies that can help.Â
Here are just some of the lenders that can help:
- Buckinghamshire building society
- Bath building society
- Saffron building society
- Halifax bank
Boon Brokers are one of the UKs leading online mortgage brokers. They have a 5-star excellent Trustpilot rating with over 543 reviews.
- No mortgage fees
- Whole of market access
- Free online consultations
- Directly authorised by the FCA
- No in person meet ups
What are the types of self build mortgage?
There are 2 main types of self build mortgage:
- Arrears mortgages: If you have a big lump sum to get your self build underway, this is probably the best self build mortgage option for you. You pay upfront for each stage and, once they’re complete, the mortgage lender effectively refunds you. If you need help to cover stages before payment is made, bridging loans are an option
- Advance mortgages: These mortgage deals see you getting funds upfront for each stage. You get the funds for the first stage and, once this is completed you get the funds for the next, and so on. This can help to manage your cash flow throughout the project
The self build mortgages products
When you get a self build mortgage, the products that you’ll come across include:
- Discounted rate
- Standard variable rate
- Fixed-rate
- Tracker
- Offset
Remember, you’re more likely to get access to the best mortgage deals by using a mortgage broker.
How much can be borrowed with a self build mortgage?
Self builders wanting to borrow money will have to provide details to mortgage lenders to find out how much they can borrow. The amount lent will depend on:
- The applicant’s unique financial circumstances
- Income
- Outgoings
- Existing debt
Lenders will also consider your existing home and the costs associated with living there while it remains your main residence during the project.
Boon Brokers are one of the UKs leading online mortgage brokers. They have a 5-star excellent Trustpilot rating with over 543 reviews.
- No mortgage fees
- Whole of market access
- Free online consultations
- Directly authorised by the FCA
- No in person meet ups
Self build mortgages and lender's criteria
Each self build mortgage provider will have its own criteria. Some will have restrictions on certain construction methods and every lender will have its own calculation that it carries out to ascertain affordability.
A self build mortgage is covered by the Financial Conduct Authority (FCA) and if a lender believes that it’s unaffordable, it won’t be granted.
Affordability will also be considered when it comes to any bridging loan application
Self build mortgages pros and cons
Self build mortgage pros
- A self build mortgage allows you to build your own home without having to fund all of the works yourself
- When the build is complete, you can move away from self build mortgages and find a better deal with a remortgage
- The Help to Build Scheme can assist
- Stamp duty can be lower as you’ll pay on the land when you buy it, not on the completed property. You only pay duty if the land is worth at least £125,000
Self build mortgage cons:
- Self build mortgages typically attract higher interest rates
- You’ll usually need a larger deposit. A minimum of 25% is needed by most lenders
- There is a need for more paperwork and additional supporting documentation to satisfy the lender at each stage. Without this, there will be issues with releasing additional funds
Final thoughts on self build mortgages
Unless you’re in a position where you have the cash to fund your new build yourself, a self-build mortgage is a must.
You’ll find that building societies are generally the go-to lenders and will have more options than your typical high-street bank
Remember, to get the best deal, make sure that you compare self build mortgages by using a trusted calculator.
It will always worth be seeking the advice of a mortgage broker who can help you to find the mortgage products that work overall for your total loan amount.
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Disclaimer: Content on this page is for informational purposes and does not constitute financial advice. Always do your own research before making a financially related decision.
