How a self build mortgage works
With a house purchase mortgage the money is released as one lump sum on completion of the purchase, but with a self build mortgage the money is released in stages. A self build mortgage can finance the building of your own house by providing an initial loan to buy the land, and further loan instalments as different stages of construction are reached. These are typically:
- Purchase of land
- Preliminary costs and foundations
- Wall plate level
- Wind and watertight
- First fix and plastering
- Second fix to completion.
Traditionally self-build mortgages have paid out funds for these stages in arrears, so that self builders have had to find the funds for each stage upfront. However, an increasing number of lenders are now prepared to pay out in advance of each stage, indemnifying themselves against any potential losses, whilst easing the cash-flow burden for the self-builder.
The maximum loan with a self build mortgage
The maximum loan varies between lenders but is generally up to 75% of the cost of the land and build costs - although there are exceptions. This means a sizeable deposit will be necessary.
Mortgages for self build - what's on offer
Due to the growing interest in self-build, an increasing number of lenders now offer self-build mortgages and it should be possible to choose from a range of fixed and variable rate products. Because they may be considered specialist mortgages, some lenders may charge a slightly higher rate of interest than normal, whilst increased competition amongst lenders means that others may be prepared to offer exactly the same interest rates as on their standard mortgage products.
Points to note
Some lenders may only be prepared to lend if your house is to be professionally designed and built for you, rather than by yourself, and the builders are insured to cover any issues that may arise during and after construction. If they allow you to oversee the project yourself, they will require that an architect or National House Building Council (NHBC) inspector confirms that each stage has been completed to their satisfaction. In any case, they will they will only offer a mortgage if they approve your plans and estimates, are satisfied with any relevant planning consents, and believe that the timescales are realistic. Many lenders will require you to complete the project within a specific period, usually 24 months.
Mortgage Dimensions makes finding the right self build mortgage easy for you...With access to specially designed self build mortgage products from many of the UK's leading banks, building societies and specialist lenders, including some exclusive deals not available on the high street, it makes sense to take advantage of our expertise and inside knowledge of the mortgage market. Not only can we recommend the self build mortgage product most appropriate to your needs, but we'll look after your application throughout the whole process, from beginning to end, ensuring that everything goes smoothly, with the minimum of fuss and no delay....and there's no fee for out service!
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