Self Build Mortgages
The main difference between a self build mortgage and a standard house purchase mortgage is that funding is released in stages as the build progresses, rather than as a single amount.
With a standard mortgage you will receive the money to fully complete the transaction in one go. However, with a self build mortgage, you receive the loan in installments. This is to reduce the risk taken on by the lender, as many things can go wrong on a huge project like building your own home.
In your application you will provide a detailed plan for how you will go about building your own home. This should be done in a way to give the self build mortgage provider a strong idea of how the project will will progress and confidence that the mortgage funds are in good hands and can be repaid.
At every stage of a self build mortgage payment going out to you and your project, a property valuer will usually visit the building site to check the work has been completed and is on track with the project plan. This is known as a stage inspection.
Usually the money is released after a stage of the self build project has been completed. Detailed below are the stages funds are released.
However, some self build mortgage providers provide the money at the beginning of each stage, so you can provide cash up front to buy the materials and hire the required trades people in advance of the project starting.
- Arrears: This is the most common. Payments are released after each stage of the project is finished. This kind of self build mortgage is better for people who have more capital available to pay for the initial costs before it is reimbursed.
Advance: Funds are released at the start of each stage, making funds available when the bills for site Labour and from suppliers for materials are due, removing the need for any short-term borrowing which can be more expensive. This type of payment helps with cash flow and is better for people who have less money available to fund the project. However, there are less lenders available that offer this facility.
Compared to standard residential mortgages, self build mortgages have a higher rate of interest on them as they come with added risk to the lender. It makes sense to plan your self built home project carefully and use the relevant expertise provided by the architect and quantity surveyor so that it improves your chances of getting a better self build mortgage deal.
With a standard mortgage you could put down a deposit of around 10% to 20%, but with a self build mortgage, you need to provide more of the deposit up front.
That means you could need around 25% of the cost in the form of a deposit. In some cases you will need more than that, up to 50% depending on how the lender assesses the risk of the project