Self Build Mortgages
3 minute read
Reliable self-build mortgage advice can be difficult to come by in the current mortgage market, as many lenders withdrew from this type of lending in the wake of the banking crisis and credit crunch. However, there are still lenders out there providing mortgages for those who want to build their own homes, and here’s what you need to know.
How is a Self Build Mortgage Different?
Self-build mortgages differ from conventional house purchase mortgages in that the mortgage funds aren’t released as a single sum, but rather in stages as the construction of your house proceeds. Lenders typically allow you to borrow up to 75% of the land purchase price, plus 75% of the projected property value.
Two main types of self-build mortgages exist – arrears and advance stage mortgages. Both types release funds at key stages of construction, for example, completion of foundations, completed up to first-floor level, once the property is watertight, etc. Most lenders will require a surveyor’s report at each stage confirming completion to the appropriate level, so be sure to account for this when budgeting for your build.
Most self-build mortgages release funds on an arrears basis, which means you only receive money after each building stage is completed – this type of mortgage is suitable for people who have savings to invest upfront into the build costs. However, some lenders offer self-build mortgages with an advanced stage system, allowing you to fund construction from the released mortgage advances.
Self Build Mortgage Application Process
The self build mortgage application process can be quite in-depth and time-consuming. Lenders will need to see your property plans and confirmation of planning permission before proceeding, as well as detailed cost projections for the building project. When budgeting, remember to consider your living costs while the property is being built – whether that’s paying an existing mortgage or rent, or temporary accommodation on the build site. Lenders will also take this into account when assessing your mortgage application.
Lenders may allow self-build mortgages to run on an interest-only basis until the final release is completed, at which stage it will revert to a repayment mortgage. You may also be able to switch mortgage product for a better rate after the final stage release. For personalised mortgage advice on self-build mortgages, contact Just Mortgage Brokers. We have years of experience in all types of mortgage applications and can help make sure you get the right deal.