Self-Build Mortgages

Self-build Mortgages – How do they work? 

Building your own home can be an excellent way to find yourself the perfect property. There is a lot involved, though, not least the financial side of things. We can help you find a suitable self-build mortgage and make sure you consider everything in your plans.

What is a ‘self-build’ mortgage?

A self-build mortgage is a way of funding a project to build your own home. It’s different from a residential mortgage in that money is given out in stages. 

You can spend the money on anything linked to the build – this might include buying the land, funding building materials and paying your contractor. The money is released at various stages of the build – for example once the land has been bought, the foundations are laid or the building is watertight. 

If you go over budget and cannot complete the next step, your mortgage lender won’t release any more stage payments. This protects them against the risk of funding the project.

What are the benefits and drawbacks of self-build homes?

The main advantage of building your own home is that it’s usually much cheaper than buying a property from a developer. You can also design it to suit your needs perfectly, unlike buying where you often need to compromise. Another advantage is that you only pay stamp duty on the value of the land, not the finished home. 

A key drawback is the challenge of finding a suitable plot, although the Government is trying to make this easier with Right to Build. Another consideration is that you will need to rent somewhere to live while building the property, which will increase the cost. 

A very important factor to consider is that managing your self-build project can be stressful and time-consuming, and you need strong budgeting skills to release sufficient funds at the appropriate time.  

Is it hard to get a mortgage on a self-build home? 

There are fewer lenders offering mortgages to help you build a house, and you will need to meet a number of criteria. How easy it is will depend on your specific circumstances – so talk to a broker to understand whether you are likely to get approval on this type of mortgage and what the interest rates might be. 

How much deposit will I need?

The deposit amounts vary depending on the lender, but typically you will need a deposit of between 20% and 25% of the total build costs.

How much can I borrow? 

You will need to have a clear budget for the build as part of the mortgage application. Make sure you have allowed contingency for unexpected costs. Each lender will have their own specific requirements about who they accept for a self-build mortgage. 

The amount you can borrow will be based on your income, outgoings and size of your deposit.