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Self-Build Mortgages

Building your own home is becoming increasingly popular, and there are specialist mortgages available to help purchase the land and fund the associated construction costs. These apply whether you intend to carry out your own build project or take on a contractor to complete the construction to your specification.

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Building your own home is becoming increasingly popular, and there are specialist mortgages available to help purchase the land and fund the associated construction costs.

These apply whether you intend to carry out your own build project or take on a contractor to complete the construction to your specification.

Finding a Self Build Mortgage UK

The difference between a self-build and a standard residential mortgage is that a self-build mortgage provides funding in stages at each stage of the build process.

Each lender has its own process, but typically an initial lump sum is released to purchase the land, and further instalments are released at crucial stages of the build.

For example, a proportion of the mortgage is released when each floor is completed. The following payments are released when key parts of the structure are finished, and the build is completed.

These instalments are referred to as tranches. Lenders either release each tranche after the next build stage has been finished or less commonly beforehand.

Usually, an independent surveyors report will be required to verify the build stage that has been achieved

The following topics are covered below:

Types of Self Build Mortgage

How Do Self Build Mortgages Work?

Finding the Best Self Build Mortgages for a Land Purchase

The Pros and Cons of a Self Build Mortgage UK

Self Build Mortgage Rates

Choosing a Self Build Mortgage

Self Build Mortgage Already Own Land

Types of Self Build Mortgage

Some mortgages provide funds upfront to purchase initial materials or release down payments to contractors. It is vital to consider your cash flow requirements throughout the self-build project before deciding on the right mortgage lender for you. Self-build mortgages are available for any type of self-build, generally brick or timber frame buildings. If you are considering an innovative project or using unusual materials, you may require a niche lender.

How Do Self Build Mortgages Work?

Examples of the stages at which each tranche of funding is released could include:

  1. The purchase of the plot of land
  2. Initial completion of foundations
  3. Framework erected
  4. Property is made water and windproof 
  5. The initial interior is completed
  6. Project is completed

Finding the Best Self Build Mortgages for a Land Purchase

Mortgages are available to purchase a plot of land and are usually dependant on the right planning permission being in place. Lenders can finance varying values of the land – typically between 50-75% of the value of the plot. If you have existing finances available to fund part of the project, it is usually most cost-effective to save these funds for the building project, since this helps to reduce the number of tranches required and expedite the mortgage process whilst minimising fees.

The Pros and Cons of a Self Build Mortgage UK

Advantages:

  1. Usually lower cost to build your property than to purchase a ready-made equivalent 
  2. Lower stamp duty, since this is payable only against the land purchase
  3. No stamp duty is payable if the plot of land costs less than £125,000

Disadvantages:

  1. Mortgage fees and interest rates can be higher than standard residential mortgages
  2. A higher deposit is required, usually from 25% of the build project cost
  3. Detailed plans and planning permissions are required for mortgage lenders for self-build mortgages
  4. Additional accommodation costs during the building project

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Self Build Mortgage Rates

Depending on the lender usually self-build mortgages carry higher interest rates than residential mortgages, so choosing the right scheme is essential. The ideal scheme will not carry penalties, and allow you to remortgage once the build is complete. Using a mortgage advisor, such as the team at Revolution Finance Brokers, has the advantage of providing access to the most competitive schemes on the market, as well as the negotiating power to achieve the most advantageous rates and terms.

Choosing a Self Build Mortgage

Self-build mortgages are a specialist product and should be selected from the smaller number of lenders who offer this type of mortgage. Here at Revolution Finance Brokers we have extensive experience in securing self-build mortgages, and would be delighted to help you get your project off the ground! If you aren’t sure which lender to choose, don’t know what sort of self-build mortgage is right for you, or need support in planning the budget for your dream home, give us a call today!

Self Build Mortgage Already Own Land

If you already own a parcel of land, you can usually still get a self-build mortgage. The main difference is that you won't need to apply for any borrowing to purchase the land itself and purely for the construction costs.

Lenders will usually want an updated valuation to know what the security is worth and check whether you have planning permission in place.

It's often challenging (if not impossible) to get past any stages of a mortgage application without the requisite permission. We'd also advise completing the planning approval process before the valuation - land with planning consent is often worth considerably more than a comparable asset with no permissions.

If you aren’t sure which lender to choose, don’t know what sort of self-build mortgage is right for you, or need support in planning the budget for your dream home, give us a call today.

FAQs

What Are the Advantages of a Self-Build Mortgage?

Building your own home comes with the advantages of being able to design, create and construct exactly the home you have in mind. It can also be significantly cheaper than buying an established property. Another benefit is the lower stamp duty payable, since this is liable only against the cost of the land, and not against any of the costs of the build or materials.

What are the disadvantages of a self-build mortgage?

The main difference between traditional and self-build mortgages is that self-build mortgages deliver portions of funding at key stages of the project, rather than all at once. The interest costs associated with self-build mortgages also tend to be much higher.

Is a Halifax Self Build Mortgage the Best Option?

While self-build mortgages tend to be more expensive than standard mortgages, the actual rates and terms offered will vary between lenders and applicants.

Given the expectation of higher interest rates, it is essential to make sure your self-build mortgage does not carry penalties for remortgaging. Your borrowing should allow you the freedom to remortgage at a preferable rate once the build is complete.

We'd never recommend a single lender, as undoubtedly they won't be suitable for every applicant - and there could be preferable rates available elsewhere.

What sort of interest rates can you expect to pay on a self-build mortgage?

Whilst self-build mortgages tend to be more expensive than standard mortgages, the actual rates and terms offered will vary between lenders and applicants. Given the expectation of higher interest rates, it is essential to make sure your self-build mortgage does not carry penalties for remortgaging, and allows you the freedom to remortgage at a preferable rate once the build is complete.

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature. We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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