Most people associate mortgages with buying a home, but what happens if you want to purchase land and build your home? If you love the idea of designing your home and want to see this develop from paper to physically being built a self-build mortgage could help you achieve this.
If you plan to build your property, you still need significant financial backing, and a bespoke mortgage is often required.
If you take this approach to find a home, it makes sense to call on help from experts. You should work closely with designers, architects, and builders, and you should get relevant advice from trusted financial professionals. Anyone who plans on building their home should use the services of a self-build mortgage broker.
What is a self-build mortgage?
A self-build mortgage provides funding for people to build a home of their own. There is a difference between this style of mortgage and more traditional mortgages. With a self build mortgage, funds are issued at crucial points of the project and this is most commonly done once a specific stage has been completed, for example the foundations have been laid.
When are funds released with a self-build mortgage?
The build will be broken down into stages which are clearly lined out from the start. You can draw down the money in tranches – sometimes this can be in advance of the build stage, but most commonly you draw down the funds upon completion of a stage. Typical self build stages are:
Purchase of land.
Wall Plate level.
2nd fix and completion.
A surveyor will visit the property to confirm and sign off that each stage has been completed to allow you to draw down the funds for that stage.
Are there different types of self-build mortgage?
There are main types of self-build mortgage to select from:
The arrears type mortgage provides funds when each stage is complete.
The advance type mortgage provides funds at the start of each stage.
Fewer lenders offer the advance type, but it assists significantly in cash flow and helps people/companies who don’t have a significant sum of money to start the project.
What documents do I need when applying for a self-build mortgage?
As you would expect, there is a lot of paperwork associated with a self-build mortgage. When applying for this style of mortgage, you should have the following paperwork to hand:
A credit report.
Architect’s professional indemnity cover (if required).
Copy of Building Regulations approval.
Copy of construction drawings and specifications.
Copy of planning permission.
Copy of site insurance and structural warranty.
Copy of total project cost estimate (where possible).
SAP calculation (this will be in the Building Regulations package).
Proof of Identity – Passport &/or Driving License.
Detailed exit route once the build it complete to pay off the finance and perhaps switch to a traditional mortgage.
Last 3 months bank statements.
Proof of income – payslips / accounts.
Experience of the clients in self build or evidence of the contractors last 2 new builds.
Should I use a self-build mortgage broker?
Building a home is a massive project, and there is a lot to be said for getting as much guidance from specialists as you can. A self-build mortgage is not a standard product, and not every lender provides this service.
To enhance your chances of finding the most suitable self-build mortgage, it makes sense to rely on the help of someone who is an expert in this field. With a self-build mortgage broker, you will feel more confident about the application process.
Advantages & Disadvantages of using a self-build mortgage
There are clear advantages in using a self-build mortgage, including:
You can help design and build your dream home.
Building your home could be cheaper than buying a property already built.
By financing this project with a self-build mortgage, you can enjoy greater value and a larger return on your investment.
Stamp duty, if applicable, is only payable on purchasing the land.
The disadvantages would include:
Self build mortgages are more expensive when compared to standard mortgages with higher interest rates and more fees payable.
You will have to put down a larger deposit when compared to traditional mortgages.
Lots of detail and paperwork is required as mentioned above, so be prepared.
Any delays in the project can increase in the overall costs.
By speaking to an experienced self build mortgage broker they can guide you through the pros and cons and discuss common questions clients and lenders have.
How to explore your Self-Build Mortgage options?
You can speak to one of our highly specialised and dedicated Self Build Advisors by calling 0203 725 5830 or you can complete an enquiry form which will allow you to schedule a call time.
DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action.
These mortgages are more complex when compared to traditional mortgages, so you should seek advice from experienced advisers who can discuss the project in detail with you and outline how the mortgage will work.