It’s easy to see why so many people are tempted to build their own house. It gives you the chance to create a home that will be perfectly adapted to your own needs and preferences, and it provides an opportunity for you to stand out from the crowd, do things your own way and enjoy complete control over the whole process.
So perhaps it’s not surprising that over 40,000 people built their own homes in the UK in 2012, despite the economic downturn. However, it is by no means a straightforward process, and although plenty of lenders are willing to provide mortgages for self build projects, you are likely to find much stricter conditions on the loan, and it can be even harder to find a mortgage with favourable terms.
Preparation and planning
Before you can even approach lenders to ask about a self build mortgage, you will need to have already done a lot of the preparation and planning – this includes finding the plot of land you wish to buy, consulting an architect and a builder, and obtaining any necessary permissions. You can get mortgages that will help you to buy the land, as well as fund the building of the property, but before a lender agrees to anything they will need to be reassured with regards to likely costs of the building process as well as your ability to make repayments.
For many people it’s a sad fact, but the truth is that funding a self build project with a mortgage means that it will never truly be self build: it is essential for you to use professional builders and contractors. Lenders will also need to be assured that planning permission is secured before lending money.
Types of self build mortgages
Self build mortgages are provided in installments, rather than in one go as is the case with most mortgages. This is because there are so many distinct stages to the process, and lenders don’t want to risk all of the money at once. There are two types of self build mortgage. One is arrears-based and the other provides advance payment.
With an arrears-based self build mortgage, the lender provides money after each stage of the construction has been completed. This means that you will need to have the money in place at the start in order to begin the building work. (A single stage might be the buying of the land, laying the foundations or the interior decoration or anything in between.) With an advance payment self build mortgage, the lender will pay for each stage beforehand.
It is more difficult for borrowers to secure an advance payment self build mortgage, and it is harder to find favourable terms. Generally, lenders feel happier with arrears-based self build mortgages, which means that as a borrower, you need to have a lot of money in place before the work begins, and before a mortgage can be secured.
It is also important to have a sizeable deposit. Lenders will require at least 25%, and will only offer the best deals on self build mortgages when the lender can provide upwards of 40% as a deposit.
Although getting the funding for a self build project can be difficult, with careful planning and a lot of preparation, as well as enough capital to help start things off, a self build mortgage can provide you with the necessary money to see the project through to completion. Getting independent advice and consulting a number of different lenders will help you find the best solution and set you on your way to building the home of your dreams.