Self-Build

If you’re planning to build your own home, a conventional mortgage won’t be right for you. Instead, you’ll need to apply for a specialist self-build mortgage.

Guide to self-build mortgages

Many of us dream of building our own home so that it is exactly the way we want it, but before you get carried away with your dreams the first thing you need to work out is how to finance the build.

If you are planning to embark on a self-build, you can either opt for the DIY route, where you do most of the work yourself, and use professionals like electricians or plumbers where necessary, or you can manage the process and employ a surveyor, an architect and tradesman who do all the work on your behalf. Alternatively, you can arrange arrange for a contractor to manage the whole project.

Whichever route you choose, you won’t be able to get a standard residential mortgage, so you’ll need to apply for a self-build mortgage unless you’re fortunate enough to have the cash sitting in the bank.

A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME OR PROPERTY. YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.

What are self-build mortgages?

As the name suggests, a self-build mortgage is a home loan take out on a property which you are building yourself.

The funds are given to you in stages rather than as a single lump sum. This is to reduce the lender’s risk and ensure that the money is spent as planned so you don’t run out when you are only half way through the project.

As a general rule, you’ll get the first tranche when you buy the land, more when the foundations are laid and a further payment when the property is built up to eaves level.

The final payments will be made when the roof is watertight and then when the interior walls are plastered, and the last instalment is paid on completion.

What types of self-build mortgages are available?

with most self-build mortgages, the money for each stage is usually only paid out once it has been completed and valuer has visited the site.

However, some self-build mortgages release the money required for each stage of the build at the beginning rather than the end of the stage. If you don’t have the cash up front to pay your builders or to buy materials.

What are the advantages of self-build mortgages?

You could save yourself thousands of pounds in stamp duty. There is no stamp duty on the cost of the building work, or the value of the property once the work has been completed. You only have to pay duty on the cost of the plot of land itself if the cost exceeds £125,000.

Often self-builders find their finished property is worth much more than it cost them to construct.

What else should I know?

There is likely to be more paperwork involved when you take out self-build mortgage compared to a standard residential mortgage, as you will have to produce detailed plans for the property. A projection of the costs involved and most lenders will also want to see that planning permission has been granted.

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