In this blog series, we’ll delve into everything you need to know about Self Build Mortgages – from understanding the basics to navigating the application process. So, if you’re ready to embark on the journey of a lifetime and create a home that’s truly yours, join us as we explore the world of Self Build Mortgages together!

What is a Self Build Mortgage?

A self build mortgage is an exciting opportunity for individuals looking to construct their dream homes. Unlike conventional mortgages, which are used to purchase existing properties, a self build mortgage provides the necessary funds to finance the entire building process. With a self build mortgage, you have the freedom to design and construct a home tailored to your exact specifications.

How Does a Self Build Mortgage Work?

A self build mortgage works differently from a traditional mortgage as the property being financed does not exist yet. Instead of providing the full loan amount upfront, self build mortgage lenders release the funds in instalments. There are two types of self build mortgages – advance and arrears.

An advance self build mortgage releases payments at the beginning of each stage of the construction project, allowing for continuous cashflow. This type of mortgage offers borrowers the advantage of having access to funds at the start of each construction phase, ensuring a smooth progress of the project. It enables them to finance the purchase of materials, hire labor, and handle other related expenses effectively.

An arrears self build mortgage, on the other hand, releases funds after the completion of each stage. In this scenario, the borrower needs to manage the costs of materials and labor until each stage is verified by the lender. Although this may require more careful financial planning, the benefit is that the borrower only pays for the completed work, reducing the financial risk.

The specific stages at which funds are released may vary between lenders. It is essential to discuss the terms and conditions with the lender to understand their specific requirements and procedures. This will ensure that borrowers have clarity on how they can access and utilize the funds effectively throughout the self build project.

Advantages of Advance Self Build Mortgage:

• Continuous cashflow at the start of each construction stage
• Easier management of materials and labor expenses
• Smooth and steady progress of the project

Advantages of Arrears Self Build Mortgage:

• Pay only for completed work, reducing financial risk
• Funds are released after verification of each stage
• Potential savings on interest as funds are drawn progressively

In summary, a self build mortgage provides a structured approach to financing the construction of a property by releasing funds in instalments. By understanding the different types of self build mortgages available, borrowers can choose the option that best suits their financial needs and preferences. It is essential to consult with a self build mortgage lender or a specialist mortgage broker to navigate the self build mortgage process smoothly and ensure successful completion of the project.

How Much Can I Borrow with a Self Build Mortgage?

The amount that can be borrowed with a self build mortgage depends on several factors. If the land for the construction has already been purchased, borrowers can typically borrow up to 75% of the expected value of the property. However, if the land has not been acquired, the borrowing amount may be lower.

To qualify for a self build mortgage, applicants must undergo credit and affordability checks. These checks assess the borrower’s financial situation and ensure their ability to repay the loan. It is advisable to seek advice from a mortgage broker who specializes in self build mortgages to understand the specific requirements and calculate the borrowing capacity using a self build mortgage calculator.

Understanding your borrowing capacity is crucial in determining how much you can take on for your self build project. By consulting with a specialist mortgage broker, you can gain valuable insights into the potential loan amount and the affordability of the project in relation to your financial situation.

Self Build Mortgage Eligibility

When considering how much you can borrow with a self build mortgage, it’s important to note that eligibility criteria may vary among lenders. To increase your chances of approval, lenders typically assess factors such as:

• Income stability and affordability
• Credit history and score
• Current debts and financial commitments
• Deposit amount
• Experience and qualifications in construction, if applicable

Meeting the eligibility requirements is crucial in securing a self build mortgage. By presenting a solid case to lenders, demonstrating financial stability and responsibility, and fulfilling their specific criteria, you increase your chances of borrowing a higher amount for your self build project.

Calculating the Borrowing Capacity

To accurately determine how much you can borrow with a self build mortgage, it is recommended to use a self build mortgage calculator. These online tools consider factors such as income, expenses, deposit size, and interest rates to provide an estimate of your borrowing capacity.

However, it’s important to remember that self build mortgage calculators are guides and should not be relied upon solely. Each lender has its own calculations and criteria, so consulting with a mortgage broker who specializes in self build mortgages is essential for accurate calculations and insights.

A mortgage broker can assess your financial situation, guide you through the self build mortgage process, and help you understand the requirements and restrictions of different lenders. By working with a professional, you can better understand your borrowing capacity and make informed decisions regarding your self build project.

Consulting a mortgage broker and utilizing a self build mortgage calculator are valuable steps in determining how much you can borrow for your self build project. By understanding the borrowing capacity, you can plan your budget, manage your construction costs, and ensure the financial feasibility of your dream home.

Advantages and Downsides of a Self Build Mortgage

There are several advantages to obtaining a self build mortgage. Building your own home allows for customization, ensuring that the property meets your specific needs and desires. Additionally, building work is exempt from stamp duty, potentially saving thousands of pounds. The cost of construction is often lower than purchasing an existing home, providing an opportunity for cost savings. However, there are downsides to consider. Only a limited number of lenders offer self build mortgages, which may require extensive research to find the right deal. Interest rates for self build mortgages are typically higher than those for traditional mortgages, potentially making them more expensive. It is important to thoroughly compare self build mortgage rates and terms before making a decision.

Advantages of a Self Build Mortgage

• Customization: With a self build mortgage, you have the freedom to design and personalize your dream home to your exact preferences.
• Stamp Duty Exemption: Building your own home means you are exempt from paying stamp duty, resulting in significant savings.
• Cost Savings: Constructing a home can often be more cost-effective than buying an existing property, as you have more control over the materials and labor costs involved.

Downsides of a Self Build Mortgage

• Limited Lenders: Self build mortgages are not widely available, so finding the right lender with favorable terms requires thorough research.
• Higher Interest Rates: Compared to traditional mortgages, self build mortgages tend to have higher interest rates, potentially making them more expensive over time.

When considering a self build mortgage, it’s important to weigh the advantages and downsides carefully. Take the time to compare self build mortgage rates and terms from different lenders to ensure you choose the option that best suits your needs and financial situation.

How to Obtain a Self Build Mortgage?

Obtaining a self build mortgage requires careful planning and preparation. Before approaching lenders, it is essential to have a comprehensive project plan in place. This includes detailed projections of costs, timeframes, risk assessments, and contingency plans. Planning permission for the construction project must be secured, and the lender will typically require information about the plot of land and the architect involved. Other requirements may include site insurance and a structural guarantee or warranty. Having proof of income, savings, and a good credit history is vital to demonstrate financial stability and improve eligibility for a self build mortgage. Working with a specialist mortgage broker can simplify the process and help find the most suitable lender for individual circumstances.

Essential Steps for Obtaining a Self Build Mortgage:

1. Create a comprehensive project plan outlining costs, timelines, and risk assessments.
2. Secure planning permission for your construction project and gather the necessary documentation.
3. Research self build mortgage lenders to find the best fit for your needs.
4. Gather all required documents, including proof of income, savings, and a good credit history.
5. Work with a specialist mortgage broker to navigate the application process and find the most suitable lender.
6. Submit your application and await approval from the lender.
7. Once approved, carefully review the terms and conditions of the self build mortgage.
8. Ensure you have the necessary site insurance and structural guarantee in place.
9. Begin the construction process, receiving funds in stages as outlined in your mortgage agreement.
10. Regularly communicate with your lender and provide progress updates as required.
11. Upon completion of the construction project, finalize your mortgage and move into your new home.

Mortgage lenders that specialise in self build mortgages:

It is important to compare self build mortgage lenders to find the best rates and terms for your individual circumstances. Working with a specialist mortgage broker can assist in finding the most suitable lender and navigating the self build mortgage process smoothly.

Conclusion

A self build mortgage presents an exciting opportunity for individuals to bring their dream homes to life. While this type of financing comes with its challenges, such as limited lender options and higher interest rates, the rewards outweigh the risks. The ability to customize every aspect of the property and the potential cost savings make self build mortgages a worthwhile option.

However, to navigate the self build mortgage process successfully, it is crucial to seek guidance from a specialist mortgage broker. They possess the expertise to provide valuable advice, assist with meeting eligibility requirements, and help find the most suitable self build mortgage terms.

With careful planning and the right support, individuals can secure the financing they need to turn their self build projects into reality. Whether it’s a self build loan, custom build loan, or self build financing, the key is to work with a mortgage broker who understands the unique requirements of a self build mortgage.