People decide to build their own home for a number of different reasons. For instance, they may have their dream home design in mind and know how to achieve it. Or, some people may wish to live in a certain way (i.e. in an environmentally friendly home, powered by renewable energy sources) or they may love a certain area, but can’t find the right type of existing housing they want.
Whatever your reasons for wanting to build your own home, this guide will take you through the self-build mortgage process.
A Self-Build mortgage is a specialist mortgage type, which is not commonly found amongst high street banks and lenders. These mortgages differ from other types (see our Guide to Mortgage Types for more information). The funds from this kind of mortgage is released as staged payments, throughout the building process.
Every house building project will follow roughly the same stages of development. These will include;
However, not all self-build mortgages work in the same way. Traditionally, more lenders offer arrears staged payments (ASPM), whilst other providers can offer advanced payments for your project (AKA Guaranteed Advance Stage Payment Mortgage, GASPM).
In an arrears arrangement, a valuator must inspect the site at the end of each stage, before the money can be released to pay for the work that was carried out. In an advance staged mortgage, on the other hand, the funds come before each stage is complete. For this, you will need your lead times on materials and labour meticulously planned, to avoid pitfalls such as having to wait 10 weeks for glazing, before you can make your build water and wind-proof.
See more information about these costs in our Guide to Applying for your First Mortgage.
Steve and Louise want to design and build their own home. The couple seek a self-build mortgage for £320,000 and are successful, in part due to their previous renovation works on other homes and Steve’s carpentry and joinery experience. With the sales proceeds from their previous home, they have gathered £75,000 to part-fund the project. They received their funds in Arrears Staged Payments, outlined as below;
Additional costs for set up (some of which was paid from the couple’s own funds) include;
As the mortgage is drawn-down bit-by-bit, many lenders will accept interest-only repayments for a set period of the mortgage term (for example, the first 18 months). This is to incentivise borrowers, by allowing greater cashflow through the expensive early stages of the build.
Please note: As more of the mortgage loan is drawn-down at each stage, expect your mortgage repayments to get higher, as your project reaches completion.
After the house is built, the borrower may wish to remortgage to a standard variable, fixed rate etc.
If you would like to build your own home, you will more than likely need to secure a mortgage, unless you have a huge bank of savings from the sale of previous properties to play with.
To secure extra funding for your contingency fund however, you can look at alternatives to mortgages, such as;
Unsecured Loans – These will charge higher rates of interest than typical mortgage products, however these could help you plug an emergency gap in funding.
Further, if you are looking for a specific style of home, you can look at pre-fabricated homes, where the design and build is carried out by a specialist company. This can make choosing a design quick and easy. This method may also see your project completed in less time than a conventional self-build project, and the materials and design could also work out cheaper.
If you would like free financial advice and quotes for self-build mortgage options, get in touch.
My biggest concern was finding a mortgage with no strings attached. My options were clearly explained to me and I felt confident about the decision. Alice Silverman, Stoke-on-Trent
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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
IF YOU ARE THINKING OF CONSOLIDATION EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY.
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