Self Build

Helping you make your Grand Design a reality

 

A self-build mortgage is a loan taken out for a property you are building yourself. It works differently to a standard residential mortgage in that you receive the funds in stages as the build progresses, rather than as a single lump sum. This is to reduce the risk to the lender, as their usual security on the loan - a house they can repossess if necessary - does not yet exist.

Funds are usually released over 5-6 instalments, but exactly when the funds are received varies from lender to lender. You will typically receive the first payment when you buy the land, then another when the foundations are laid, with further payments made once pre-determined build milestones are reached, with the final instalment paid upon completion. 

There are two types of self-build mortgages:

Advance: the lender releases payments ahead of each stage of the build, so that the money can be used to pay for labour and materials, and in some cases even for the plot of land if you don’t already own it. This removes the need for bridging loans or other short term borrowing, but fewer lenders are prepared to offer this kind of mortgage. The lender will also usually keep 10% of the total loan amount until your property is awarded a completion certificate. 

Arrears: this is the more common type. The lender releases funds after the completion of each stage. This means that you have to finance the upfront cost of labour and materials until the lender is satisfied that each stage is complete and releases the funds. If you don’t have enough savings to cover this, then you could potentially consider a bridging loan, which you repay as soon as the mortgage payments are released. 

It is also important to note that interest rates tend to be higher on self-build mortgages compared to standard residential mortgages. Lenders also tend to be more cautious with self-build projects.

This is where speaking to an experienced independent financial adviser is invaluable. Click here to schedule a free, no obligation consultation with one of our friendly team.

 

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