We’re often asked about self-building, and have recently published a blog on the subject (you can read about some of the pros and cons here). One of the key things you need to consider when deciding whether to embark on a self-build project is the mortgage. It’s such an important subject that I wanted to go into more detail here and explain a little more about a self-build mortgage.
How does it work?
A self-build mortgage differs from other mortgages in that the funds are released bit by bit over time rather than all at once. Typically, the funds are released in six stages, from purchasing the land to the 2nd fix/completion of the project. In this way, the mortgage payments follow the progress of the building work taking place. A valuer will come and visit the site at regular intervals to see if everything is on track. Once this is done, the next proportion of funds is released.
It’s vitally important to have a water tight plan to make sure you don’t run out of money or experience cash flow issues. Managing your money and the finances of the build will be essential in order for you to reach the next phase of the project.
One thing you might not be aware of is that you don’t have to go to a specialist lender to get a self-build mortgage – many mainstream lenders offer them. However, with what can sometimes be a complicated process, it might be wise to use the services of a mortgage broker or independent financial advisor when applying for a self-build mortgage.
I’d recommend that you go through a reputable broker such as Build Store; they will have special rates to offer and special links to banks and building societies. If you were to go direct to any high-street lender they could see you as a high risk option and in this financial climate, may not lend. Don’t be put off by this – by going through a broker, you still have the choice of leading lenders with competitive rates.
Consider the Build Store Accelerator Mortgage: this mortgage will lend on land that has only outline planning permission. Most lenders will only lend subject to detailed planning permission, which can take many months. This option would allow you to move quickly and secure your ideal plot.
Another thing to consider – lenders can ask for a higher deposit (perhaps up to 50%) for a self-build project, although around 25% is more typical. There are other costs to consider, such as paying for the valuer’s visits, and you’ll also need to provide the mortgage lender with detailed plans for your completed property.
Hone your organisational skills:
My single most important piece of advice to a would-be self-funder is to be as efficient as possible. This is a huge advantage throughout the development in any case, but with a self-funding mortgage, you must be extremely well organised and financially aware. Be prepared as well for more paperwork with a self-build mortgage application, and make sure that you incorporate at least a 10% contingency to deal with unforeseen issues and to keep your project running smoothly. Make sure you cover all costs including things like building regulations, planning fees etc. when putting together your budget, so that you borrow the correct amount of money. The last thing you want is to be mid-build and run into financial difficulties by realising you haven’t covered all the non-negotiable costs.
The more research you do in advance with planning officers and local contractors who can help with ideas for your project, the more you may be able to narrow down any unrealistic expectations.
If you still have questions, feel free to pop into the Bespoke offices for a no-obligation chat, and a cuppa.