Self-build mortgage

A self-build mortgage is a loan you take out on a property you are building yourself. The biggest difference from a standard residential mortgage is that self-build mortgages are usually paid in stages rather than one lump sum. This reduces the lender’s risk, and also helps you spend your money as planned so you don’t run out during the project. You can usually expect a mortgage lender to pay you in 6 stages:

• When you buy the land.
• When the foundations are laid.
• Once the property is built to the eaves.
• After the roof is made watertight.
• Once the interior walls are plastered.
• The final instalment is usually paid upon completion.

These payments will usually be made once each stage is completed and a valuer has visited the site. It is also worth remembering these stages may vary depending on your lender, so it is important to  to ensure you are getting one works for you.

Whilst there are financial gains, be aware that self-build mortgage rates are often higher than those of a standard mortgage. This is because self-build mortgages are not often available from larger lenders.

Deposits for self-build mortgages are often high. You usually need a deposit of at least 25% and it can be as high as 50%. You are therefore likely to need substantial savings in order to apply for a self-build mortgage, especially for arrears stage payment.  

Another important thing to consider is where you will live whilst your new property is being built. If you plan to stay in your current home whilst building the new property, remortgaging that home could be a possibility and may help fund your self-build. However, this is only possible if you have a significant amount of equity on your current home and you must be aware of the risks involved before deciding to remortgage your current home.

Choosing to build your own home is an exciting opportunity which could save you money long term. It’s sound advice to be aware of the what  are available to you before deciding to take out a self-build mortgage.