How self-build mortgages work

Introduction to self builds

What is a self-build mortgage? As the name suggests, a self-build mortgage is a loan you take out to fund a property you are building yourself. The main difference from a standard residential mortgage is that you receive the funds in stages as parts of the build are finished, rather than as a single lump sum.

A self-build can be done in two ways. There’s the DIY route, where you do most of the work yourself and use skilled tradesman like plumbers and electricians only where necessary. The alternative is to manage the process and employ a surveyor, an architect and various tradesmen who do most of the work on your behalf. You can even arrange for a contractor to manage the whole project for you.

Whichever route you choose, you won’t be able to fund it with a standard residential mortgage; projects like this require what’s known as a self-build mortgage.

How do they work?

Most lenders require you to own the land before applying for the mortgage but there are some exceptions, out expert advisers will be able to help guide you on this.

Where traditional mortgages will release funds in one lump sum upon completion a self-build mortgage usually releases funds at stages throughout the build.

Each lender normally has different stages at which they will pay out portions of your mortgage but a typical example would be-

Stage 1- Foundations

Stage 2- Floor level

Stage 3- Roof

Stage 4- Completion and building control sign off

Lenders will normally ask for architects sign off or a valuation at each stage before they release the payment.

Although, typically you don’t need a deposit for a self-build (dependant on the projected value of the finished property), you often need the fund to get the property to stage 1.

What do I need?

Typically, lenders ask for more paperwork for a self-build than a traditional mortgage but each have different criteria and it can depend on how you are going to do the build.

Some common supporting documents you may be asked to provide are-

• Planning permission
• Proof of site insurance
• Your fixed price contract
• Your architect’s professional indemnity insurance

You’ll also need to consider where you are going to live during the build and how you will fund it, as well as potential contingency funds if the build goes above budget.

Next steps

It’s best to speak to an adviser as early as possible, to help you decide your affordability when considering you home design and to get more information at an early stage. Contact us today to start your self-build journey.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.