Your Checklist for Self-Build Home Loans
One of those exciting but hard-to-plan life goals is to build your own home. It feels great to build a place that is all your own and exactly how you want it. Self-Build home loans can help you make that dream come true by giving you the money you need at each stage of the build project.
A Self Build mortgage doesn’t give you all the money up front like a regular mortgage does. Instead, these home loans release money to you in stages as your home is being built. You will get money for each stage, such as buying the land, putting in the foundations, water-tight and for first and second fix stages. This way, you stay in control and don’t risk going over budget for each stage and the project overall.
Many people in the UK are choosing Self-Build home loans because they want a home that fits their exact needs instead of having to live in someone else’s design. It takes time and effort, but the end result is usually worth it: a home that feels totally yours and is often worth more than what you paid for it.
Types of Self Build Mortgages
Self-Build mortgage lenders can lend you the money in a few different ways, depending on your type of project and how much money you have to put into the project at the start.
- With the arrears mortgage, you get money after each stage of the build is completed, checked and signed-off. This works best if you already have some money saved up or if you are using the money from selling another home
- The advance mortgage gives you money before each stage begins, which helps you pay for the necessary materials and labour in advance. This is a good choice if you need a steady flow of money throughout the build process
- Another choice is a custom build mortgage. It’s often used for homes built on managed developments, where things like getting in and getting planning permission are already taken care of. These type of build projects are usually faster and are easier to set up.
You can also choose between different type of self build finance. Options exist for either Self Build home loans with fixed rates and variable Self-Build mortgage rates that change with the market. With fixed rates, payments stay the same throughout the whole build project and are much easy to plan and budget for. However, with variable Rates, the interest rate and either go up or down depending on the Bank of England base rate. If rates go down this can be good for you as saves you money, but equally it can be more expensive if rates increase – either way – more risk is involved!
If you’re not sure which plan is best for you, a Self-Build mortgage broker can help you compare them, explain the rules of the specialist mortgage lenders, and walk you through the whole process.
Who Can Apply and How
Because the self build mortgage lenders are putting money into something that doesn’t exist yet, they will want proof that your project is real, well-organised and has a realistic budget etc.
They will usually want to see:
- You need to show that you have a steady income and a good credit history to prove that you can make your payments.
- Your architect or builder should give you a clear plan and a list of what it will cost.
- Preferable full planning, or at least outline planning permission from the council in your area.
- A larger deposit than normal, usually around 25% of the total cost.
- Some money set aside in case prices go up, or things get pushed back.
- A professional builder or someone who has worked in construction to Project Manage the build.
- Get quotes and contracts from multiple tradespeople to make sure your budget is accurate.
After reviewing your application and supporting documentation, the self-build lenders will arrange a site visit to complete a valuation, after which they will then tell you how much they will lend you overall for the build and what and when the stage payments will be.
A Self-Build mortgage advisor can help you avoid delays and make the process go more smoothly because they know which Self-Build mortgage companies are best at this kind of lending.
Costs and Considerations Before Applying
Before you apply for any Self-Build home loans, make sure you know how much it will really cost. It’s not just the cost of land, materials and labour – things get more complicated when they start moving, including the self build finance.
- The first step is to buy the land. Prices vary a lot based on the location and what is already there.
- Lenders usually want a bigger deposit than normal, which is usually about 25% of the total amount.
- Prices for labour and materials don’t stay the same very often, so it’s a good idea to have some extra cash on hand.
- You will need a solicitor, an architect, and maybe even a surveyor.
- You have to have insurance in place. Most lenders won’t go forward without it.
- Also, don’t forget where you’ll live while it’s being built. Even when your house isn’t built yet, you still have to pay rent and bills.
If you think about all of this ahead of time, you’ll be less stressed later. A little planning now can stop bigger problems from happening halfway through the build. Start speaking with a self build mortgage broker early on and before you start any works – they will save you a considerable amount of time, effort and money in the long run!
How Payments Are Made During Construction
You don’t get the whole amount all at once with a Self-Build mortgage. As the build progress, the money is released to you little by little. It’s a simple concept – you get paid for what you do, not what you say you’ll do!
Most of the time, the first money you get helps you buy the land. After that, the loan for self build is released in key stages / milestones – like when the foundations are in, when the walls go up, when the roof is completed, and finally when the house is ready to live in.
Before the lender pays for each stage, someone, usually a valuer or surveyor, checks that the scope of works for the stage have been completed and to an acceptable standard. Some lenders for self-build mortgages pay after each stage is completed, while others pay before. It depends on the deal and how much cash you have available to keep things progressing to the next stage.
Most of the time, after the last payment is made and everything is signed, so long as the property is worth what it should be, the mortgage can be switched to a regular residential one with a lower interest rate.
FAQs – Self-Build Home Loans
Is it possible to get a Self-Build mortgage if I've never built anything before?
Yes, most people who go for one have never done it before. The self-build mortgage companies just want to know that you have a good plan and that someone with experience will be in charge of the work. You don’t have to be a builder yourself, but you do need to show that the project stacks up and is viable.
How much money do I need to put down?
It costs more than a regular mortgage. Most Self-Build mortgage companies want the borrower to put down approximately 25% the total cost. It shows that you are serious and gives them peace of mind in case the budget changes later.
When will I get the money?
As the build progresses, the money is released in small amounts upon completion of key milestones. You get the first release of funds to help buy the land, and then you get more after the foundations, the structure, and then once all the last stages are completed. Before each payment is released, each scope of works has to be checked and signed off.
Can I live on the property while it's being built?
You can if it’s safe and the local council / building regulations allows you to. Many people put up a caravan or small temporary home on the property to save money on rent. It also keeps you close to the work, which can help things stay on track.
What happens after the house is finished?
After the house is built and signed off on, the mortgage can usually be switched to a regular residential mortgage. That usually means a lower interest rate and monthly payments like with any other standard mortgage.
How do self-build mortgage rates differ from standard mortgage rates?
Self build mortgage rates are often slightly higher than traditional mortgage rates due to the increased risk and complexity involved in funding a property under construction. However, once the build is complete, most lenders allow you to switch to a standard residential mortgage with a lower rate.
Is it worth it?
Yes, for most people. It’s a lot of work, and things don’t always go as planned, but when you stand in a home that you designed and built yourself, it feels different. In every way, it is yours, and that makes it worth it.
Speak to a Self-Build Mortgage Broker
Getting a normal mortgage is not the same as this, and getting the right advice early on can make a big difference – so speak with a self build Mortgage Advisor to tell you’re your plans, explore your options and get some free advice and quotations.
Every week, as the UK’s leading Commercial Finance Broker, we help people interested in exploring their self-build dreams. Some people come to us with complete plans, while others are earlier in the process and still looking for land.
You don’t have to know everything or be an expert in order to do this. That’s why we’re here. We will guide you through the entire process, we work with ALL the Self-Build mortgage lenders, and make sure everything is totally clear and transparent from the start, so you know exactly what to expect.
Call Commercial Finance Network if you really want to build your own home. We’ll help you get it going in the right direction, from the first planning steps to the day your build is complete.
Are you looking for the best home loan or self-build mortgage?
Commercial Finance Network can help you make your plans to build a home come true. Contact us today for expert advice, flexible funding options, and help at every step of your building project.