15 Mar 2023 - Self Build

How do self-build mortgages work?

Can you get a mortgage for self-build projects? And exactly what does a self-build mortgage cover? Undertaking a self-build poses endless questions. As well as the actual planning and building stages, self-builders also need to navigate the process of securing finances for the project. 

Here, we provide a simple guide to self-build mortgages, including how they differ from normal mortgages and what an interested party may have to do to secure one.

Can you get a mortgage for self-build projects?

Yes - self-build mortgages are specifically designed for individuals who want to build their own home. Funds are released in stages, requiring the borrower to have a higher credit score and down payment, as well as a detailed construction plan and budget.

How do self-build mortgages work?

The process of obtaining a self-build mortgage differs from that of a traditional mortgage in a few key ways.

First, with a self-build mortgage, the lender typically releases funds in stages as the construction of the home progresses. This allows the borrower to access funds they need as they need them, rather than having to borrow the entire amount up front. This also allows the lender to ensure construction is progressing as planned and funds are being used as intended.

Second, self-build mortgages often require the borrower to have a higher credit score and a larger down payment than traditional mortgages. This is because the lender is taking on more risk by lending money for a home that is still being built, and they want to ensure the borrower has the financial means to complete the project.

Finally, self-build mortgages often require the borrower to have a detailed construction plan and budget, as well as a professional builder or contractor overseeing the construction. This is to make sure that the project is feasible and that the lender's funds are being used effectively.

How much is the deposit for a self-build mortgage?

The exact mortgage rate, term, and offer will be based on each individual’s conversations with a lender or mortgage advisor. However, the most common Loan-to-Value (LTV) for self-build mortgages is 80%, meaning you’ll have to put down a 20% deposit on the land and property.

Can a first-time buyer get a self-build mortgage?

Yes - around one in three lenders offer self-build mortgages, with the majority of these considering applications from first-time buyers. For the greatest chance of success, planning and preparation is key. Detail every aspect of the project plans, find the right broker, and make the application.

What does a self-build mortgage cover?

A self-build mortgage typically covers costs associated with the construction of a new property. This includes the land purchase, building materials, labour costs, and other expenses related to the construction process. The exact coverage and terms of a self-build mortgage can vary depending on the lender, but generally, the mortgage will provide funds at different stages of the construction process.

How to get a mortgage for a self-build

  1. Prepare a detailed construction plan and budget. This will include architectural drawings, a detailed list of materials and labour costs, and a timeline for completion.

  2. Find a professional builder or contractor. This person will be responsible for overseeing the construction and will work with the lender to ensure that the project is progressing as planned.

  3. Gather all necessary documentation. This may include proof of income, credit score, and down payment.

  4. Shop around for the best mortgage rate, or hire a broker. Compare rates from different lenders to find the best deal for the unique situation. Alternatively, hire a mortgage broker who can access a wider spectrum of deals.

  5. Get a detailed quote from your builder or contractor. This will help the lender to determine the feasibility of your project and whether they will be able to lend the necessary funds.

  6. Complete the mortgage application process. This will typically involve filling out an application form and providing all necessary documentation.

  7. Get a property survey. This will help the lender to determine the value of the land, and also to confirm that it is safe to build on.

  8. Provide the lender with a detailed construction schedule. This will help the lender to keep track of the project and ensure that funds are being used as intended.

While self-build projects can pose challenges, the end result makes it all worthwhile. With research, planning, and preparation, self-builders can ensure the journey runs smoothly and is memorable for all the right reasons.

Need more advice on self-build projects? Break down the journey step-by-step, or explore our self-build resources.

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