Given a typical all-in cost of a self-build home is upwards of £500,000, not everyone reading this blog will have cash in the bank to write a cheque. Nor is it always practical (or cost-effective) to sell your existing home and rent while your self-build is in construction. So how can aspiring self-builders fund the home of their dreams once they have found their perfect plot on our self-build database?
The self-build mortgage is a typical avenue for most self-builders. It differs from the conventional mortgage because after the lender releases money to buy land, the remainder is handed over in stages. The staged approach is because there is no property for the lender to use as loan security.
The type of mortgage is broken down further into two categories. An arrears stage payment mortgage (based upon the property’s value at various build stages) or an advance stage payment mortgage (cost-based and releases money in advance of each build stage). Up to 95% can be borrowed on land and build costs.
Like a conventional mortgage, how much you can borrow depends on your finances.
Many self-build mortgage advisors in the marketplace can guide you on the best and most cost-effective options.
Challenges to consider
- Interest rates: typically, higher than a conventional home mortgage. But you can shop around with the help of a self-build mortgage advisor.
- Costs: self-build lenders require plans and a breakdown of building costs before considering an application. Remember, the cost includes the plot cost, not just bricks and mortar.
- Contingency: it could be sensible to add a contingency to your costs to manage any overruns, whether materials costs or time.
- Documentation: a lender will want to see your planning permission, Building Regulations approval, and self-build insurance, amongst other items. Speculative approaches are unlikely to be considered.
Building your dream home in your dream location is a challenge and experience. Getting the financial side in order early is crucial to enjoying the project.