self build mortgages

Self-build mortgages

Self-build is the term used when designing and building your own home, although it can also be used to describe the renovation of an existing property. Self-build projects can be a very exciting way to construct and own your home, but they require lots of planning and funding at numerous stages.

If you have an idea of how you want your new home to look, an architect will be able to provide you with an initial sketch proposal. You will then need to get more detailed drawings and plans, as well as lots of further information, in order for your builder to give you a price for the job.

Self-build mortgages

One of the key parts of conducting a self-build project, is financing it. This is normally done by taking out a self-build mortgage, which is different to normal residential mortgages.

The main difference is that self-build mortgages are paid out at logical stages of the overall building process, rather than you receiving a single lump sum. These payments could be given when you purchase land, when the footings and foundations are complete, when the walls are constructed, when the roof is on, and finally when the project is completed, to name just a few stages.

When exactly you receive the payments will depend on the lender, so you should see which lenders match your needs. The majority of self-build mortgages pay out money once each stage has been completed and the site has been visited by a valuer. However, some people need the money at the beginning in order to pay for materials or the builders, so you need to think about your individual needs.

The reason for giving out payments in stages is to reduce the lender’s risk, as well as helping the project follow a budget, as the money is being spent as planned. It helps prevent you from running out of funds when you’re still only halfway through the build.

Normally, self-build mortgages have higher rates than standard mortgages, so ensure you spend time researching the best option for you. There are various types of mortgage, such as: fixed rate, discounted variable, tracker, capped, self-certification, variable or fixed period. Also, be aware that you will likely have to pay a deposit of 25 per cent or higher, so you will need a fair amount of money saved up.

Finding land to build on

Building plots can be extremely difficult to acquire. You need to consider the planned dimensions of your home, car parking space and gardens, and also the local area: what schools are there? What local amenities do you require?

Estate agents are an excellent source of local knowledge, so consult with them. Property auctions, local council planning records, local newspapers and magazines (either online or print), or simply professionals within the building industry, can also be good sources of information to help you decide where to build.

At this stage, careful planning can save you lots of money and stress later on. If it turns out your dream plot isn’t wide enough for the house layout you had in mind, you need to decide what to do about this now, rather than leaving it and facing problems later on.

Planning permission

Another important aspect to consider is the likelihood of your application for planning permission being accepted. If the site you want is very unlikely to be approved, you need to look elsewhere for a site that is likely to be accepted.

Lenders won’t release the funds for you to build your house if you do not have planning permission, so it is crucial you obtain it.

While it is cheaper for you to buy a plot of land that has no planning permission, it is also much riskier, so you need to think about this carefully. Lots of plots sold already have planning permission in place, and while this can make things easier it will be more expensive.

Remember that planning permission only lasts for three years, so you need to make sure there are no sizeable time restrictions which could cause you problems.

Where to live during your self-build

The vast majority of self-builders need to sell their current property in order to finance the construction of their new home.

While this is clearly a sizeable obstacle to navigate, there are multiple options available to you. You can rent a house or flat, or you could purchase a mobile home, or rent one, and live in that instead while your home is built. Ideally you will be close to the building site, so that you don’t have to travel too far to view it.

It is important to budget for storage fees, because you will need to keep all your furniture somewhere after selling your house, and ensure your possessions are covered by insurance while they are kept in storage.

How much will my house cost to build?

Finding out the answer to this is crucial when building your own home. You need to calculate: how much the plot of land will cost to purchase, your accommodation costs while it is built, construction costs, insurance costs, professional fees and other costs. This should give you an idea of how much your house will cost to build, but make sure you have contingency funds in place for unexpected costs.

If you are unsure on the construction costs, your architect, building surveyor or constructor will be able to answer this question.

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