How does a self-build mortgage work?
For many Self-Build mortgages, you will need a substantial deposit, mainly for the initial upfront costs of labour and material. Most lenders will only loan you up to 75% of the plot value and 60% of the build cost.
Once built, the average Self-Build has a mortgage up to 70% of the property value, which is a good ‘loan-to-value’ ratio for renegotiating a better interest rate with your current lender, or re-mortgaging to another lender.
The term ‘Self-Build’ does not only apply to brand new builds but also includes commercial properties, dilapidated buildings and properties that could be turned into residential homes.
Benefits of Self-Build
Whatever your budget, building your own home can be a rewarding experience, as well as offering some key benefits. Building your own property means you’ll be able to design it to suit your situation, from design to sustainability, your input will be part of every aspect of the build.
Removing the developer from the project can also mean you’ll be saving on costs as their profit margin is taken out of the equation. You’ll also be able to take some of the costs down by doing some of the labour yourself (if you feel brave enough!).
When does the mortgage lender issue the money?
The key difference between a Self-Build mortgage and a standard property mortgage is that the funds are usually drip fed to you, mainly at key stages of the build, rather than a lump sum. These key stages are usually:
- Foundations and groundwork
- Walls/brick finished
- Wind and watertight
- ‘First fix’ – cabling and pipes, internal walls, ceilings and plastering
- ‘Second fix’ – fixtures and fittings, bathrooms and kitchen complete
- Completion of the build
It is vital to calculate how much is needed at each stage, as funds are not released until each key stage is met. To check each stage, the lender will send out a surveyor to ensure the build and each stage is completed to a satisfactory standard.
Before starting your Self-Build
There are many factors to consider before committing to a Self-Build project. Here are just some of them:
Get planning permission
Before purchasing a plot of land, you will need to make sure planning permission can be obtained. If permission cannot be obtained, then you will be unable to build on the land. There are two stages of planning permission which include:
Outline consent – local planning authority have agreed to the construction of the property on your chosen site but have not agreed to the specifics of the property.
Detailed consent – deals with the specifics of the build, for example, the design and materials to be used. You are bound to this agreement, although you can apply to change.
Lenders will require the plot to have outline consent before they release funds to secure the land but will not give any further funds until detailed consent is given.
Hire the right professionals
It is important that you call upon the expertise of architects, quantity surveyors or project managers to ensure standards and deadlines are being met. You will want to make sure that you don’t run over budget due to delays or have a poor quality build.
Have contracts in place and communicate
It is vital to communicate with the professionals to ensure there are no misunderstandings which could lead to construction disputes. The plans for a new build can often change part way through the project, so make sure there are plans in place for the latest date changes and amendments can be made so you don’t incur penalties.
Other costs of building
When estimating the cost of your Self-Build there are a range of different possibilities you need to include for in the cost. For example:
- The cost of buying the land
- The fees for professionals, including Architects, Consultants, Bricklayers, Engineers, Plumbers etc.
- Surveyor and Solicitor fees
- Borrowing costs (i.e. mortgage set up and repayment figures)