Your home may be repossessed if you do not keep up repayments on your mortgage.
We charge a fee for mortgage advice. The precise amount of the fee will depend upon your circumstances but will range from £149 to £750 and this will be discussed and agreed with you at the earliest opportunity.
Building your own home gives you control over the design, the layout and the finish in a way that buying an existing house never could. The finance works differently from a standard purchase, though, and planning it properly from the start could save a lot of stress later.
How is a self build mortgage different?
With a normal mortgage, the lender releases the full loan on completion day and you move in. With a self build mortgage, there isn’t a finished property to lend against at the start, so the money is released in stages as the build progresses.
Typical stages include:
- Buying the plot
- Foundations
- Wall plate level
- Watertight and roof on
- First fix and plastering
- Completion
At each stage, the lender usually sends a surveyor to check the work before releasing the next payment.
Arrears or advance payments
This is one of the biggest things to understand before you start.
- Arrears stage payments. The lender releases money after each stage is finished. You’ll need enough cash to fund each stage up front and then wait to be paid back.
- Advance stage payments. The lender releases money at the start of each stage, so you’re not funding the work yourself first. These products are less common and may cost more, but they could make the build easier to manage if your savings are limited.
Which suits you depends on how much cash you have available and how you plan to pay your builders.
What deposit could you need?
Lenders usually want a bigger deposit for self build than for a standard purchase, because there’s more risk involved. You’ll typically need to put money towards the land as well as the build costs. If you already own the plot outright, its value could count towards your deposit.
You’ll also need a contingency fund. Building projects rarely come in exactly on budget, and lenders want to see that you could cover overruns.
What lenders want to see
Before agreeing a self build mortgage, lenders will usually ask for:
- Full planning permission, or at least outline permission with a clear route to full approval
- Detailed plans and a costed build schedule
- Details of who is building it, whether that’s a main contractor, a package company or you managing trades yourself
- A structural warranty or architect’s certificate so the finished home is mortgageable and sellable later
- Your affordability, including how you’ll pay for somewhere to live during the build
If you’re managing the build yourself, lenders may want evidence of relevant experience or a professional overseeing the project.
Custom build and package homes
Not every self build means laying bricks yourself. Custom build schemes let you choose a serviced plot and design options while a developer handles the construction. Package companies supply a design and a timber frame or kit house, then build it or support your builders. Some lenders are more comfortable with these routes because the costs and timescales are more predictable.
Living costs during the build
Many self builders rent or stay with family while the house goes up. Others live in a caravan on site. Whatever you choose, your lender will want to know you can afford your current housing costs alongside the build finance. Remember that builds often take longer than planned.
VAT and other costs
New homes are generally zero rated for VAT, and HMRC runs a VAT refund scheme for people building their own home. The rules are detailed, so speak to your accountant about whether it applies to you. We don’t give tax advice.
You should also budget for planning fees, building control, warranty costs, connection charges for utilities and professional fees.
Thinking about building your own home?
We wrote about the rise in self build a couple of years ago in Is Now the Time to Build Your Own Grand Design?, and interest hasn’t slowed down. Self build lending is a specialist area with a relatively small number of lenders, so getting the right product at the start matters. We could help you compare stage payment options, deposit requirements and lender criteria from a comprehensive panel, with many High Street and specialist lenders.
Find out more on our self build mortgages page, or get in touch to talk through your plans.
FAQ
Yes, some lenders may fund the plot purchase as the first stage of the mortgage. Others expect you to own the land already. Your deposit and the lender’s criteria will decide which route is open to you.
Many self build mortgages switch to a standard residential mortgage once the home is complete and signed off. You may also choose to remortgage at that point to a different deal.
The build phase often has a time limit, commonly between 12 and 24 months, set by the lender. After that, the mortgage runs for the full term like any other home loan.
