Self-Build Mortgages – How Do They Work?

 

Historically, self-build mortgages were quite restrictive, requiring you to have a pretty large cash reserve to get you going.

The good news is that a whole new breed of lenders have emerged over the last few years who take a more flexible approach, and you are now able to borrow anything up to 95% of the value of the land and property.

It’s worth noting that you can normally only get a self-build mortgage if these two conditions are met:

• Planned house is detached and will stand completely on its own plot of land

• You are planning to be owner-occupier – self-build mortgages do not cater for commercial property developers or buy-to-let projects

In terms of interest rate and repayment options, self-build mortgages are very similar to mortgages for existing houses.

The main difference is that the money is not all made available at once – instead, payments are staged.

What Are The Self Build Mortgage Stages?

There will be five or six (depending on whether the land purchase is included) fixed stages in theself-build process.

At each of these stages, your mortgage lender will release a portion of the funds, based on the assessment of their valuer who will regularly inspect the build.

The standard stages are:

1. Plot of land purchased

2. Foundations/initial groundwork complete

3. Walls or timber frame complete up to eaves

4. House Wind & Watertight

5. Services installed

6. Completion

The reason for these stages is to prevent the self-build mortgage lender lending you more than the property is worth at any point in time – in case you do not finish the build.

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