Self-build Finance - Case Studies

Case Study One

A young first-time buyer couple with:

• a joint income of £61,000
• a £30,000 deposit
• £100,000 plot price
• £140,000 build costs 

In this example, whilst both advance and arrears stage payment lenders are likely to lend the £210,000 that the couple require, the £30,000 that the couple have would be insufficient working capital during the project if they choose an arrears-type mortgage, unless they have access to additional short-term or family money. If, on the other hand, they choose the advance-type mortgage, they should be in positive cash-flow throughout the project using only their initial deposit (SEE TABLE BELOW).

Advance vs Standard: How the mortgages compare

(Based on plot price of £100,000 and a build cost of £140,000)

The table is designed to show cashflow at various stages through a building project. (1)Lending 75% in arrears — amount lent at start of stage. For example, as payments are released in arrears at 75%, the lender releases 75% of the £50,000 required to get the house to wall plate level — during the first fix stage. (2)Lending 95% in advance — amount lent at start of stage.

Case Study Two

An older couple with:

• equity of £247,000
• income of £48,000
• £150,000 plot price
• £240,000 build costs

These self-builders have considerable equity in their home (£247,000) and they will require a mortgage of £143,000 when the project is finished. This mortgage is attainable for somebody with this income as it’s less than three times their earnings. These self-builders have three options:

Option one: They could sell their existing home and use the equity plus additional borrowing to fund the project. They’d need to find somewhere to rent in the meantime but they would typically use an arrears stage-type mortgage of their estimated end borrowing requirement of £143,000.

Option two: They could use an advance stage payment mortgage with a higher short-term borrowing facility. This would work if they had some savings to support the additional borrowing. They could borrow 95% of the land value plus 95% of the build costs in advance if they had savings of £38,235 to support this borrowing in addition to their deposit for the build. This would be made up by borrowing based on:

• four times income of £48,0000 = £192,000
• borrowing of £178,500 based on savings

Option three: They could remortgage their existing home to raise capital based on the £48,000 income and then take out a self-build mortgage. However, because the service costs of the remortgage would be taken as a commitment, the amount they could borrow on this second mortgage might be a little short.

Further Reading:

• Self Build Finance Made Easy - How Much Can I Borrow?
• Self Build Finance Made Easy - Mortgages