Self Build Finance Made Easy - Mortgages

What is the difference between an ordinary mortgage and a self-build mortgage?

They’re just the same and a self-build mortgage can exist in all of the same varied forms as an ordinary mortgage, from repayment to interest only.

The thing that differentiates a self-build mortgage from any other mortgage is in its operation and the existence of stage payments. If there are no stage payments during the build or if those stage payments are positioned so far back in the build process as to make them meaningless, then it’s not a self-build mortgage.

To be a true self-build mortgage, the payments must also take in the land purchase stages.

At what point will I actually get the stage payments?

There are two types of self-build mortgage: the arrears type, where the stage payments are given as each stage of the build is reached, and the advance type, where the stage payments are released at the start of each stage of the build.

The arrears-type self-build mortgage is still suitable for many who, for example, have a large cash injection of their own to put into the project. For those on shorter means, this kind of mortgage can lead to cash shortfalls during the build and delays whilst they wait for a fresh cash injection. Additionally, many lenders giving this kind of self-build mortgage will typically only release 75% of the costs during the build period and will keep a retention of the loan amount until the project is finished.

The advance stage payment mortgage means that the money is in their bank and, therefore, available at the point of need when labour and materials bills fall due. Typically the advance payment mortgages give up to 95% of the value of the land, plus 95% of the building costs up to a maximum of 95% of the eventual value of the home, subject, of course, to the borrower’s income status.

When are the fees due?

Self-build mortgages carry the same fees as a lender’s standard mortgage but there are a couple of additional costs. On the arrears stage payment mortgage, an interim valuation is required at each stage before funds are released. There are usually four stages and the typical inspection fee is £55, making a total extra cost of £220.

An advance stage mortgage does not require interim stage valuations but there are additional costs in getting the money in advance. This cost depends to a degree on the amount of additional cash-flow required and the amount that the self-builders are putting in. The cost starts at £252.50 with a typical cost being in the region of £780.

In addition there is the broker’s fee. BuildStore’s arrangement fee for an advance stage mortgage is £295 regardless of the loan amount. For an arrears stage payment mortgage or remortgage the fee is £195. An advance stage mortgage and a remortgage for the same client at the same time attracts just the £295 fee.

AFSBM charges 0.75% of the loan for borrowing between £100,000 and £260,000, subject to a minimum service fee of £750. For loans between £260,001 and £400,000 the service fee is 0.75% capped at £1,950, and for loans from £400,001 to £500,000 the service fee is 0.5%. Above £500,000 the fee is negotiable.

Are there any penalties for early repayment?

There can be early repayment charges imposed on some mortgages but many lenders do not impose them. If you’re likely to find yourself in this position then be sure to inform your mortgage advisor at the outset, before signing anything, so that they can tailor the right package for you.

Further Reading:

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