Self-build Mortgages

How much can I borrow?
The amount you can borrow for a self-build mortgage will depend on the same factors that decide how much you can borrow for a regular house mortgage. In most cases this will either be based on income multipliers (3-4x single income, 1.5 x joint) or, more often, affordability factors (lenders will assess your regular monthly outgoings and income set against how much the monthly loan will cost to repay).

This figure will then be assessed against loan to value (LTV) policies. These policies change weekly but, for example, lenders will provide funding for up to 80% of the value of the plot and 80% of the value of the building project.

What is a self-build mortgage?
A self-build mortgage is a specialist type of mortgage specifically designed for the needs of a self-build project. Money is drawn down in a series of stages rather than as a whole. Usually, the first stage is on completion of the purchase of the building plot. Subsequent stages – usually six – are released as the project progresses, e.g. foundations, wallplate, weathertight, first fix, etc.

Where do I go to get self-build finance?
It’s always worth checking with your existing lender or high street bank to see what arrangements can be made. It’s possible – although not probable – that they might be able to offer funding through an overdraft facility or commercial-style development loan.

For specialist self-build mortgages, you will need to go through one of the two specialist brokers (Buildstore or Self-builder) or if you want funds released in advance of the stages being completed. Regular arrears stage releases can also be found.

How would an example self-build project be financed?
This is based on a plot purchase of £200,000 and a build cost of £150,000.

The self-builder gets a self-build mortgage based on an LTV of 80%. He pays a £40,000 deposit from partial proceeds of the sale of his previous home, and services the £160,000 mortgage payments until such time as work proceeds. He then draws down the remaining £120,000 of the mortgage as work progresses, filling in the gaps in funding using his own capital.

By the end of the project, he has a mortgage of £280,000, having spent a total of £350,000 on the self-built home. In most instances the mortgage is then ported to regular house mortgage.

Further Reading:

• Current Self-build Mortgage Rates
  

• How Much Can I Borrow?
• Pre-Start Essentials: Mortgages
• Starting Out: Where will I get the money?
• Self Build Finance Made Easy - Mortgages