Expert Self-Build Mortgage Advice

If you’re looking for a mortgage to fund the building of your own home, it may be difficult to know where to turn for advice.

In recent years many lenders who previously used to offer self-build mortgages have stopped accepting applications, as lending restrictions and changing market conditions have led to them concentrating on selling more mainstream types of mortgage. 

The good news is that there are a number of lenders on the market offering self-build mortgages.

It’s also important to understand how self-build financing differs from a standard house purchase mortgage.

So here are a few things that you should bear in mind when deciding how to fund a self-build.

Funds Are Released In Stages

While standard residential mortgages usually release the entire loan amount for the property purchase on the date of completion, self-build mortgages typically release funds in multiple stages throughout the construction schedule.

You will have to make proportional mortgage payments (though often on an interest-only basis) from the first release of funds. 

Lending policies differ from one lender to the next. 

But in terms of how much you will be allowed to borrow, it’s common to lend a maximum of 75 per cent of the projected property value. Plus 75 per cent of the cost of purchasing the land on which your house is to be built.

Arrears vs Advance Stage

There are two main types of self-build mortgage, and these are often referred to as “arrears” and “advance stage” mortgages.

Both mortgage types involve releasing funds to you at predetermined stages of the build.

Typical release stages might include completion of the property foundations, completion of construction up to first-floor level, when the property is confirmed watertight, and so on.

It is common for lenders to request a property survey report at each construction stage – so remember to account for the costs of multiple survey fees in your building budget. 

“Arrears” type self-build mortgages are so called because the staged mortgage funds are released in arrears – after completion of each required phase of construction.

This means that you may need access to savings or other funds to pay for any up-front planning and construction costs that have to be covered before the mortgage funds are released.

The other type of self-build mortgage, “advance stage”, differs in that funds are advanced at the beginning of each construction stage, rather than after completion of each project phase. 

Advance stage mortgages are less common, but are offered by some lenders.

Rigorous Assessment

Self-build mortgage applications are subject to rigorous assessment.

Aside from the usual affordability and credit check factors, the lender will also require you to provide information such as cost projections for the build, full plans for the property and proof that planning permission has been obtained. 

You will also need to account for your living costs during construction, for example your ongoing mortgage or rental payments, or the costs of temporary accommodation.

Overall, it’s not unusual for a self-build mortgage application to take months, rather than weeks, to process.