Building your own home is a dream for many but if you need a self-build mortgage, the process can be time consuming and stressful. It is why it helps to have a team on your side that understands how to secure the right self-build mortgage for your project.
A specialist product, a self-build mortgage can help finance the building of your own home or fund major renovations for an existing property. They differ from traditional mortgages as funds are released in stages as opposed to a single lump sum.
Kellands’ independent mortgage advisors have provided advice for clients seeking self-build mortgages for over 25 years. Our experienced and professional staff will help you identify the self-build product that best suits your needs.
We will also guide you through each step of the construction and finance process for your new home project.
When are payments released?
Each project differs, however here is a guide to the typical steps a lender will follow when releasing payments:
- Purchase of land
- Preliminary costs and foundations
- Wall plate level
- Wind and watertight
- First fix and plastering
- Second fix to completion
What is a “payment in arrears” self-build mortgage?
The majority of lenders will make the payments in arrears at a standard ‘Loan to Value’ (LTV) of 75%, although this percentage can vary.
Here is a typical example:
- Purchase of land – if you paid £500,000 for your plot, upon completion the lender would pay you £375,000, i.e. 75% of the purchase price. This would then be set against the cost to complete preliminary works and the foundations.
- Completion of preliminary works and foundations – if required, the lender would pay a second lump sum at 75% of the cost of works or the enhanced value. This would then be set against the cost to raise the property walls to the wall plate.
- Build to wall plate – if required, the lender would pay a third lump sum at 75% of the cost of raising the build to wall plate or the enhanced value. This would be then set against the cost of making the property wind and watertight.
- These steps continue until the property is completed.
An inspection and an interim valuation will be carried out at each stage that money is required, to ensure the value of the self-build home supports the loan from the lender. This pattern will continue until the build of your new home is complete.
What is a “payment in advance” self-build mortgage?
There are some self-build mortgage products in the market that allow for payments to be made in advance and the payment stages follow the same pattern set out for self-build mortgage in arrears.
For example, if you agreed to buy a plot of land for £500,000 and the lender agreed the valuation, you could then receive a loan of up to 85% (£425,000) when contracts are exchanged for the completion of the purchase.
Further stage payments could apply. However, the staged loan is dependent upon the anticipated enhanced value or cost of works as set out in an agreed schedule at the start of the loan, and is paid before the start of each agreed stage until the build is complete.
What else should I consider?
Each self-build is unique and our advisors are here to help you avoid some of the pitfalls and ensure that you secure the finance necessary to complete your home. Beyond finance, there are many other aspects to consider, such as:
- Finding a plot of land
- The type of construction e.g. brick build construction or a timber frame?
- Determining the extent of your involvement in the build e.g. will you use an architect and a project manager?
- Will you use one company to do the build, or a number of contractors?
- Will you insure the build of your property and what warranty will you use for the build once it is completed?
The key to building your own property successfully is planning and ensuring that you receive expert advice along the way.
Whether you are embarking on your first self-build project, or have built property before, Kellands’ advisors will be delighted to pass on our expertise and experience to help you obtain the most appropriate self-build mortgage for your needs.
Your home may be repossessed if you do not keep up repayments on your mortgage.