Financing your self-build
If you’re thinking of starting a self-build project, aside from the dreams of your ideal home, one of your first (practical) thoughts will likely be ‘how much will it cost?’ and ‘how can I find the money?’ There is a huge amount of very detailed information out there regarding loans for self-build, and getting an understanding of the basics is no easy feat!
Below is a brief and concise summary of self-build mortgages as a starting point to explore the options in more detail. Self-build finance specialists “The Build Store” can provide a helping hand to progress you to the next stages.
Self-build mortgage options
The different options available vary from provider to provider. Most lenders will lend no more than 75% of the cost of the building plot and around 60% of build costs. More and more self-build mortgage lenders will allow you to remain in your current home, rather than selling to fund the build. If you take this option, a capital raising charge is taken out on your current home in conjunction with the mortgage. (Source: Threshold Mortgage Advice)
What makes self-build mortgages different from regular ones is that they are broken down into a number of stages usually between 4 and 7 depending on the provider and type of mortgage.
Arrears Stage Payment Mortgages
Arrears mortgages are known as the “traditional” self-build mortgage. The funds are released at the end of each stage once the provider deems it complete. Often your self-build mortgage provider will inspect the site and carry out an interim valuation after every stage before providing the next round of funding. These inspections and extra administration make self-build loans more expensive than conventional mortgages. (Source: TheMoveChannel)
Note: With this form of mortgage you will need cash available to fund each stage of the building work before you receive your next round of funding.
An example of a 4 stage arrears mortgage:
If the project is broken into 4 equal stages that represent 25% of the build cost. Once the first stage is completed the first 25% of the funds will be released and so on. These stages may look something like:-
- Roof plate
- Remainder to completion
Advance stage payment mortgages
The main difference between this and the option above is the timing of when you receive the funding. With advance mortgages you still receive the funding in stages but unlike arrears mortgages the money is received at the beginning of the stage. These mortgages are generally more expensive than arrears due to the added risk the lender is taking by lending at the beginning of each stage.
The obvious advantage to an advance stage payment mortgage is you have a positive cash flow from the outset. This makes the process quicker as the labour and materials can be paid for when needed. Things are also sped up by the fact that you don’t have to wait for interim valuations as the lending is based on cost not on value. (Source:TheMoveChannel)
Finding the right architect
The key to a successful self-build is good research and planning and it’s wise to get your architect involved as early as possible to help with this. Choosing the right architect for your self-build is a critical first step, but we know that finding the right one can be a bit of a minefield. This is exactly why I set up this website in the first place! Register your project below and we’ll help you to find the right person for your project in no time…
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