Building your own home has become increasingly popular. The already high and ever increasing property prices make it hard for individuals to move up the property ladder.
Self build projects are a potential way of bringing the property of your dreams into your price range. Self build or self-managed build projects and renovations obviously do not carry the cost of the significant profit that is usually gained by the developer and this is what makes them so attractive.
However there is a lot of hard work involved and there are many potential pitfalls in the self build process.
Financing your self build property
One of the first major hurdles is arranging suitable finance – we can help you with this.
Self-build mortgages are specifically designed for homeowners who wish to build their own home. It is more difficult to find a self-build mortgage for first time buyer applicants.
How self-build is different
The main difference between a traditional mortgage and a self-build mortgage is the way the funds are released. With a traditional mortgage, funds are released on completion via a solicitor on the day the borrower moves into their new home. With a self-build mortgage, funds are released before completion so that works can be paid before the completion of build.
Self-build expenditure stages
The expenditure of most self-build projects can be broken down into 7 key stages:
- Purchasing the land.
- Obtaining planning permissions and building approvals – not a significant expenditure stage, but an important step
- Initial project costs and laying foundations
- Construction to wall plate level (and timber frame erected, if appropriate)
- Building made wind and watertight
- First fix and plastering
- Second fix through to completion
Self-build mortgages allow you to draw funds at each of these stages throughout the build.
Building regulation approval and planning approval will need to be applied for before arranging a self-build mortgage. Lenders will wish to see the following to support a self-build mortgage application:
- Architectural Drawings
- NHBC or equivalent warranty
- Copy of the Planning Permission & Building Regulations
- Full breakdown of works to be undertaken with details of who will carry it out (i.e. a contracted builder or yourself)
- Detailed budget of income(s) and outgoings including project costs and cash flow projections
- The usual traditional mortgage supporting documents to verify the applicant’s income and identity, i.e. payslips, passport, recent utility bill, bank statements etc.
At the beginning of a building project, it is essential to have a comprehensive budget, with as much detail about income(s) and outgoings as possible. You will need to know precisely how much funding is required at each stage of the build.
An example of how a self-build mortgage can work
A self-build applicant can apply for a self-build mortgage on an interest-only basis for a term up to 18 months during the construction period. The idea is to keep mortgage costs low during this period. At the end of the 18 month period, the most popular option is to change this mortgage onto a capital and interest repayment basis.