Every year approximately 1200 build their own homes in the UK, this includes newly constructed properties, barn conversions and renovation projects.
Self Build Mortgages are specifically designed for homeowners who wish to build their own home (i.e. to be rented out or available to property developers). It is more difficult to find a Self Build Mortgage for first time buyer applicants.
The main difference between a traditional mortgage and a Self Build mortgage is the way the funds are release. With a traditional mortgage, funds are release on completion via a Solicitor the day that they move 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.
The expenditure of most self build projects can be broken down into 7 key stages:
1. Purchasing the land. Obtaining planning permissions and building approvals – not a significant expenditure stage, but an important step
2. Initial project costs and laying foundations
3. Construction to wall plate level (and timber frame erected, if appropriate)
4. Building made wind and watertight
5. First fix and plastering
6. 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 prior to arrange 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 incomings 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 incomings and outgoings as possible. You 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 revert this mortgage onto a repayment basis.