Self Build Mortgages

If you’re planning to build a house yourself and looking to obtain finance for the project, then a self-build mortgage could be the solution you’re looking for. But, there are some important aspects of the borrowing process you should understand first.

This guide covers everything you need to know about how these mortgages work and the steps involved when setting one up. You’ll also learn about the deposit requirements, alternatives options, and how you can use professional support to access the best rates.

What is a self-build mortgage?

This is a type of loan that’s used for a house you’re planning to build. The key difference between this and a regular mortgage is that the funds are distributed at critical points throughout the construction process, rather than in one go. Releasing money in instalments and splitting your loan up helps to reduce the risk for lenders.

If you’re buying land, this arrangement can help you finance the purchase before going ahead with the building work. One major benefit is that you only pay stamp duty on the land you’re purchasing. So, being able to legally avoid stamp duty on the property can potentially save you thousands when compared to buying a conventional house.

How these loans work

There are two main types of self-build mortgages.

Each version relates to the ways funds are released:

Are self-build mortgages hard to get?

They can be difficult to obtain. But, with the right information and advice it’s completely possible. There are a limited number of lenders offering self-build mortgages. And, the interest rates and deposit requirements can be higher for this type of finance.

Because it’s a niche area you’ll have to consider things like planning permission, material costs, and architectural plans. So, it’s important to seek the guidance of a broker with experience arranging mortgages for self-build projects.

They’ll be able to speak on your behalf with the lenders who’ll offer you the best terms for your specific circumstances and goals.

How to get a self-build mortgage

Although each process will depend on your situation and how you’d like to structure the loan, here are some steps that you can follow to successfully secure a mortgage to build a house:

Lending eligibility criteria

The eligibility criteria for a self-build mortgage can vary widely between lenders, and each will have different requirements compared to a standard mortgage.

To give you some guidance, here are some of the main considerations that will impact your ability to secure this kind of finance:

• House type: the type of building you’re looking to build can impact the loans available. For example, some lenders will not be willing to even consider a semi-detached property. And others will want to know about the materials being used, along with plenty of additional building-specific factors.
• Property use: whether the house is going to be used as your main residence, a buy-to-let (BTL) property, or as a holiday home will make a difference to your application.
• Multi-plot project: you might be looking to buy land in order to develop and build multiple homes. If that’s the case, lenders will want to fully understand your plans and what you’re looking to do with the buildings before offering a loan.
• The number of building stages: every property is different and some will involve more stages than others. Some lenders will have a minimum and maximum number of building phases that you must fall within to qualify for finance. More stages can offer you better flexibility, whereas fewer stages might require you to be more efficient.
• Who’s doing the work: whether it’s you or someone else doing the construction will factor into assessments by lenders. They’ll want to review your credentials or those of any contractors you’re using.

How much you can borrow

Some self-build lenders place a cap on the amount you’re able to borrow, with between £1 million and £2 million being standard. Some go higher than this, but anything over that amount would be classed as a high net worth deal and may need a specialist lender.

At the lower end of the scale, first-time buyers usually find restrictions on their maximum borrowing. Around £300,000 is a typical cap you may encounter without experience.

The exact amount you qualify for will be determined by a number of different things, and will depend both on your personal circumstances and the kind of property you’re looking to build.

Each lender will have their own limits around how much they’ll be willing to let you borrow.

The size of the deposit you’ll need

Most lenders will look for at least a 25% deposit (based on the estimated final valuation). Others have stricter requirements, wanting a 65% or 70% LTV. However, the amount you’re looking to borrow, the type of property you’re building, and your personal circumstances will all be determining factors for the deposit requirements.

There is also the possibility of proceeding without a deposit. You’d likely need to use a valuable asset as security, such as another property, but in some rare instances you can arrange a self-build mortgage with no deposit.

Some lenders will also let you use the value of the land you’re planning to build on as part of the deposit (providing you own it).

Lenders and rates

Take a look at your rates table below to get an idea of the current self-build mortgage deals on the market and which lenders are offering them.

Please note that the above rates were accurate at the time of writing, but are always subject to change. Speaking to a mortgage broker is the best way to find the most up-to-date deals.

Alternative options

If you’re looking to access funds to build a house or develop a plot of land, this isn’t your only option.

Here are some alternatives to self-build mortgages for you to consider:

• Remortgage: if you own a property already, it could be worthwhile investigating the possibility of remortgaging to secure funds.
• Second mortgage: it can be possible to take out another mortgage, known as second charge borrowing.
• Specific building finance: there are other financing options available such as development finance, joint venture property development finance, and mezzanine finance.
• Equity release: for those over the age of 55, it may be possible to access money tied up in your existing property or mortgage by using an equity release scheme.
• Bridging finance: you can arrange bridging finance designed specifically for building a house. It’s unlikely the funds would cover the entire project, but a bridge loan can definitely help with getting a mortgage set up or securing a plot of land.
• Secured loan: using a valuable asset (or another property) might allow you to access money, using the asset as collateral for a secured loan.

Other things to consider

Although this type of finance can serve as an excellent tool in your home-building journey, there are some important things to consider before you press ahead:

• The process can involve a lot of paperwork that all needs to be completed to a thorough and precise standard. If dealing with red tape and bureaucracy isn’t your forte, assistance from a skilled advisor is extremely useful.
• You might need to prove you have the necessary planning permission to build a property before a lender will even entertain a discussion.
• Building a home can take a long time and you need to think about arranging temporary or rental accommodation for the duration of the process.
• Unexpected time delays and surprise costs are part and parcel of an ambitious venture like this.
• Advance funding needs to be secured against an insurance policy. So, this can be an added cost that needs to be factored in. Premiums can be high for this type of policy, so it’s worthwhile getting advice from an expert broker who can help arrange this for the best price.

Speak to a self-build mortgage expert

Finding an appropriate mortgage when you’re looking to build a house yourself can be a confusing and lengthy process. With so many moving parts involved, it’s important you deal with the lenders who are going to be best-suited to your specific plans and budget.

Our free broker-matching service means that we’ll quickly assess your needs and then pair you up with a local expert who has existing relationships with lenders. This will allow you access to the best deals and loan structure for your project.

Just call 0808 189 0463 or make an enquiry.

We’ll arrange a chat between you and your ideal broker today. It won’t cost you anything and you don’t have to make any sort of commitment, so you’ve got nothing to lose.