A self build mortgage could make your dream home a reality. Check out how it works and if it’s right for you

Holm Place, a self build home in hampshire featured in grand designs mag december 2017

Image: Martin Gardner

The good thing about a building project is that it can be financed in stages and doesn’t require all the money up front in the way a traditional house purchase does.

It does, however, need very careful planning. This simple guide to self-build finance will get you started.

How do I pay for my self build?

Securing the finances to construct your dream home is quite different from buying a house in the traditional way, in that you pay for custom-build projects in stages. It differs depending on your developer, but in most cases you’ll pay for the land, another payment when the foundations are finished, and then again when the walls and roof are up, and at other stages until the property is complete.

Working to a fragmented schedule means you don’t need all the funds outright to consider a self-build project – a dozen or more lenders offer tailored mortgages to help finance properties built in this way. It may seem daunting but mortgage advisers, brokers and companies, such as Mary Riley Custom Build Funding and BuildStore, can guide you through the self-build financing maze.

When applying for a mortgage, proceed carefully, as too many credit searches can affect your rating. You can sign up to an agency, such as Experian or Equifax, that allows you to obtain your personal credit file in advance of contacting a specialist mortgage consultant or bank. Take your time and don’t jump at the first offer. Proceed only once you are comfortable with the lending terms and certain that the staged payments link in with your own cash and supplier payment terms.

How do self build mortgages work?

Most lenders restrict the loan amount to 60 per cent of the final valuation and stipulate that it does not exceed 7 per cent of the total cost of the build and land. Finance is released at set stages during the build to ensure that you have the funds available for each phase of the project.

How can I get the best return on investment?

Generally speaking, building the largest possible house for the plot will give you the best return on investment. Before purchasing a plot, hire a RICS surveyor to look at the comparables and give you a price per square metre valuation for the house you’re proposing. Andrew Searchfield, CEO at Searchfield Homes.

How to I apply for a self build mortgage?

Formulate a budget so you can provide details to the bank when applying for a self-build mortgage. Ensure any savings are easy to access.

Make a plan to show a lender, including a projection of costs and planning permission details. All factors, including people and materials, will affect how much will be lent. Switch to a lower rate once the property is built.

What interest rates will a lender charge?

Initial mortgage rates are usually between four and six per cent, but it may be possible to change this once the lender does a final valuation.

Get an expert on board to determine what the best deposits, rates and terms are.

Time your project around the payment schedule. Most lenders release the money in stages. It will either be an arrears-type mortgage, with payments given as each build stage is reached, or an advance one, where payments are released at the start of a phase. Some will want to inspect before signing off the next sum of money.

Finance checklist

Hire a RICS surveyor before you buy a plot and apply for finance. He or she will be able to give you a price per square metre valuation for the house you are planning to build.

Put together a budget and a plan for your self build mortgage application. Include as much detail as possible around costs and planning permissions.

Switch to a lower rate on completion.

Use your payment schedule to lead your project.

Too many credit searches can affect your rating. Signing up to an agency such as Experian or Equifax can help.

Don’t be rushed into making a decision. Make sure you are comfortable with the terms and conditions of any mortgage offer.

Double and triple check that payments will be in sync with your own cash and supplier payment terms.

Useful contacts

Mary Riley Custom Build Funding

Peter Hunt Moneywatch Finance

Buildstore 

Experian 

Equifax 

Find out more about financing your self build project from the grand designers at Grand Designs Live 

Words: Seoana Sherry-Brennan

Are you planning a self build and have some advice to share?  Tweet us @granddesignsmag or post a comment on our Facebook page

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