Get the latest self build mortgage advice to ensure you secure funding for your project.
Image: Steph and Alex Wilson funded their barn-style build with profits from a land sale and a small self build mortgage Photo: Mark Bolton
Unless you are in the fortunate position of having enough money in the bank to cover the entire cost of your project, it is likely you’ll be looking to secure a self build mortgage. For the majority of self builders, it’s best to look for a specialist product tailored to suit the needs of building a home.
Set a budget for your self build
Start by establishing a budget, which ideally you must stick to. As a rough guide, assess the amount of cash and equity, subject to lending criteria, you already have along with the total you can afford to borrow via a self build mortgage, and then calculate the size and type of house you can build with the funds available. Or if you know the size of the property, work out in reverse how much it will be to buy a suitable plot and build the home of your dreams on it. Factor in the cost of where you live for the duration of the project. Can you stay on the site in a caravan, which you may have to buy, or will you need to rent somewhere to live?
When applying for a self build mortgage
A prospective lender will want to see evidence of the granted planning permission, detailed architectural drawings and specifications, as well as the total project costs. You need to be clear on all possible figures, such as fees for professional help, including valuations, as well as the build type, construction method and materials. Seek help from an experienced and qualified project manager to determine and prepare the total project costs and schedule of works with cash flow.
How do self build mortgages work?
Most lenders restrict the loan amount to up to 75 per cent of the final valuation. Finance is released at set stages during the build to ensure that you have the funds available for each phase of the project.
Image: This unusual self build treehouse home is in Dursley, Gloucestershire. Photo: Matt Chisnall
If you have been furloughed or are still furloughed by your employer, you will need to take expert advice from a reputable mortgage advisor. ‘A mortgage advisor will be able to guide you to the correct lender based on your personal circumstances,’ says Peter Hunt from Moneywatch Finance. ‘Those who are self-employed will be scrutinised in detail. Lenders will want to know if the business has been able to trade during lockdown, how it has been affected financially, what is the likely loss in income for the current tax year and has there been government assistance to maintain the business.’
Are your finances in good shape?
Peter Hunt, partner at Moneywatch Finance offers advice on the importance of a healthy credit score
- A good credit history is essential to obtaining a self build mortgage and it is important to obtain a copy of your credit report early on to find out what your score is. You can do this by registering on Check My File.
- A mortgage adviser will be able to tell you if your report is sufficient to obtain a self build mortgage. Incurring historical defaults or county court judgements will impact on your ability to secure an agreement, so it is most important to look after your credit.
- There are plenty of extremely good, trustworthy and reputable local advisers offering a first-rate service. Search for qualified whole of market and impartial self build mortgage advisers local to you by visiting Unbiased or Vouchedfor.
Can you afford it?
Mary Riley, founder of Mary Riley Solutions, on how self build mortgages have been affected in recent months.
- Lending requirements have been tweaked to accommodate COVID-19 underwriting. As a result, greater scrutiny is given to aspects of an applicant’s employment, such as which sector they work in, whether they have been furloughed – particularly if for more than three months - and if a salary is made up of basic pay with a bonus structure. Also, a cautious approach is taken to those with access to substantial credit-card loans, as this debt could get out of control. It is also tricky to access high loan to value self build mortgages, due to the current difficulty in predicting the finished property’s value.
- There are several factors that will increase your chances of securing a self build mortgage. Having secure employment is key, along with a minimal debt burden, funds to contribute to the project, evidence of a strong build team and a robust schedule of works showing time scales and cash flow.
- Importantly, all steps should be taken at the very beginning to add a healthy contingency to the total project costs, of at least 20 percent. And it really helps to provide a lender with evidence that you have monthly disposable income, which can be saved after all expenses have been accounted for.
For more practical advice for beginning your self build journey, read Grand Designs magazine digitally for free now by registering your details.