What is a Self-Build Mortgage?
On a very basic level, a self-build mortgage is the same as any other type of mortgage – you take out a loan to purchase a property and pay the money back to the lender in regular instalments plus interest. However, the big difference with a self-build mortgage is that while a typical residential mortgage will release the agreed funds in a lump sum, a self-build mortgage is structured so that sums are released in ‘tranches’ at stages along the building process.
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The way the releasing of funds is structured will vary from one lender to another, and some may stipulate more stages than others. Common milestones for when money is released will be initially to fund the plot purchase, then when the first floor is constructed, when the eaves are in place, when the roof is watertight and finally when the building is complete. You’ll usually find that the mortgage will operate on an interest-only basis until all the funds are released, at which point it will revert to a repayment mortgage.
All lenders release funds in stages for a self-build mortgage, with most paying out only after you have completed each stage and had it signed off by a surveyor (meaning the asset is in place), but some lenders will accept releasing monies in advance of each build stage. The kind of deal you will need for your mortgage will depend on the level of capital you have in hand to pay for the initial purchase of land and materials and the deposit on contractors.
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For convenient reference, here is a table showing the typical stages of a self-build, both for brick/block construction or a timber frame property:
| Stages | Brick or Block | Timber Framed |
| Stage 1 | Purchase of Land | Purchase of Land |
| Stage 2 | Preliminary costs & Foundations | Preliminary costs & Foundations |
| Stage 3 | Wall Plate Level | Timber Frame Kit Erected |
| Stage 4 | Wind & Watertight | Wind & Watertight |
| Stage 5 | 1st Fix & Plastering | 1st Fix & Plastering |
| Stage 6 | 2nd Fix to Completion | 2nd Fix to Completion |
Helping you towards your Self-Build mortgage
The vast majority of people thinking about their first or next new property will be looking at buying a newly built or existing house, flat or maisonette – whichever fits into their idea of their dream home. For a significant minority however, the path to their ideal place to live lies not in what has already been constructed, but in what they can create for themselves – a house designed to their own specifications and built to exacting standards by contractors they have been able to vet themselves.
People choosing to build their own homes can have rooms of exactly the right size and number they require, open-plan or sectioned spaces to their liking and every surface, fitting and fixture down to the finest detail supplied according to their tastes.
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However, you plan to proceed with the design and construction of your custom-built dream home, in order to fund the land purchase and construction work you will need to arrange a special type of loan or self-build mortgage. The experienced team at The Mortgage Centres can help you to find exactly the right lender and mortgage deal to meet your needs.
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These calculators are great for getting a quick guide, but if you want a completely accurate assessment then you should talk to one of our professional advisers.
We’ll oversee your mortgage application from beginning to end and will keep you updated throughout the process. If you’re considering a remortgage or are a first-time buyer, moving home or looking at a buy-to-let mortgage, it doesn’t have to be complicated – let us do the hard work for you.
Self-Build mortgage advice
A self-build mortgage can be quite complex to arrange and maintain over the course of your build and ongoing once you have moved in. It’s imperative for you to get the right advice so that you end up with a deal that works well with your budget and schedule.
Advantages of Self-Build mortgages
The biggest advantage is of course being able to oversee the construction of a property that is designed and built to your exact design and specifications. A self-build home can be an incredibly satisfying project
The cost of building your dream home could also work out to be cheaper than if you had bought the equivalent new build property in the same area. After all, the property developers who construct new homes have to make a profit, and in this case, you won’t have to fund that mark-up.
Another advantage could be in the amount of Stamp Duty Land Tax that you pay – if indeed you need to pay any at all.
Disadvantages of Self-Build mortgages
Self-build mortgages can tend to be more expensive than conventional residential mortgages, and often carry higher interest rates and peripheral fees. Lenders also ask for a substantial deposit, usually a minimum of 25% but often as much as 50%, depending on your particular circumstances. You may need to find a lot more cash upfront to fund the land purchase and advance building costs.
Lenders of self-build mortgages will also ask to see a lot of detailed documentation around the construction project. You may need to supply planning permission documents, floorplans and a complete projection of the anticipated costs.
Also, you need to bear in mind that you will need to cover your own accommodation on top of your construction costs while the build is taking place, unless you already have access to private accommodation through personal means. You may have to cover your existing mortgage or rent on your current home, or rent another property for a potentially long period of time depending on the complexity of the project.
Mortgage to buy land
The first stage will be to find the plot of land on which you want to construct your ideal home, and then also ensure that it carries the appropriate planning permission to build on it. If not, then you will also need to engage a planning consultant and make an application to the local authority, which you can do before you own the land.
Once the permissions are in place, you’ll be able to look into getting a mortgage to fund your self-build property. Lenders will generally offer a figure between 50%–75% of the value of the land, but not beyond that maximum. As there will be charges each time the lender releases a tranche of money, it could be more cost-effective to get as much mortgage on the land as possible and then use your own cash resources to fund the cost of the build, if your personal circumstances will allow. It’s definitely best to talk over your strategy with a self-build specialist adviser so they can identify what the best options will be in your individual case.
Self-Build mortgage rates
You will find that self-build mortgage rates are a great deal higher than interest rates on conventional residential mortgages. For this reason, we will usually identify mortgage plans that do not carry any penalties for early repayment or remortgaging, so that you will more easily be able to either move your mortgage to another lender at a later date, to take advantage of a better rate, or pay off the mortgage through a cash injection from another source.
Due to the possible exposure to unnecessary costs, it’s advisable to keep in touch with your mortgage adviser so that your remortgaging options can be examined in the lead-up to the end of any introductory deal period, and your application to remortgage can be submitted at the earliest opportunity.
95% LTV Help to Build Scheme
The Government have announced a series of measures to assist self builders. One such measure is the introduction of the 95% LTV Help to Build Mortgage Scheme.
In April 2021 it was announced that the scheme is to be backed by initial funding of £150 million that will be allocated over 4 years with the anticipation that this will assist between 30,000 to 40,000 self build homes in the UK every year.
The scheme will be under a similar guise to the government’s current help to buy shared equity scheme that is aimed at the new build sector. There are key differences as the help to buy scheme is now purely for first time buyers and the equity loan in paid to the developer. With the Help to Build scheme the applicant would arrange a mortgage with a personal 5% deposit in the same way however the 20% equity loan would be paid on practical completion. On completion of the build the government loan is then paid to the lender and in turn reduced the loan to value to 75% of the build cost.
The government’s action plan gives a timetable of the Help to Build Prospectus being issued in Spring and the applications for the scheme to be open in late summer.
Self-Build mortgage lenders
As self-build projects can be quite a complicated niche-market exercise, your options for a mortgage lender could be quite limited. Not many lenders venture into this corner of the property market, and those that do tend to be very specialist, or highly risk-averse, or both.
Our team at The Mortgage Centres includes experts in every kind of mortgage available across the broad spectrum of the market, including self-build mortgages, and will know exactly which lenders will be able to accommodate your schedule and meet your needs. Naturally, a lot will depend on your individual circumstances. We’ll also be familiar with each lender’s criteria and know what approach they normally take to self-build projects, what percentage of the land value they are usually willing to lend and, of course, which will offer the most favourable terms in your case.
At The Mortgage Centres, it’s our job to make obtaining and managing your mortgage as straightforward as possible and on the most favourable terms. Thanks to our great relationships with lenders across the UK mortgage market, we are able to access the most competitive self-build mortgage deals available, including those from smaller, more specialist lenders. Contact us today to discuss how we can help you build your dream home.
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