Self-Build Mortgages
Recent excitement in the media about self-build properties has focused on the latest construction material to be used successfully – namely straw. The first straw houses to be offered on the open market in the UK are now on sale. Though straw houses might remind you of a certain story about little pigs, experts say that the material could help to sustainably meet housing demand in the long term, either by being included in the materials used by major house builders or as part of a low cost self-build package.
However, in the short term a lack of mortgage finance for ‘non-standard’ straw construction homes means that most self-build homeowners will need to stick to slightly more conventional construction methods.
In our experience, it isn’t the type of materials that constrain self-build projects as much as a lack of finance. Getting your finances in order is an essential starting point for your self-build project. It is likely that you will need to borrow money at some point, so arranging the right mortgage for your project is crucial to its success.
Of course a self-build mortgage differs from a standard residential mortgage you would use to buy an already finished property to live in or rent out because the money needs to be release in a series of staged payments throughout the build process. There are many different ways in which these payments are released by the lender and your choice of self-build mortgage will depend on your own individual requirements.
That’s why it is vital to speak to an independent self-build mortgage advisor to discuss your circumstances, objectives and options before you start your project. Make sure that you discuss your requirements in detail and give as much information as you can so that your advisor can recommend the ideal product from the many schemes offered by lenders to help you finance your project.
The different stages of a self-build project are clearly identifiable, from the purchase of the land and digging of the foundations to the final fix and completion. At each stage the value of the property increases. To fund the project as it progresses, there are two distinct types of self-build mortgage called ‘advance’ and ‘arrears’, depending on when you get the money during the build.
The most common type of self-build mortgage is on an ‘arrears’ basis, where the lender releases money to buy the land, normally somewhere between 50% and 85% of the purchase price or value of the land but then releases staged payments to correspond with defined build stages. The money is advanced at the end of each stage once the work has been done (i.e. in arrears) and a valuer has visited the site and approved it. This type of self-build mortgage is ideal for self-builders who have enough savings to put down at least at 15% deposit on the land and still have enough cash to fund the initial stages of the build.
However, that funding strategy is not always possible for every self-builder so there is an alternative – an ‘advance’ self-build mortgage – where money is released for each stage at the beginning rather than after completion of the stage. This may be a more expensive option, and is not available to everyone, but it does give you the cash you need to buy materials and services as you go. If you only have a small amount of savings available and don’t wish to sell your existing property to release its equity before your new property is finished, this could be the right product for you.
What should you do?
Why not contact Marchwood IFA for a chat about your own self-build financing options? Unlike individual high street banks and building societies, we are not limited in the range of mortgages we can consider for you. Finding the right self-build mortgage product is one thing but getting a mortgage offer is altogether different. And this is where we really add value. Our sole objective is to get you what you want in the most painless way possible. When dealing directly with the banks this is not always as straightforward as it should be. We collect everything required from you and liaise on your behalf with the lender until the mortgage offer is produced, the staged payments are released and you move into your new home. Whatever kind of self-build property you are financing, we have the skills, tools and experience to help.
Your home may be repossessed if you do not keep up repayments on your mortgage.