If you want to build your own house, or do significant renovation to a property, you will need to take out a special self-build mortgage to finance it.
Mortgages to build a house
Self-build mortgages work differently from house purchase mortgages – rather than getting all the money upfront, the money is released in stages to fund the construction.
These stages may include:
• Buying the land
• Laying the foundations
• Building the property up to roof level
• Waterproofing the property
• Plastering the interior walls
• Finishing touches
How much money you get at each stage of the build will depend on the individual lender.
There are two types of self-build mortgage – arrears-based and advance payment. With an arrears-based mortgage you receive the money after each construction stage, so you initially need to cover the cost yourself.
With an advance payment mortgage the lender releases the money in stages before the work is done. Most home-owners prefer this type of loan – as it puts less financial strain on them – but not all lenders will be prepared to lend in this way.
Getting a self-build mortgage
Because self-build mortgages are relatively risky for the lender you will need a deposit of at least 20% – and the most attractive deals require 40% or more. Lenders will typically give you up to 75% of the cost of buying the land and of building the property.
Most lenders will also expect you to have all the relevant planning permission in place before you approach them. They will also want to see detailed plans of what you intend to build, including projected costs.
You should think very carefully about this and make sure you cover everything from building costs and materials to professional fees and land costs. Bear in mind that lenders will expect you to employ professional builders and other contractors rather than doing the work yourself. It is sensible to build in a contingency budget of around 10% to cover the cost of any unexpected expenses.
Self build mortgage advice
Not all lenders offer self-build mortgages so you have less choice than with a normal residential mortgage. So it’s really important you get impartial advice to ensure you get the best mortgage deal available and don’t pay over the odds.
You can speak to a Which? mortgage adviser by calling us on 0117 981 7787 or request a call back. Our advisers look at every mortgage from every available lender, and because they’re paid a salary – not a sales commission – you can have confidence that you’ll receive truly impartial advice.