Self-build mortgages

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Self-build mortgage

When it comes to building your own home, the financial aspects can often feel like a daunting task. One of the most significant parts of this journey is understanding and securing a self-build mortgage. Unlike a traditional mortgage, a self-build mortgage is a specialist type of home loan designed for individuals who want to build their own homes. Instead of providing the full loan amount at once, the lender releases funds in stages as the project progresses, which can be tailored to suit specific build requirements and milestones.

These mortgages can cover a range of scenarios, from completely new builds to extensive renovations or conversions. As with any financial commitment, it’s crucial to understand the process, terms, potential risks and benefits associated with a self-build mortgage. Whether you’re a first-time home builder or looking for new financing options for your next project, this comprehensive guide can help shed light on the world of self-build mortgages.

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What is a self-build mortgage?

A self-build mortgage is a type of home loan specifically designed for individuals who are looking to build their own home rather than purchasing an existing one. It is particularly suited for those who plan on undertaking a self-build project, where the homeowner takes on the role of the contractor to construct their home.

What sets self-build mortgages apart from standard mortgages is how the money is released. Instead of receiving the loan as a lump sum, as is common with standard mortgages, with a self-build mortgage, the money is typically released in stages as the build progresses. This might be, for example, after the purchase of the land, after the foundations are laid, after the property is weatherproof, and so on.

These stages can vary from lender to lender, and some may offer a choice between an arrears stage payment mortgage, where money is released after each stage has been completed and inspected, or an advance stage payment mortgage, where funds are released at the beginning of each stage. The latter can be useful for those who might not have the cash flow to fund each stage upfront.

Getting a self-build mortgage can often be more complex and potentially more expensive than a traditional mortgage due to the increased risks involved for the lender. As such, they might require a larger deposit and have stricter criteria. But they also can provide the means for people to build their own homes tailored to their needs and preferences.

How do I apply for a self-build mortgage?

Applying for a self-build mortgage in the UK involves several steps. The process may vary slightly between lenders, but here’s a general guide:

Planning: Before you apply for a self-build mortgage, it’s essential to have a detailed plan for your build. This should include architectural drawings, planning permission, a comprehensive budget, and a timeline for the build. Some lenders might also want to see the CVs of professionals involved in your project, such as your builder or architect, to ensure they are reputable.

Research: Look for lenders who provide self-build mortgages and research their terms and conditions. Check their interest rates, how they release the funds, the stages at which they release funds, and any other special conditions they might have. You might want to use a specialist broker to help with this.

Preparation: Get your finances in order. You will need to prove you can afford the mortgage. This typically involves providing bank statements, proof of income, details of your regular expenditure, and sometimes information about your credit history. Some lenders may require a larger deposit for a self-build mortgage, often around 25-30% of the project cost.

Application: Once you’ve gathered all the necessary documentation and selected a lender, you can start the application process. This usually involves filling out a form with your personal details, financial information, and details about the project. You will also need to provide all the documents you’ve gathered during the planning stage.

Approval: The lender will assess your application. They may also carry out a valuation on the finished project to make sure it will be worth more than the loan. If they are satisfied with your application and the project’s viability, they will approve the mortgage and release the funds in stages as per the agreed plan.

What types of self-build mortgages are available?

In the UK, there are typically two types of self-build mortgages: arrears stage payment and advance stage payment mortgages.

Arrears Stage Payment Mortgages: These are the more common type of self-build mortgages. With this type, funds are released at the end of each building stage. The stages are typically defined as land purchase, initial construction (like foundations), wall plate level, roofed-in, plastering, and completion. A surveyor will inspect the build at each stage to ensure the work has been completed before the funds are released. While this is a safer option for lenders, it means the borrower needs to have sufficient funds upfront to cover each stage of the build before they can access the mortgage money.

Advance Stage Payment Mortgages: Less common but growing in popularity, these mortgages provide the funds at the start of each stage of the build. This type can be particularly helpful for those who do not have the cash reserves to fund each stage of the build upfront. It is worth noting that while an advance-stage payment mortgage can ease cash flow, it may come with higher interest rates due to the increased risk to the lender.

Both types of mortgages usually require a detailed plan for the project, including planning permissions, builder’s insurance, detailed construction plans, and a thorough cost projection.

Lastly, there are also “custom build” mortgages for those participating in custom build developments, where the builder creates the shell of the house, and the borrower then completes the interior.

As with any mortgage product, it is essential to thoroughly research and compare options or work with a knowledgeable broker to ensure you understand the terms and requirements before you commit.

How much deposit do I need for a self-build mortgage?

In general, the deposit required for a self-build mortgage tends to be larger than that required for a standard residential mortgage. This is because lenders see self-build projects as carrying a higher risk.

Most lenders typically require a deposit of at least 25% to 30% of the total cost of the project. However, some may ask for even more, depending on factors such as your credit rating, the nature of the project, and the overall economic climate.

For example, if the land and building costs of your project total £300,000 and the lender requires a 30% deposit, you would need to have £90,000 saved up before you could secure the mortgage.
This higher deposit requirement is one of the main reasons why potential self-builders need to carefully consider their financial situation and perhaps seek advice from a financial adviser or mortgage broker before proceeding with a self-build project.

How much can I borrow with a self-build mortgage?

The amount you can borrow with a self-build mortgage in the UK will depend on several factors, including your income, your credit history, and the value of the property you plan to build. Lenders will also take into consideration the estimated costs of the project and the projected value of the completed home.

Typically, lenders will let you borrow up to a certain percentage of the costs of the land and the construction. This is usually between 60-75% of the land cost and 60-75% of the build cost.
It’s important to note that the total loan amount is often capped at a certain multiple of your income. For example, a lender might be willing to lend you up to 4-4.5 times your annual income, depending on your other financial commitments and creditworthiness.

However, these figures can vary depending on the lender and their specific lending criteria. It’s always a good idea to talk to a mortgage adviser or broker who specialises in self-build mortgages to get a clearer picture of how much you might be able to borrow.

Eligibility criteria

While the exact criteria for a self-build mortgage can vary between lenders, there are several key requirements that you’ll typically need to meet:

Deposit: You will usually need a sizeable deposit for a self-build mortgage. Many lenders require at least 25-30% of the total cost of the project, although some may accept less.

Planning permission: You will need to show that you have planning permission for the build. This gives the lender confidence that the local authority has approved the project.

Detailed project plans: Lenders will want to see detailed plans for the project. This includes architectural designs, a breakdown of the costs involved, and a timeline for the work. They’ll want to see that you have considered all aspects of the project and that it’s likely to be completed on time and within budget.

Proven ability to oversee the project: Some lenders will want evidence that you are capable of managing a self-build project. This could mean showing that you have successfully completed similar projects in the past, or it might involve employing a project manager or a professional builder to oversee the project.

Affordability checks: Like any mortgage, lenders will conduct affordability checks to make sure you can afford to repay the loan. This will involve looking at your income, expenditure, and any other financial commitments you have.

Credit history: Lenders will also look at your credit history when deciding whether to approve your mortgage application. If you have a poor credit history, you might find it more difficult to get a self-build mortgage.

Future value of the property: Lenders will need to be confident that the completed property will be worth more than the loan. They will usually get a professional valuation to determine the expected value of the property once it’s completed.

Insurance and warranties: Lenders will also usually require you to have suitable insurance in place, such as buildings insurance and structural warranties.

What are the advantages of a self-build mortgage?

Building your own home and taking out a self-build mortgage can come with several advantages:

Customisation: Perhaps the most appealing advantage is the ability to create a home that suits your specific needs and preferences. You have the freedom to decide on the design, layout, materials, and finishes of your home.

Potential savings: Depending on the cost management of the project, self-build homes can sometimes be cheaper to construct than buying a similar property outright, particularly if you are able to do some of the work yourself.

Value creation: If managed correctly, a self-build project can result in a house that is worth considerably more than the cost of the land and the construction. This could lead to significant equity in the property.

Energy efficiency: With a self-build project, you can incorporate modern energy-efficient designs and technologies from the outset, which can lead to long-term savings on energy bills and a more sustainable home.

VAT reclaim: In the UK, you can claim back the VAT on most of the materials used in the construction of your new home, which can be a significant saving.

Stamp duty savings: In the UK, when you buy a plot of land for a self-build, you only pay Stamp Duty Land Tax (SDLT) on the cost of the plot itself – not the value of the future property. This can result in substantial savings compared to buying a pre-built home.

Control over the process: Throughout the process, you’ll be in control, making decisions and ensuring that everything is being done to your specifications.

What are the disadvantages of a self-build mortgage?

While self-build mortgages can offer several advantages, there are also some potential disadvantages to consider:

Higher deposit requirements: Self-build mortgages typically require a larger deposit than a conventional mortgage. Many lenders require at least 25-30% of the total cost of the project, although this can vary.

Complex process: The process of obtaining a self-build mortgage can be more complex and time-consuming than getting a standard mortgage. It involves detailed planning, and you’ll need to provide the lender with regular progress updates.

Increased risk: Building your own home carries a certain amount of risk. Projects can be delayed, costs can overrun, and problems can occur that might require more funding. If something goes wrong, you could find yourself out of pocket.

Funds released in stages: The funds from a self-build mortgage are usually released in stages as the build progresses, which can be challenging for cash flow, especially if there are unexpected costs or delays.

Interest rates: The interest rates on self-build mortgages can sometimes be higher than those for standard residential mortgages due to the greater perceived risk for lenders.

Requires time and commitment: Managing a self-build project can be a full-time job. It requires a significant commitment in terms of time and energy, and it can be stressful.

Difficulty in selling: If you need to sell the property before it’s complete, it might be difficult to find a buyer, particularly if the building work is only partially completed.

Potential difficulty in securing a loan: If you don’t have previous experience in managing a building project, some lenders may be hesitant to approve a self-build mortgage.

How long does the process of securing a self-build mortgage typically take?

The process of securing a self-build mortgage can vary greatly depending on your individual circumstances, the lender’s criteria, and the complexity of the project. Here’s a general timeline to give you an idea:

Preparation (several weeks to months): Before you apply for a mortgage, you need to prepare a detailed plan for your self-build project. This includes buying the land, getting planning permission, creating architectural designs, and making a comprehensive budget. This stage can take several weeks to months, depending on how quickly you can gather all the necessary information and documents.

Mortgage application (1-2 months): Once you’re ready, you can apply for a self-build mortgage. The lender will review your application, which includes checking your credit history, assessing your income and outgoings, and evaluating the feasibility of your building project. This can take anywhere from a few weeks to a couple of months.

Mortgage offer (1-2 weeks): If your application is approved, the lender will issue a formal mortgage offer. This generally takes 1-2 weeks after approval.

Legal work and completion (1-2 months): Finally, there’s the legal work to complete. This involves solicitors, the exchange of contracts, and the completion of the sale for the land purchase. This stage can take 1-2 months or more, depending on the complexity of the purchase and the legal work required.

Compare mortgage options

When considering a mortgage, it’s important to be aware of the different types of mortgage products available, each with its own pros and cons. Here’s a brief comparison of some of the main mortgage options:

Standard repayment mortgage: This is the most common type of mortgage. Each monthly payment goes towards paying off the capital (the amount borrowed) and the interest. By the end of the mortgage term, you’ll have paid off the entire loan.

Interest-only mortgage: With this type of mortgage, your monthly payments only cover the interest on the loan. At the end of the mortgage term, you’ll need to repay the capital in full. This can seem attractive due to lower monthly repayments, but you must have a solid plan in place to repay the full loan amount at the end.

Fixed-rate mortgage: With a fixed-rate mortgage, the interest rate is fixed for a set period (usually 2, 3, 5 or 10 years). This can make budgeting easier, as your payments won’t change during this period. However, if market interest rates fall, you’ll be stuck paying the higher rate.

Variable-rate mortgage: With a variable-rate mortgage, the interest rate can change. There are different types of variable-rate mortgages, including standard variable rate mortgages (the lender’s default rate), tracker mortgages (which track the Bank of England base rate), and discount mortgages (which are a reduction on the lender’s standard variable rate).

Offset mortgage: This is linked to your savings account. Your savings are ‘offset’ against your mortgage balance, and you only pay interest on the difference. This can save you a lot of money in interest, but these mortgages often come with higher interest rates.

Self-build mortgage: As we discussed earlier, self-build mortgages are specifically designed for people who want to build their own homes. The money is usually released in stages as the build progresses.

Each of these mortgages serves different needs and has its own eligibility criteria. It’s important to seek advice from a mortgage broker or financial adviser to choose the most suitable option based on your financial situation, risk tolerance, and property goals.

How do you carry out a self-build?

Carrying out a self-build project involves several key steps, and it requires careful planning and management. Here’s a general overview of the process:

Finding land: The first step is to find a suitable plot of land on which to build your home. This may involve working with estate agents, land brokers, or directly with private owners. You’ll need to consider factors like location, access, orientation, and whether it already has planning permission.

Secure financing: As we’ve discussed, you’ll likely need a self-build mortgage to finance your project. This will require a detailed budget and project plan.

Planning permission: Once you have a plot, you’ll need to secure planning permission from your local council. It’s a good idea to get an idea of what kind of building will be allowed on your plot before you purchase it, as this could impact your decision.

Designing your home: The next step is to design your home. You can work with an architect to create a custom design, purchase a pre-made plan, or use a design and build company that handles both design and construction.

Hiring professionals: Depending on the complexity of your project and your level of expertise, you might need to hire a variety of professionals, including builders, architects, surveyors, and potentially a project manager.

Building regulations approval: Once the plans are ready, you need to get building regulations approval. This is to ensure the design meets all the required health, safety, welfare, convenience and sustainability standards.

Construction: With all the approvals in place, you can start building. This will involve several stages, such as laying the foundation, building the structure, installing utilities, finishing the interior, and landscaping.

Inspections and final approval: Throughout the building process, inspections will be carried out to ensure the construction meets the agreed-upon plans and building regulations. Once the building is complete, a final inspection is done to confirm everything is up to code.

Move-in: Once everything is approved, you can move into your new home!

How do I choose a builder or architect for my self-build project?

Choosing the right builder and architect for your self-build project is critical to its success. Here are some steps you can follow:

Finding an Architect:

Research: Look for architects who have experience with self-build projects and have designed homes similar to what you’re looking to build. Check their portfolios online or ask for examples of their previous work.

Meet in person: Arrange a meeting with potential architects. Discuss your ideas, budget, and timeline to see if they align with what the architect can offer.

References: Ask for references from past clients and get in touch with them. Find out about their experience, the architect’s communication skills, problem-solving abilities, and adherence to timelines and budgets.

Registration: Ensure the architect is registered with a professional body like the Architects Registration Board (ARB) in the UK or the Royal Institute of British Architects (RIBA).

Choosing a Builder:

Experience: Look for builders who have experience with self-build projects similar to yours. If your project involves unique or unusual elements, find a builder who has handled those types of projects before.

Quotes: Obtain detailed quotes from several builders. Make sure the quotes include everything – labour, materials, and any other costs associated with the project.

References: Just like with an architect, ask for references. Contact previous clients and ask about their experiences.

Insurance and guarantees: Make sure the builder has appropriate insurance coverage. Ask if they offer structural warranties or guarantees on their work.

Contract: Have a detailed contract in place that outlines the scope of the work, the cost, the payment schedule, and how changes or unexpected issues will be handled.

Most importantly, it’s not just about cost – you want to choose professionals who are reliable, trustworthy, and easy to communicate with. The cheapest quote may not always be the best choice if it comes with poor workmanship or potential delays. Consulting with a lawyer before signing any contracts can also be beneficial.

How can I estimate the construction cost for a self-build mortgage application?

Estimating the construction cost for a self-build project can be complex, as it involves a multitude of factors. However, it’s a crucial step in applying for a self-build mortgage. Here are the steps you can follow:

Architectural plans: You’ll need to have architectural plans in place before you can accurately estimate construction costs. The design, materials, and size of the home will all affect the overall cost.

Detailed specification: Your architect or builder should provide a detailed specification of the build, including all the materials to be used, the construction method, the quality and type of finishes, the type of heating and insulation, and any landscaping or additional work.

Quotations from builders: Once you have your plans and detailed specification, you can get quotes from builders. Make sure these quotes are detailed and include all aspects of the build. It’s often wise to get multiple quotes for comparison.

Contingency fund: Always include a contingency fund in your budget. Building projects often encounter unexpected costs, and it’s a good idea to have funds set aside for this. A contingency fund of around 10-20% of the project cost is generally recommended.

Professional fees and permissions: Don’t forget to include costs such as architect fees, planning permission, building regulation inspections, and any other professional services you may need.

Utilities and services: Remember to budget for connecting the house to utilities and services. This includes water, electricity, gas, sewerage, and possibly internet or phone lines.

Once you have calculated your estimated construction costs, you can use this information to apply for a self-build mortgage. Keep in mind that your lender will likely scrutinise your budget and may also require an independent valuation to ensure that the project is viable and the loan amount is appropriate.

Finally, it’s important to review your budget and costs regularly during the build to make sure you stay on track. Any significant changes should be communicated to your lender, as they may affect your mortgage disbursements.

How to be approved for a self-build mortgage

Applying for a self-build mortgage can be more complex than applying for a traditional mortgage, given the additional risks and variables involved. Here are some steps you can follow to increase your chances of approval:

Solid financial history: Lenders will review your financial history closely, so it’s crucial to have a good credit score, stable income, and as little debt as possible. It’s also beneficial to have a substantial deposit saved – usually at least 25-30% of the total project cost.

Detailed building plans: Have a comprehensive plan for the building project, including architectural designs, planning permissions, and a complete budget for the build. Lenders need to see that the project is feasible and well-planned.

Experience or professional help: If you have experience in construction or have previously completed a self-build, this can be advantageous. If not, hiring a project manager or a contractor with self-build experience can also be beneficial.

Budget and contingency planning: Your budget needs to be realistic and include contingency planning. Unforeseen costs often arise in construction projects, and lenders want to see that you’ve planned for this.

Resale value estimate: Lenders will also consider the projected value of the finished property. Having an estimate from a property valuer or real estate professional can be useful.

Insurance: Ensure you have the appropriate insurance in place, such as self-build insurance and structural warranties. This provides reassurance to the lender that risks are being managed.

What do I need when applying for a self-build mortgage?

When applying for a self-build mortgage, you’ll need to provide detailed information and several documents to support your application. These include:

Financial information:

Proof of income: This could be payslips if you’re employed or accounts and tax returns if you’re self-employed.

Bank statements: Lenders will want to see your regular income and outgoings.
Credit history: Your lender will check your credit history to assess your reliability as a borrower. Ensure any outstanding debts are under control and your credit report is accurate.
Project Details:

Detailed plans: You’ll need architectural plans for your self-build project.
Planning permission: Proof that you’ve obtained planning permission for your build.

Building regulations: Your project must comply with local building regulations. If you’ve already received approval, provide these documents.

Detailed costings: You need to provide a detailed breakdown of all costs associated with the project.

Timeline: A proposed timeline for the project.

Insurance and warranty Details:

Self-build insurance: This is essential to protect your project from risks such as fire, theft, and accidents.

Structural warranty: This provides a guarantee for the structure of your new home. Most lenders will require a structural warranty from a recognised provider.

Additional information:

Proof of land ownership: If you own the land already, you’ll need to provide documents that prove ownership.

Valuation: An estimate of the final value of the property on completion.

Every lender has slightly different requirements, so check with your potential lender or a mortgage adviser for a detailed list of what you’ll need to provide. Also, remember that the approval process for a self-build mortgage is typically longer and more complex than for a traditional mortgage. Be prepared for this and start gathering your documents as early as possible.

Which lenders offer self-build mortgages?

Self-build mortgages are a specialised product, and as such, not all mainstream lenders offer them. There are several lenders in the UK that do offer self-build mortgages.

Here are some lenders are known to provide self-build mortgages, although you should check with them directly for the most current information:

Halifax: Halifax is one of the few large, high-street banks to offer self-build mortgages.

Leeds Building Society: Leeds Building Society offers self-build mortgages with different options for interest rates and disbursement schedules.

BuildStore: BuildStore isn’t a lender itself, but it’s a specialist in self-build finance and can connect you with various lenders who offer self-build mortgages.

Ecology Building Society: Ecology Building Society offers self-build mortgages for projects that meet their sustainable building criteria.

Furness Building Society: Furness offers self-build mortgages both directly and through brokers.

Saffron Building Society: Saffron Building Society provides self-build mortgages and offers a guide and a budget planner on their website.

Scottish Building Society: Scottish Building Society offers a Self Build Mortgage for customers in Scotland.

Remember, terms and conditions will vary between lenders. It’s important to understand the specific terms of any mortgage, including when funds will be released, what the interest rates are, and what fees are associated.

Also, keep in mind that some self-build mortgages may not be available directly and can only be accessed through an intermediary, like a mortgage broker. Mortgage brokers who specialise in self-build projects can provide valuable advice and assistance in finding a lender that suits your specific circumstances and needs.

Can I get a self-build mortgage with a bad credit score?

Getting a self-build mortgage with a bad credit score can be challenging but not impossible. Due to the additional risk involved with self-build projects, lenders typically have stricter criteria for these types of loans, and having a good credit score is generally one of them.

If your credit score is less than ideal, here are a few things you could consider:

Improve your credit score: Before applying for a self-build mortgage, take steps to improve your credit score. This might involve paying off outstanding debts, correcting any errors on your credit report, not applying for new credit, and making sure all your current credit accounts are in good standing.

Increase your deposit: Lenders might be more willing to consider your application if you can put down a larger deposit. This reduces their risk and demonstrates your commitment to the project.
Joint Application: If you have a partner or family member with a better credit score, consider making a joint application.

Consult a specialist: Consider working with a mortgage broker who specialises in bad credit mortgages. They have experience dealing with these types of situations and can help you find a lender who may be willing to work with you.

Consider alternative financing: If a self-build mortgage isn’t feasible, explore other financing options. This could include personal loans, or potentially a guarantor loan, where someone (usually a close relative) guarantees to make your loan repayments if you can’t.

Please note, each lender has its own criteria, so just because one lender rejects your application doesn’t mean they all will. However, each application can impact your credit score, so it’s important not to apply to too many lenders in a short period.

Finally, while it’s possible to get a mortgage with a bad credit score, it’s likely you’ll face higher interest rates and more stringent terms. Therefore, it’s worth considering whether it would be better to delay your self-build project and work on improving your credit score first. Always consult with a financial adviser or broker before making these decisions.

What if I want a bridging loan instead of a self-build mortgage?

A bridging loan could be an option instead of a self-build mortgage, but it’s crucial to understand the differences and the risks involved before deciding.

A bridging loan is a type of short-term finance typically used when there’s a gap in financing that needs to be filled quickly. In the context of self-build, you might use a bridging loan to start the project while waiting for the sale of your existing home or other funding to come through.

Here are some things to consider:

Interest rates: Bridging loans usually have higher interest rates than traditional mortgages. The cost of borrowing can be significantly more.

Short-term solution: Bridging loans are short-term loans, typically ranging from 6 to 18 months. You’ll need a plan in place to repay the loan in full at the end of the term. This is usually done by securing long-term financing (like a traditional mortgage) or by selling a property.

Faster processing: Bridging loans can often be arranged more quickly than a self-build mortgage. This can be helpful if funds are needed urgently.

Risk: If you’re unable to secure long-term financing at the end of the term, or if your property hasn’t sold, you may be unable to repay the loan. This could lead to severe financial consequences, including the possibility of losing your property.

Use of funds: Bridging loans can be more flexible than self-build mortgages in terms of how the money is used, as they’re typically not tied to specific construction stages.

Can I switch from a self-build mortgage to a traditional mortgage upon completion of the build?

Yes, you can switch from a self-build mortgage to a traditional mortgage once the build is complete. This is actually a common approach, as it allows for potentially better interest rates and repayment terms.

Self-build mortgages typically have higher interest rates than standard mortgages because they are considered higher risk for the lender. Once the house is complete, however, it can be mortgaged like any other house, usually allowing access to the more competitive rates of standard residential mortgages.

However, you need to be aware of a few factors:

Early repayment charges: Some self-build mortgages have early repayment charges. Make sure to check the terms of your mortgage for any penalties that may apply if you pay off the mortgage early.

Remortgaging costs: Switching to a new mortgage involves certain costs, including potential valuation fees, legal fees, and possibly a mortgage arrangement fee.

Eligibility: The standard mortgage will require a new application, and the lender will reassess your financial situation and the property’s value. You will need to meet the lender’s eligibility criteria at the time of switching.

Interest rates: The interest rates for standard mortgages can vary, depending on various factors, including market conditions, the value of the property, and your financial circumstances.

How can I qualify for a self-build mortgage if I’m self-employed?

Qualifying for a self-build mortgage while being self-employed can be more challenging than for those in traditional employment, but it’s certainly possible. Lenders want to ensure that you have a stable, reliable income that will allow you to keep up with your mortgage payments. As a self-employed individual, you can demonstrate this in several ways:

Financial records: Most lenders will ask for at least two to three years’ worth of accounts to show that your business is profitable and provides a stable income. These accounts should ideally be prepared by a certified or chartered accountant.

Tax returns: You may also need to provide your tax returns (SA302s) for the past two to three years. This document shows your income and the tax you’ve paid.
Bank Statements: Lenders will likely ask to see your personal and business bank statements to understand your financial habits.

Business details: Be prepared to explain your business – including its nature, its performance, and its prospects – to the lender. They will consider this information alongside your financial records.

Healthy deposit: The larger your deposit, the more likely you are to be approved for a mortgage. This is because a large deposit reduces the lender’s risk.

Good credit history: Lenders will look at your credit history as part of their assessment. Make sure your credit report is accurate, and try to improve your score as much as possible before applying for a mortgage.

Affordability assessment: Like any mortgage applicant, you’ll need to pass the lender’s affordability assessment. This considers your income against your outgoings to determine whether you can afford the mortgage repayments.

Remember, every lender has their own criteria, so if one lender rejects your application, another may accept it. A mortgage broker could be very helpful in this situation, as they can advise on which lenders are most likely to approve your application and help you understand the various mortgage products available.

Can I get a self-build mortgage if I am a first-time homebuyer?

Yes, first-time homebuyers can get a self-build mortgage, but it’s important to note that this route is generally more complex than purchasing a pre-existing home.
As a first-time buyer, here are some things you should consider:

Deposit: Self-build mortgages typically require a larger deposit than traditional mortgages, often around 25% to 50% of the total project cost. As a first-time buyer, you’ll need to have this amount saved up.

Experience: Building a home involves a lot of decision-making and can be time-consuming. It may be more challenging if you haven’t been through the process of buying and maintaining a home before.

Risk: There’s more risk involved with self-build projects. Costs can overrun, and projects can take longer than expected. You need to be prepared for this risk.

Mortgage availability: Not all lenders offer self-build mortgages, so there are fewer options available to you. You may want to work with a mortgage broker who can guide you through the process.

Financial stability: Lenders may scrutinise your financial stability more closely because of the higher risk associated with self-build projects. A steady income and a good credit score are usually important.

Costs: Don’t forget that the mortgage is not the only cost involved. You’ll also need to budget for things like land purchase, planning permission, architectural services, building materials, labour, and contingencies.

Staged payments: Self-build mortgages are typically paid in stages, not as a single lump sum. You’ll need to carefully manage your budget and cash flow throughout the project.

Are there government schemes supporting self-build projects?

Yes, there are several government schemes in the UK aimed at supporting self-build projects. The availability of these schemes can change over time and may depend on various factors, such as the specific location of your project. Here are a few examples:

Help to Build: The UK government announced a ‘Help to Build‘ scheme in 2021, aimed at making self-build more accessible. The scheme provides an equity loan on the completed home, similar to the Help to Buy scheme.

Right to Build: This scheme requires local authorities in England to maintain a register of people and community groups interested in self-build or custom-build projects in their area. They are also required to grant sufficient planning permissions to meet the demand on their registers.

Custom and self build loan fund (Scotland): This is a funding initiative to help people who wish to build their own homes in Scotland.

Self-build and custom housebuilding act 2015: This act places a duty on local councils to keep a register of individuals and associations of individuals who are seeking to acquire serviced plots of land in the authority’s area to build houses for those individuals to occupy as homes.

VAT refunds for DIY housebuilders: If you build your own home, you can apply for a VAT refund on building materials and services.

Community right to build: This allows certain community organisations to undertake small-scale, site-specific, community-led developments.

Please note, these are just examples, and the eligibility criteria can be complex. You should check with a financial adviser or your local authority for the most accurate and up-to-date information.

What type of surveys and inspections are required for a self-build mortgage?

The surveys and inspections required for a self-build mortgage can vary depending on the lender, the nature of the project, and the specific plot of land. However, there are several common ones that you may need to consider:

Land survey: Before you can start your self-build project, you’ll need to have a survey of the land. This survey will assess the suitability of the land for building and identify any potential issues such as flood risk, ground stability, and access issues.

Valuation survey: This survey is required by the lender to assess the value of the land and the projected value of the completed property. It is important to determine how much the lender is willing to loan.

Architectural plans and building regulations approval: Before the start of the construction, your plans will need to be approved by the local authority to ensure they meet building regulations.

Structural warranty: Most lenders will require a structural warranty or professional consultant’s certificate for a self-build project. This provides assurance that the building has been professionally checked and meets building regulations.

Stage inspections: These are carried out at different stages of the build process to ensure that work is progressing as planned and to the required standards. These inspections are often tied to the release of funds from the mortgage lender.

Final inspection: Once the build is complete, a final inspection will be conducted to ensure everything is in order and meets all relevant standards and regulations.

You should consult with your mortgage lender or a mortgage advisor to understand exactly what surveys and inspections will be required for your specific self-build mortgage.

How are self-build mortgage funds released throughout the construction process?

Self-build mortgage funds are typically released in stages as construction progresses. This is different from a traditional mortgage, where the full amount is released at the time of purchase.
The stages at which funds are released can vary depending on the lender but generally follow key points in the build process. Here is a common example:

Purchase of land: The first drawdown usually occurs once you’ve acquired the plot of land. Some lenders might release funds at this stage, while others might require you to finance the initial land purchase yourself.

Preliminary costs and foundations: The next stage usually involves the initial setup costs and laying of foundations. The money is released after the work has been inspected and approved.
Wall Plate Level: The next payment often comes when the building’s walls are up to a certain height (usually when the wall plates are in place).

Wind and watertight: The fourth stage is usually when the property is made wind and watertight – that is, the roof is on, and the doors and windows are installed.

First fix: This stage includes the installation of services like electricity and plumbing and plastering of the walls.

Second fix: The ‘second fix’ includes installations such as sockets, switches, bathroom fittings, and doors.

Completion: The final payment is usually released upon completion of the build. An inspection will be carried out to ensure that everything is in order and up to standard.

These stages can vary slightly between lenders, and some might offer more stages, especially for larger or more complex projects. It’s also important to note that the money is usually released in arrears of each stage. This means you’ll need to have sufficient funds to pay for each stage of work upfront, and then you’ll receive the money to cover those costs once the work is complete and has been inspected.

Some lenders might offer self-build mortgages with funds released in advance of each stage, which can help manage cash flow during the project. However, these are less common and may have additional eligibility criteria.

Do I need to have insurance and warranties in place?

Yes, having the right insurance and warranties in place is a crucial part of any self-build project. They can protect you from a range of risks associated with building a new home.

Self-build insurance: This covers the building site, the building works, your materials on site or in transit, your own plant and tools, hired-in property, and temporary buildings. It can also cover public and employers liability.

Structural warranty: This is a type of insurance that covers defects in the structure of your new home, usually for a period of 10 years after completion. Many lenders will require a warranty from a recognised provider as a condition of granting a self-build mortgage.

Site insurance: This covers you against theft, vandalism, and damage to tools and materials and may also include public and employers liability cover.

Public liability insurance: This covers you if someone is injured or their property is damaged in connection with the building project.

Employer’s liability insurance: If you’re employing others to work on your project, you’re required by law to have employer’s liability insurance to cover any injury or illness claims from employees.

Contract works insurance: This covers the cost of repairing or redoing work that’s in progress on a building site if it’s damaged by an insured event like fire, flood, storm, vandalism or theft.

Remember to carefully check what each policy covers and any exclusions it might have. It’s also essential to ensure that your cover lasts throughout the entire project, from start to finish. It is always wise to discuss your individual circumstances with an insurance advisor to ensure that you have the correct insurance in place.


How does a self-build mortgage affect the construction timeline of my house?

The staged release of funds in a self-build mortgage requires careful planning and coordination with your construction timeline.

Since funds are usually released in arrears after each stage of construction is complete and inspected, any delays in construction could impact your cash flow. This makes it crucial to have a well-planned schedule and budget for your project.

What costs are covered by a self-build mortgage?

A self-build mortgage is designed to cover the cost of building your home. This can include the purchase of the land, the cost of materials, labour costs, and professional fees (such as architects, surveyors, etc.). The exact costs covered can vary depending on your specific mortgage agreement and lender, so it’s always a good idea to discuss this in detail with your mortgage provider or a financial advisor.

How can I find the best lenders?

Finding the best self-build mortgage lenders can be a bit more challenging than finding a standard mortgage lender, as the market is more specialised. Here are a few ways you can find the right lender:

Consult a mortgage broker: They have knowledge of the market and can recommend suitable lenders based on your individual circumstances.

Research online: Many financial websites compare self-build mortgage lenders. Look for comparisons on interest rates, fees, flexibility, and stage payment terms.

Self-build shows and events: These can be a good opportunity to meet lenders face-to-face and ask any questions you have.

Ask for Recommendations: If you know anyone who has built their own home, ask them which lender they used and what their experience was like.

Financial advisers: If you already have a financial adviser, they may be able to suggest suitable lenders.

Remember, what’s “best” can depend on your personal circumstances and needs. Always consider your options carefully and consider getting professional advice.

Can I remortgage my self-build property in the UK?

Yes, once your self-build property is complete and you’ve moved in, you should be able to remortgage it much like any other property. You may want to do this to move onto a better rate or release equity. Keep in mind, lenders will need to value the property and you’ll have to meet their lending criteria at the time.

Can I use a self-build mortgage for a renovation project?

Yes, in many cases you can use a self-build mortgage for a renovation or conversion project. These are often referred to as “renovation mortgages” or “conversion mortgages”, but they work in much the same way as self-build mortgages, with money being released in stages as the work progresses. Not all lenders will offer these types of mortgages, so you might need to search around or use a broker.

Can I get a self-build mortgage for a property conversion project?

Yes, you can often get a self-build mortgage for a property conversion project. These are usually called “conversion mortgages,” and they operate similarly to self-build mortgages, with money being released in stages as the work progresses. Not all lenders offer these, so you may need to search specifically for lenders who provide conversion mortgages.

What happens if my self-build project runs over budget?

If your self-build project runs over budget, it could cause significant issues as the stages of funding for a self-build mortgage are usually agreed upon at the outset. If you find yourself facing unexpected costs or overruns, you’ll need to fund these yourself. This could involve using savings, taking out a further loan, or renegotiating with your lender (although this isn’t always possible). It underscores the importance of having a detailed and accurate budget at the start of your project and factoring in contingency funds for unexpected costs.

Is it harder to get approved for a self-build mortgage compared to a traditional one?

Obtaining a self-build mortgage can be more challenging than getting a standard mortgage. Self-build mortgages are more specialist products offered by fewer lenders. The application process can be more complex as lenders need to assess the feasibility of the building project in addition to standard credit and affordability checks. Additionally, self-build mortgages often require larger deposits, typically 25% to 50% of the total project cost.

Can I live in my current home while paying a self-build mortgage for a new build?

Yes, you can continue to live in your current home while your new self-build home is being constructed. However, it’s important to consider how you’ll manage the financial implications. You’ll need to continue paying your existing mortgage (if you have one) as well as the self-build mortgage payments, which can put significant strain on your finances. Some self-build mortgage lenders may offer “interest only” options during the construction phase to help manage costs. It’s crucial to plan your finances carefully and seek professional financial advice if needed.

Can I use a self-build mortgage for an off-the-plan property purchase?

Generally, a self-build mortgage is used for projects where the owner is heavily involved in the construction process. For off-the-plan property purchases, where a developer constructs a property according to pre-set plans, a standard residential mortgage or a new build mortgage is typically more appropriate. It’s always best to speak with a mortgage adviser to discuss your options based on your specific circumstances.

What happens if I don't complete my self-build project within the mortgage term?

If you don’t complete your self-build project within the mortgage term, you could potentially run into difficulties. The terms of your mortgage will specify a period within which the project should be completed. If you exceed this term, you may be charged additional interest or fees, or in extreme cases, the lender may request a repayment of the loan. This is why it’s crucial to plan your project carefully, consider potential delays, and maintain good communication with your lender throughout the process.

Can I switch lenders during a self-build project?

Switching lenders during a self-build project can be complex, as the new lender will need to assess and approve the project much like the original lender did. However, it’s not impossible, especially if you have a good reason for wanting to switch, such as better interest rates or more favourable terms. If you’re considering this, it’s advisable to discuss your options with a financial adviser or mortgage broker.

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