Elevate Financial Solutions is a financial services provider assisting clients with mortgage advice across the UK. We have offices in Beckenham and Bromley, and working with clients across London, we advise, search, and secure all types of mortgages, including self-build mortgages.
WHAT IS A SELF-BUILD MORTGAGE?
If you want to build a home but need capital to do so, a self-build mortgage may be an option for you. You cannot borrow using a standard residential mortgage to build the property. Self-build mortgages are subject to additional conditions and on-site inspections from the mortgage lender during the build. The funds are provided in stages throughout the building process, either in advance or in arrears. If you need to purchase the land via the self-build mortgage, around 75% will be advanced at most.
Due to increased risk, a larger deposit is needed, and the interest rate is typically higher than the standard residential mortgage. Self-build mortgages also take longer to be approved - six months is not uncommon.
HOW IS THE PROPERTY VALUE ESTIMATED?
The lender will value the proposed property themselves using an appointed valuer. These professionals will judge the viability of your project and assess the finer details, such as the planned materials and construction methods. This valuation will determine the amount of money the lender is prepared to offer you to complete the build.
Going over budget is common among self-builders, so the banks may be cautious about lending money to financially ambitious projects.
If you need guidance to secure a self-build mortgage, look no further than Elevate. Our team has advised many self-builders making their dream self-built property a reality.
THE TYPES OF SELF-BUILD MORTGAGES
There are three types of self build mortgage:
- Arrears mortgages: These mortgages are repaid in stages after each build stage is completed. This type of mortgage is a good option for self builders who have a lot of cash on hand to finance the project.
- Advance mortgages: These mortgages release funds at the beginning of each build stage, making money available when the bills for labour and materials are due. This type of mortgage is a good option for self builders who do not have a lot of cash to finance the project.
- • Part-and-part mortgages: These mortgages combine an arrears mortgage with an advance mortgage. This type of mortgage is a good option for self builders who have some cash on hand to finance the project but not enough to fund the entire project.
ADVANTAGES AND DISADVANTAGES OF SELF-BUILD MORTGAGES
Advantages:
- They allow you to build a bespoke home tailored to your exact requirements
- Self build projects have the potential for higher equity
- The cost of the finished property will often be cheaper than buying the equivalent existing property
Disadvantages:
- Arranging the mortgage is time-consuming and more complex
- Requires high upfront costs, such as a more significant deposit
SELF-BUILD MORTGAGE FAQS
What are the lending criteria?
To secure a self-build mortgage, you will need to have your project and its valuation approved by the lender’s appointed valuer. In addition, you are likely to require a bigger deposit, with many lenders preferring that you already own the land you intend to build on outright.
What documents do I need to apply for?
Before you apply for a self-build mortgage, you should already possess planning permission. Without permission to build, a lender is unlikely to consider your project. Therefore, you will need to apply for planning permission from your local authority.
You’ll also need a summary of expected project costs, architect plans, SAP calculation (used to assess and compare buildings' energy and environmental performance) and more.
Do I switch mortgages once the property is built?
You will be prompted to remortgage to another mortgage type once the build has been completed and signed off. For example, you could choose from a tracker mortgage, fixed-rate deal, offset mortgage or another agreement.
How do bridging loans work?
A bridging loan is a type of loan that will help you fund the build while you wait for other money to come in. For example, if you were waiting for a property to sell with an agreement made, you might use a bridging loan to begin laying the foundations for your self-build project.
What happens if I don’t use all of the funds the self-build mortgage provides?
If you do not use all the funds provided, you may be able to pay back the remaining amount early without penalty. However, some lenders may require you to keep the funds until a particular build stage is complete.
CHOOSING THE RIGHT SELF-BUILD MORTGAGE
There is no one-size-fits-all when it comes to self-build mortgages. You need to choose the right mortgage for you and your project. Some factors to consider include:
- Deposit amount
- Interest rates
- Fees
- Loan to value ratio
- Stages of funding
- Flexibility
WHY USE AN ADVISER TO HELP FIND A SELF-BUILD MORTGAGE?
Building your own home exactly how you want it is a dream that only a few of us get to experience. But to achieve that dream, you must go through an arduous process and navigate one of the most complex types of mortgage agreements. The process can be smoother and less stressful with the support of a professional mortgage adviser.
If you plan on building a home, get expert guidance from one of the Elevate mortgage advice team.
CONTACT US FOR MORTGAGE ADVICE
Elevate can provide expert guidance and support throughout the self-build mortgage process, ensuring that you have the right mortgage to suit your needs.
Contact our team today to find out how we can help you achieve your dream home.
A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
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