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Self-Build Mortgages

 

Building your own home

The UK has been in the grip of an acute housing shortage over the last few years thanks to a lack of affordable housing stock and increasing life expectancy. With more people living longer, a rising population and house builders struggling to cope with demand, a growing number of people are choosing to build their own homes.

Getting a self-build mortgage

Unlike your typical homebuyer or buy-to-let mortgage, self-build loans are far more difficult to get hold of thanks largely to the increased risk to the lender. An existing property offers better security compared to self-build because of the possibility you may fail to finish the project.

Because of this, your choice of lenders will be very restricted - you are looking at around half a dozen currently serving this niche market. You will also be required to put down a deposit of at least 25% of the cost of the land, as well as that of the building costs - some deals require as much as 50%.

Even at these percentages, these tend to be higher-risk niche mortgages and as a result, you'll pay a higher interest rate if you manage to get a loan. And if you plan to do the building yourself, it will be particularly difficult to convince a lender to lend you money.

Due to the relatively costly nature of such schemes - you may need to pay rent to live somewhere until your home is ready - you will also be required to prove to the lender that you can actually afford the mortgage.

In fact, you'll need to have quite a lot of information ready to show the lender (usually more than you need for a regular mortgage).

For example, make sure you're able to produce:

- The cost of the plot;

- Detailed plans of the home you want to build;

- Detailed cost projections including contingencies; and

- Evidence of your planning permission.

Once your loan has been approved, the lender will release the funds to you in small instalments, including an initial payment to cover the land purchase, often spread out to around five or six throughout the whole process. Generally speaking, the first sum of money released will be the amount you need to buy the plot of land (minus the deposit you're required to already have as part of the self-build mortgage deal).

The various stages when money is likely to be released:

- Purchase of the land

- Laying of the foundations

- Built up to eaves level

- When the roof is water tight

- When the interior walls are plastered

- Completion

Before the mortgage

However, before you get to this stage you will need to start from square one - what exactly do you want to construct and where do you want to build it?

Being a self-builder means designing and building your own home from scratch. You may have an idea of what your ideal home would look like. But to turn that dream into a reality, you need a suitable plot of land first.

Good building plots are hard to find and sell quickly because developers are always on the lookout for opportunities. Take into account your new home's dimensions, car parking space, space for a garden, the area you want to live in, children's schooling and any other local amenities that are important to you.

Estate agents are a good source of local knowledge, followed by property auctions, local newspapers and magazines such as Build It, available online or from some branches of W H Smith and professionals within the building industry.

Other options include using a plot finding service such as Buildstore's PlotSearch. PlotSearch can find you a plot of land or a building for renovation and by using them you can also gain access to the National Building Plot Register, Britain's largest and most accurate land database. Another popular choice for finding a plot of land is by using the Landbank Services database.

If you come across a plot, it is likely to be available with one of two types of planning consent in place; outline planning permission (OPP) or detailed planning permission (DPP).

What to watch out for:

1. You need a large deposit to get started

2. Application process is more stringent than non-conventional mortgage

3. Self-build mortgage interest rates tend to be higher

4. Getting your desired plans approved can be difficult

5. Can be very costly if delays affect the construction

6. You may need to pay rent to live somewhere until your home is ready

OPP simply means that your chosen plot has consent in principle for development to occur. The exact details of the project can be established in a later application for DPP, which must be made within three years of the OPP being obtained.

And don't be dissuaded if the plot you want already has DPP for something that is not appealing - you can safely lodge a new application for a completely different design without counteracting the existing permission.

The design of your new home

A good starting point is to contact some of the firms which provide ready-made designs for self-builders. They will have several standard designs, which you can then adapt to suit you by working with their architects. Timber frame, steel and glass houses are among the most popular as well as traditional brick built houses and eco-homes.

Do remember if you're going for an unusual construction that home insurance may be more expensive. For instance, it's still possible to build new houses with thatched roofs but your insurance costs will be higher.

Alternatively, you can use an architect who will draw up plans according to your specific instructions. Try to decide on as much of the detail at the start as changing your mind during the building process will often add to the cost.

Depending on how competent you are, you can keep costs down by doing some of the work yourself and enlisting the help of family and friends especially if they are skilled tradesmen. For a less hands-on approach, you can hire a project director to oversee the building process.

Key steps

1. Drawing up a budget and checking you have enough for a large deposit and other costs (solicitors, builders, architects, plumbers, stamp duty insurance etc)

2. Finding a plot of land and checking the planning permission

3. Designing the property

4. Finalising the total costs

5. Getting a mortgage.

There are a number of specialist websites and magazines such as Build Store and SelfBuild & Design as well as a forum at selfbuild.com where you can learn from others' experiences.

Generally, self-build homes are worth more than they cost provided the finish and quality are up to standard once they're completed.

Costs, costs, costs

Don't underestimate the cost - up to 75% of self-builders have to sell their current property in order to finance their new home. For many, this means renting a flat or house or buying or hiring a mobile home to live in during the construction process.

Other costs you must budget for include the storage of your furniture - and remember to make sure your personal possessions are covered by insurance whilst they are in storage. You might also want to take insurance against any long delays or overspending.

You should ideally have a contingency fund of around 10% of the total cost. And in addition to fees for solicitors, the architect, builders, plumbers and many others, you have to set aside money for to pay stamp duty on the land purchase if it costs more than £125,000, but not on the property.

  1. Save hard to build up a decent deposit
  2. Get the required paperwork together to show the lender
  3. Be realistic with your property plans

If you're looking for a self-build mortgage, save hard. Most lenders require a deposit between 25% and 50% of the cost of the land

 

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