Self build mortgages - technically known as stage payment mortgages, have moved on forward leaps and bounds in recent years. There are currently around 50 self build mortgages on the market through a number of lenders.
The average self-build project costs around £150,000, meaning the majority of self builders require a self build mortgage to finance the project. Depending on the mortgage provider, most lenders will lend no more than 75% of the cost of the building plot and build costs.
An increasing number of self build mortgage lenders will allow you to remain in your current home, rather than selling up to fund the build. A capital raising charge is taken out on your current home in conjunction with a self build mortgage.
A self build mortgage lends the money in stages - usually five. This means you are not paying interest on money you do not yet need to spend but you know the money will be available at the next stage.
Funds for building works are released in arrears and on completion of stages of the build.
Lending will generally be 75 percent of the cost of the build. Some lenders allow for a separate loan for the building plot of land. Beyond buying the plot of land, funds need to be in place to cover the costs of each stage. This can lead to cash flow problems as you will not receive your funding until it the stage is complete.
The build stages are divided into four stages. Funds are usually released once the following are complete:
· Roof plate
· Remainder of the property
Inspection of the site and an interim valuation are carried out before the next stage of funding is made available. These are for the protection of the lender to ensure the value of the self build home is enough to support the additional funds.
Advance stage payment self build mortgages split the cost of the building land and the various stages of the building work. Money is not held back until completion of the build.
The purchase of building land adds another stage in the build compared to an arrears stage self build mortgage. An interim stage may also be added for the wind and watertight protection, this gives 6 stages of funding:
· Purchase of building land
· Initial costs and foundations
· Wall plate level
· Wind and watertight
· First fix and plastering
· Second fix and completion
The borrower has cash flow from the start, when compared to the arrears stage self build mortgage. This relieves the stress of finding funding for the purchase of the land.
The building of each stage can commence sooner as labour and materials can be paid for when needed as the funds are already in your possession. The mortgage lender incorporates a short-term valuation guarantee policy - this protects the lender for the amount of money it has lent.