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A self build mortgage could make your dream home a reality. Check out how it works and if it’s right for you

Title image: Paul Ryan-Goff

The good thing about a building project is that it can be financed in stages and doesn’t require all the money up front in the way a traditional house purchase does.

It does, however, need very careful planning. This simple guide to self-build finance will get you started.

How can I finance my project?

Financing a self build is different from buying a house in a traditional way. With a traditional purchase the buyer (or mortgage provider) provides all the funds up front. With a custom-built project you pay in stages.

Generally, a self builder pays for the land and then at incremental stages through the building project until completion. This mean you don’t need to have all the money at the beginning and can spread the cost.

How do self build mortgages work?

There are 12 or so lenders in the UK that offer tailored mortgages for self-build projects. Mortgage advisers, brokers and companies can advise you.

Most lenders loan up to 60 per cent of the final valuation of the property as long as that does not exceed 75 per cent of the total cost of the build and land. The money is released to time with set phases of the project.

What interest rates will a lender charge?

Initial mortgage rates are usually between four and six per cent, but you can usually negotiate this down once the lender carries out the final valuation. Get the help of an expert so you can get a clear idea of the best deposits, rates and terms.

Finance checklist

  • Hire a RICS surveyor before you buy a plot and apply for finance. He or she will be able to give you a price per square metre valuation for the house you are planning to build.
  • Put together a budget and a plan for your self build mortgage application. Include as much detail as possible around costs and planning permissions.
  • Switch to a lower rate on completion.
  • Use your payment schedule to lead your project.
  • Too many credit searches can affect your rating. Signing up to an agency such as Experian or Equifax can help.
  • Don’t be rushed into making a decision. Make sure you are comfortable with the terms and conditions of any mortgage offer.
  • Double and triple check that payments will be in sync with your own cash and supplier payment terms.

Useful contacts

Mary Riley Custom Build Funding

Buildstore 

Experian 

Equifax 

Find out more about financing your self build project from the grand designers at Grand Designs Live 

Words: Seoana Sherry-Brennan, from original article on Grand Designs Magazine 

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