Even in today’s market place self build mortgages continue to enable the self build enthusiast to gain a healthy return on their time and money when their particular project is finally completed, even with the current trend on falling house prices a properly managed self build project can end up with a healthy return on investment in the end value of the property against the costs taken to get it there.
For any lender to consider a self-build mortgage/project there are three main considerations that need to “stack up”
1 Cost to purchase or initial value of land or plot,
2 Total funds required and when required
3 End value of the project.
These three factors that would be initially be taken into consideration by any lender considering lending funds for any such proposition, quite simply if they do not fit the lenders criteria then they will not fund it no matter how keen the self builder is the project.
A self build mortgage differs (amongst other things) from a more traditional mortgage in that the funds are released in stages generally as the build progresses and reaches certain stages, an important point to make at this early stage is that the lender will be guided by the valuer/surveyor comments on all the stage values and not by the self builders estimates. Hence if a plot of land is purchased for £100,000 but the valuer only deems it to be worth £90,000 then that is the figure that the lender will work from, this would also apply to both the end value and the value of the project through its various stages of build.
A self build mortgage is also different from a traditional mortgage in that you only pay the lender the monthly payment for the particular amount drawn down at a particular time, hence if you have been offered a mortgage for £100,000 but have only drawn down £35,000 then you only pay for borrowing the £35,000 until you draw down more funds.
There are two main ways to fund a self build mortgage the first is the arrears based route which is generally direct to the lender (normally 25% deposit required) or the advanced accelerator system which would be going via a specialist packager, at this initial stage it worth seeking professional advice from a specialist mortgage broker on which way would best suit your particular circumstances.
The main difference between the two types are with the arrears based scheme the funds are released after each building stage is completed where as with the advanced accelerator scheme funds can be released prior to the start of the first stage, as always in life there comes a penalty (in additional charges) for the privilege of the advanced payment system however it can allow for a lower initial deposit. Again before deciding on which system could suit your needs the best speak to a specialist self build mortgage broker particularly one that has access to the whole of market.
Some lenders have bespoke mortgages for their self build clients while others can give access to their normal product range but on a self build basis, as to which one is best depends on the applicants circumstances and possibly the length the mortgage will be required for. A short term self build client may want a slightly higher type of rate but with no financial tie so they can remortgage to a more traditional mortgage when finished, where as a longer term self build client may prefer a lower fixed term rate and be happy being tied in bit controlling their monthly payment
Lenders will vary on the types of project they will lend on hence some will not assist on the initial purchase of the land where others will allow funds for this purpose though it has to be said the more deposit you have the better the choice of lenders. Another area where lenders differ is the type of project as some only lend on a “flat “ plot of land where others will be happy to consider such projects as barn conversions etc. An important point to note is that no lender will release funds (other than for the initial purchase of land) unless full planning permission has been granted.
Another important point to consider is to who is going to manage and sign off each stage of the build, is it going to be architect supervised and what type of certificate will be available for the property at the end of the build, again here different lenders have different criteria so you need to be very clear on what you intend to do and how.
Costing the project and drawing up a schedule of works is both vital for your own finances and will influence the initial decision of the lender as to the viability of the project, some lenders will be happy to consider your own projected costings (subject to valuers approval) where others will require a professional person to have drawn these up. Either way it is vital that a contingency plan is in place to allow for any unforeseen costs such as delayed building times or a rise in the cost of materials.
Most lenders would look for (after the draw down of the first funds) the project to be started within the first year and be finished with two years however they do realise that every project is different so a degree of tolerance can be applied with the main issue being that the mortgage is paid on time.
Obviously most self build mortgages are carried out by applicants who intend to carry out the majority of the work themselves and of course the lenders understand and allow for this, though going back to a previous point you will need to consider what type of certificate you will need at the end of the build, this could be an NHBC or architect supervised build etc this needs to be planned in and run through the whole project and not be an unforeseen panic at the end of the build.
The above points cover the main basics of a self build mortgage and there are of course many other factors to take into careful consideration before embarking on such a project however as stated earlier self build mortgages can prove to be superb investment of both time and money, though again before deciding on any particular way forward it would be prudent to seek the advice of a self build mortgage specialist.
