Building your own home is a dream for many, but the process of finding a plot, commissioning an architect and choosing a builder can prove daunting at first. Before you even consider the physical aspects of the build project however, the big question you need to ask is can I afford it and how do I fund it..?
Unless you’re a cashed up buyer, you will need a mortgage to fund your self-build. Whilst many mainstream mortgage lenders are currently shunning the self build market, finding finance is not as hard as it might first appear.
Finding a lender with self build mortgage product
Self-build is still considered a niche market for lenders and many have stopped lending on self build projects in recent years due to lack of demand. (This is odd in itself since over 11,000 self build homes were constructed in 2012 – more than any of the national house builders..!)
Deals are available from lenders such as Norwich & Peterborough, Saffron Building Society, BM Solutions and The Leeds Building Society. Deposits, rates and terms vary depending on planning permissions and the stage of the building so shop around.
There are additional items you will need to provide over and above the usual information, such as a copy of your planning permission and plans of the house so the lender can value the ‘end product’.
When applying for a self-build mortgage, your current mortgage or rent commitments will need to be taken into account by a lender when deciding how much you can borrow for your project. The way affordability is assessed depends on the lender.
Preparing a budget
The bank will want to know how much you estimate the project will cost and the more professionally this is presented the better – Consider appointing a Quantity Surveyor to justify the project costs. You will also need to factor in the cost of living somewhere else whilst the build is underway.
On average, lenders will currently lend you 75% of the current land value and then 75% of the build cost.
Put your information pack together
A lender will want to see detailed plans for the property, a projection of costs and planning permission details.
You will have to be clear on everything including the people and materials being used. Factors such as build type, construction method, materials, location, and schedule of costs will all impact which lenders will lend and how much.
Consider how the draw down payments will be structured
Lenders typically release the build money for a self-build project over six or seven stages, starting once the foundations are poured. The lender may also appoint an Architect or Surveyor to inspect each stage before releasing each stage payment.
This process protects a lender by ensuring each stage is completed to a satisfactory standard. The inspections and extra administration make self-build loans more expensive than a conventional mortgage, but the also give you peace of mind that each stage is being built correctly!
Funds are generally released in arrears however some deals offer advance payments where the money is released before each stage. Once a stage is complete and signed off by a Valuer, the funds for the next stage are released.
Some lenders will not lend until the property is watertight, while others may be happy just want to see the foundations built. Some may also place restrictions on doing the work yourself and make you use a professional or certified a contractor.
Lenders support modern timber frame construction, but if you’re intending to use an unconventional product, check with your lender fist as they may not support it.
Some lenders will give money on an interest only basis, which tends to help those on a tighter budget.
Change your mortgage product once the project is complete
The initial mortgage rate during the build is often higher than the rate for conventional mortgage products, but you may be able to switch to a lower rate once the property is built and the lender has done a final valuation. You may also be asked to go onto a repayment mortgage too, if the initial loan was interest only.
The team at Oakworth Homes has the ability to help you with your grand design from inception to completion. Form finding a plot through our network of contacts, to designing your dream home in our design office. We can even point you in the right direction to secure funding through our network of contacts in the self build mortgage lending industry – Give us a call today..!
Blog by Nick Franks – Oakworth Homes Ltd