Mortgages for Self Build
We love these and get very excited seeing plans and dreams evolve from a plot of land or an existing refurbishment into a finished home. However, self-build mortgages are not easy as there are far fewer mortgage lenders compared to traditional finance options. Funding a Self-build project is very different from that of a conventional mortgage; therefore, expert mortgage advice is crucial. The main difference is that mortgage finance is released at different stages of the build, and it can vary depending on the chosen lender.
There are many benefits to undertaking such a project. Stamp Duty is only payable on the land and not the building element; you can create equity in the property quickly and create a home that is perfect for you.
Of course, there are downsides such as going over budget, having to self-manage relating to stress and it taking the attention from your professional life or having to live elsewhere whilst the build is going on – but, generally speaking, the positives outweigh the negatives – right?
We expertly understand these mortgages and would love to help you finance your project and enable you to understand what each lender can offer and how they can make your dream build become a reality.
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Self-Build
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What is Self-Build Mortgage?
A self-build mortgage is a specialist loan that helps people build a residential property in the UK to reside.
It helps individuals purchase land, pay contractors and tradespersons, and finance materials and supplies for a building project or its completion.
Self-build mortgages are typically offered by specialist lenders who understand the nuances, risks, and challenges associated with custom-building projects.
These loans usually require detailed construction plans, an accurate budget and extensive credit checks because of the risks involved. Self-build mortgages, in most cases, include features, such as staged payments for each phase of the project or a deferred payment option at the end of the build, so one can move into their new home before repaying the lender.
What Are the Benefits of a Self-Build?
Building your property can benefit you as you create the design and customise the property ideal for you. With the latest building regulations, you will create a sustainable home from the outset, reduce your bills, and be energy-efficient!
There can be savings made as land is likely to be far cheaper than buying a second-hand property; therefore, Stamp Duty is on a lower amount and, therefore, more affordable. New Build homes are zero-rated for VAT, which could mean you reclaim all of the VAT paid for materials!
If you buy the land for a reasonable sum coupled with controlling the build costs, it is feasible you will have a completed property with instant equity upon completion of the build. This will result in finding a cheaper mortgage as the loan-to-value could be below 75%!
What Are the Negatives of a Self-Build?
Firstly, have you got somewhere to live when building your new home? You could simultaneously have the costs of the exciting new project whilst paying rent or another mortgage during the build period to reside. This can be costly.
Secondly, we suspect this could be the first time you have undertaken a self-build project. Assuming so, it is stressful dealing with the intricacies of each trade and managing the project. It is advisable to employ a project manager, which comes at a cost. Many projects go over budget – you must have seen the TV programmes; how many come within budget? Please ensure you have a backup as you don’t want to finish the project and have to compromise from your dream finish!
Lastly, it can be time-consuming as things do go wrong and delays are caused. Be prepared.
As a First-Time Buyer, Can I Do a Self-Build?
Yes, absolutely and in fact, if you are living with mum and dad, this sorts out the cost of paying for somewhere to live when the project is being built – sorry, parents!
Will a Self-Build Mortgage Lender Give Me the Mortgage in One Go?
No, these mortgage work in stages, so a mortgage company will lend a percentage to buy the land and then at each stage of the build, they will release more cash until the build is completed.
What Are the Typical Stage Payments on a Self-Build Mortgage?
Typically, but not in every case, a specialised self-build mortgage lender will release funds at these stages. Some lenders will lend in advance, and others in arrears.
- Purchase of land
- Preliminary costs and foundations
- Wall plate level
- Wind and Watertight
- First fix and plastering
- Second fix to completion
Note that if you are building a timber frame construction, replace the ‘wall plate’ stage with ‘erecting timber frame kit’.
How Does the Lender Know to Release the Stage Payment for a Self-Build Mortgage?
At each stage of the project, a lender would send in a valuer to assess and consider the uplift in value. There is always a risk of down valuation with this method. Some lenders will determine up front based on the verified project costs, likely mitigating this scenario.
Does the Land Need Planning Permission to Get a Self-Build Mortgage?
Yes, you must have planning permission, but securing the initial stage funding could be feasible based on outline planning. If you have taken the risk and bought a plot of land without planning (generally because it is cheaper to do this), once planning is accepted, you can apply for the mortgage.
This page is quite good regarding planning permission: www.gov.uk/guidance/self-build-and-custom-housebuilding
I Love the Idea of Self-Build. How Can I Find the Land?
This is the million-dollar question. Most landowners feel their land is worth more than it actually is, so you must know your costings before you start offering – it is so easy to get carried away!
To find land, you need to keep looking. Land Auction houses such as www.auctionhouse.co.uk all come with risk because when you buy at auction, you exchange contracts when the hammer falls, and you are committed to the purchase. There are specific websites which list plots for sale. Please be sure to undertake the necessary research due diligence. Here are a few to get you going;
What Are the Tax Advantages of a Self-Build?
When you buy land, you must pay Stamp Duty Land Tax. The good news is this will likely be far cheaper than buying a ready-made home. Check out the costs using our SDLT calculator here.
Building a new build home is zero-rated for VAT; therefore, it is highly likely that you can reclaim the VAT at the end of the project. We strongly advise keeping watertight accounting records and seeking professional help from an accountant if you are unclear on what to do. This is a lovely little earner post-completion, huh? The gov.uk site will give you great information on what you can claim. Click here to see https://www.gov.uk/government/publications/vat-refunds-for-diy-housebuilders-claim-form-for-new-houses-vat431nb
What Is the Maximum LTV I Can Borrow for a Self-Build Mortgage?
The maximum loan-to-value is dependent upon your circumstances and the project. Realistically, you can get up to 85% of the land purchase and a further 85% of the building costs. Many lenders will have a stipulation that they won’t lend more than a percentage of the end value of the project. This ranges between 60% and 85%, depending upon the lender.
However, a caveat to the above is that each self-build is unique and has its own merits, so even if you are outside these guidelines, there is no harm in chatting your project through.
Is it possible I can let my existing home and build another home?
Yes, absolutely possible. You can look at Let-to-Buy mortgages on your existing home and a self-build mortgage on the exciting new home. It is worth noting that you could have the Stamp Duty surcharge on the land you are purchasing (presently an additional 3%), but this is likely to be far cheaper than buying a ready-made home.
How Can We Help With Your Self-Build Mortgage?
We appreciate that every self-build client has an individual and unique design to cater for. Whether you are buying a ready-made house to import from Germany, a timber framed construction or a traditional brick build, we can help.
Conran Mortgages can help you apply for a self-build mortgage by connecting you with the most suitable lenders and products through our Whole of Market expertise.
Our dedicated independent mortgage experts and case managers are on hand to assist the application process by advising and guiding throughout.
WE DO NOT CHARGE A BROKER FEE, so this is one less cost.
We get how stressful building a home is, and our job is to take this stress away from you at least. You can contact us here