Embarking upon building your own house is a huge undertaking and if it’s something you’re serious about considering, the very first bridge you’re going to have to cross is how to fund the whole thing.
If you’ve got money in place from another source then that’s great, but the chances are that you’re going to need a mortgage.
However, self-build mortgages differ from traditional ones as the money is released in stages as the build project progresses.
The way in which the money is released varies from one mortgage to another, and which kind you choose will depend a lot on your own personal circumstances.
Typical build stages
While each build is obviously different, these are the most common stages of a project:
1. Purchase of the land
2. Preliminary costs and foundations
3. Wall plate level
4. Wind and water tight
5. First fix and plastering
6. Second fix to completion
There are two main types of self-build mortgage, advance and arrears, and we’re going to take a look at both in more detail.
This is the most common type of self-build mortgage, whereby the lender will release some money to allow you to purchase the land, usually somewhere between 50% and 85% of the land’s value.
They will then go on to release in stages such as those outlined above. The money is paid out at the end of the stage, once work has been completed and a valuer will visit the site.
These types of mortgages are best for those who have enough savings to fund the early parts of the build, as well as pay off the deposit for the land.
For example, you may already own the land and want to remortgage it to fund the build, or you may have recently sold your own house to fund the project.
If either of these are the case, then you’re probably best opting for an arrears mortgage.
However, the fact is that most won’t have enough cash to both place a deposit on the land and complete the early stages of work required to get the cash from an arrears mortgage.
In this case, you may be best opting for an advance option. In these mortgages, the money from is released to you at the beginning of each building stage rather than at the end.
This gives you the cash for materials and builders up front, and these mortgages will often lend more upfront than an arrears one.
For those will less upfront capital or who don’t wish to sell their existing house straight away, we would usually recommend an advance mortgage, although as always, each project is different and we’d suggest getting in touch with one of our mortgage advisors to fully discuss your options.
Once you’ve got your finances in place you’ll be one step further along the line to building your own dream home.
For an idea of what lies ahead, check out this step-by-step guide on how to build your own home from Which? Mortgage Advisers.
And for more information on mortgages, head to This Is Money for their five top tips on finding a self-build mortgage.