Self build mortgages.

A self build mortgage is a home loan taken out to build a property, not just for brand new projects but also can include partially built projects, conversion, renovations and knock down and rebuilds.

Self build mortgages are for when funds are needed for construction and renovation purposes, whilst a residential mortgage is for purchasing a property which is already built and habitable. Additionally, with a self build mortgage the money is released in stages as the build progresses, rather than in a lump sum.

The advantage to having the money released in stages is that self builders will only be paying interest on the money borrowed as they need it. The interest saved can be considerable, and is normally far higher than the £100 release fee.

Self build mortgage lenders will have their own requirements around when you can release stage payments. At Suffolk Building Society we operate flexible stage payments. Some of these milestones can include buying the land, laying foundations, making the building wind and watertight, buying fixtures and fittings, and the final stage is always retained until the build is complete. We recommend you liaise with your project manager to ensure the funds are requested at the right intervals to maintain cash flow. At each stage release we’ll need to instruct a valuer to inspect the property, and charge a stage release fee totalling £100.

Self build mortgage lenders either release funds in arrears or in advance. For new purchases, Suffolk Building Society releases funds in stages after the work has been carried out. Once you’ve purchased your property, or land, you’ll need enough of your own funds to start the build. Once the agreed work has been completed, you’ll be able to obtain your next stage release, allowing you to carry on with the build. This continues until your home is finally finished.

Advance stage payments are the opposite, where you get the funds before carrying out the work. Whilst this might seem appealing , in that you get the money to carry out the work upfront, this is riskier for the lender as the security for the loan doesn’t actually exist yet. That’s why advance stage payment mortgages are less common, and those that are available are typically offered at a higher rate than those where money is released in arrears.

For self build remortgages, it can depend on your circumstances whether you would be receiving funds in advance or arrears. Please speak with us to explore the options available.

You’ll need to check this with your self build mortgage lender. Our self build mortgages are only for personal use, so borrowers must live in the property themselves once it has been completed.

Once your self build project is complete, you’ll need to provide your lender with three pieces of information: a Completion Certificate, Standard Buildings Insurance Schedule, and Copy of the Warranty/Architect Certificate. At this point the last stage of funds will be released for your final bills to be paid. Subject to the terms of your mortgage you should be able to remortgage onto a standard residential product. At Suffolk Building Society we offer loyalty products for our existing borrowers.

It’s down to self build mortgage lenders to assess which methods of construction they’re happy to accept. At Suffolk Building Society we can consider a variety of build types, including those using modern methods of construction (MMC) and ones primarily built offsite. In some instances, we will require these schemes to be accredited through BOPAS. This gives assurance that properties are sufficiently durable and readily saleable for a minimum of 60 years.

There are some clear benefits to building your own home, however it’s no small task, and there are both advantages and challenges that you need to be aware of from the outset.

Perhaps the most obvious advantage of building your own home is the ability to make it completely bespoke. You could choose to integrate energy-efficient systems, which could provide savings in the long term and be more effective than retro-fitting. Additionally, self builders may be able to claim back VAT on labour and many material costs. It’s best to check this fully as rules and regulations can change.

However, some of the frustrations can come about from an early stage, starting with the lengthy and sometimes complex issue of gaining planning permission. There’s also your self build mortgage application which is more complex than a residential mortgage and will likely take longer to be processed. Speaking of mortgages, interest rates are usually higher than a residential mortgage as there is greater risk to the lender and there are usually conditions placed upon self build mortgages by lenders to protect their risk.

As with any financial decision you should take time to carefully consider your options.

Before you apply for a self build mortgage most lenders will require you to have certain things in place. This includes finding a suitable plot of land, obtaining planning permission and having detailed plans of the property drawn up along with a realistic projection of costs. Unless you already own the land, you will also need to have a deposit saved up and some funds put aside.