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Getting a Self-Build Mortgage in the UK
A self-build mortgage is a great way to finance your home building project. You can use it to purchase land, build a new home, or even renovate an existing property. In order to get a self-build mortgage, you will generally need to have a good credit score and a steady income. You will also need to be able to prove to the lender that you have a viable construction project.
You may think that you have to be well-off and wealthy in order to get a self-build mortgage. The truth is, it's easier than ever for people of all income levels to qualify for a self-build mortgage.
This article will teach you how.
How much deposit do I need for a self-build mortgage?
The deposit required for a self-build mortgage is usually higher than that of a standard residential mortgage. This is because the risks are considered to be higher. Most self-build mortgage lenders will require a minimum deposit of 25% to 40% depending on your situation.
Is it harder to find a self build mortgage?
Yes, it can be harder to secure a self-build mortgage than a standard mortgage. This is because the risks are higher and the lender needs to be sure that you can complete the project. To qualify for a self build mortgage, you will usually need a larger deposit than for a standard mortgage, a steady income, and a detailed plan of your project.
You may also need to provide evidence that you have the skills and experience to complete the build. If you are looking for a self-build mortgage, it is a good idea to speak to a mortgage advisor who can help you find the right deal.
Self-build project advice
Have a contingency
Self-builders are typically advised to have a contingency fund of at least 10% of the build costs, to cover any unexpected expenses. This is in addition to the deposit and funds needed for the project.
Be realistic
When you are planning your self-build project, it is important to create a realistic budget and schedule. This will help you to stay on track and avoid any costly delays. It is also a good idea to get quotes from different contractors to ensure that you are getting the best value for money.
Work with a professional
If you are thinking of self-building, it is important to get professional advice from a mortgage advisor, builder, or architect. This will help you to understand the process and make sure that your project is achievable.
What are the benefits of a self-build mortgage?
There are many benefits to getting a self-build mortgage.
Create your dream home
One of the biggest advantages is that you can use it to finance your dream home. With a self-build mortgage, you can also choose the materials, fixtures, and fittings that you want for your home. This means that you can create a unique property that is tailored to your needs.
Save on Stamp duty
Another benefit of a self-build mortgage is that you can save money on stamp duty. This is because you will only pay stamp duty on the value of the land, not the value of the property.
Self-build mortgages can be a great way to finance your dream home. However, it is important to understand the risks involved and to get professional advice before you start your project.
If you are thinking of embarking on a self-build project, it is important to speak to a mortgage advisor to find the right deal for you.
What are the risks with a self-build mortgage?
The main risk with a self-build mortgage is that the project may not be completed. If this happens, the lender could be left with a property that is worth less than the money that was borrowed.
Another risk is that the value of the property may not increase as much as expected. This could leave the borrower owing more money than the property is worth.
Are self build mortgages more expensive?
Yes, self-build mortgages are generally more expensive than standard mortgages. This is because the risks are higher and the lender needs to protect themselves.
What is the difference between a self-build mortgage and a standard mortgage?
The main difference between a self-build mortgage and a standard mortgage is that with a self-build mortgage, the funds are released in stages. This is to make sure that the money is being used to finance the build.
With a conventional mortgage, the funds are released in one lump sum.
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Can self-builders get a bridging loan?
Bridging loans are typically short-term loans that are used to finance the purchase of a property before long-term funding is in place.
A bridging loan can be a good option for self-builders who will struggle to get a mortgage as it can provide the funds that are needed to finance the project.
However, bridging loans can be expensive and the interest rates can be high. This means that they should only be used as a last resort.
Can you use the land as a deposit for a self-build mortgage?
Yes, if you already own the land you can use the land as a deposit for a self-build mortgage, with some self build lenders requiring a 20% deposit rather than 30-40%.
If you already own the land, you could remortgage and use this equity to fund your build rather than take out a self-build mortgage, and then remortgage to a standard mortgage once the project is complete.
Can I get a self-build mortgage if I don’t own the land?
Yes, buying the land is often stage one of a self-build mortgage, and some lenders will lend you the money to buy the land as well as finance the build.
You will need to show the lender that you have a viable plan for your project and that you have the necessary skills and experience to complete it.
How much money can I borrow?
The amount you can borrow with a self-build mortgage will depend on the lender and your personal circumstances.
As a general guide, most lenders will lend between 60% and 80% of the value of the land and property.
Are self build mortgages interest only?
Yes, self-build mortgages are often interest only. This means that you will only need to make repayments on the interest each month and not repay any of the capital. This is generally because once the project is complete you will be able to apply for a standard mortgage.
This can make self-build mortgages more affordable as you will have lower monthly repayments. However, it does mean that you will need to find a way to repay the capital at the end of the mortgage term.
How long do self build mortgages last?
They tend to last for the timeline of the project until the home is complete and you can apply for a standard mortgage. The timeframe can be as short as two years, although this can vary depending on the lender.
Will I need to pay early repayment fees if I complete my build early?
If you complete your build ahead of schedule and are ready to remortgage to a standard mortgage, the last thing you want is to be levied with early repayment charges. The good news is that there are products available that do not come with early repayment fees attached, so you can focus on your project.
Is there a help to build scheme?
The help to build scheme is an equity loan available to self-builders in England who are building or customising their own home. The scheme offers an equity loan to help buy the land and build the home and can be between 5% to 20% (up to 40% in London) of the total estimated cost.
Under the help to build scheme, you can spend up to £600,000 on building your new home, including the cost of the land. You must spend no more than £400,000 on the actual build itself.
Who is eligible for help to build scheme?
To qualify, you must:
be 18 years of age or over, and have a right to live in England
live in the newly-built home as your only home
secure a mortgage from a lender registered with Help to Build
How much money can I borrow?
The amount you can borrow will depend on your project, your personal situation, and the risk you present as a borrower. As a general rule, you can expect to borrow up to 75% of the total cost of the project, including the purchase of the land.
Do you need planning permission for a self-build mortgage?
Lenders will expect that you have outline planning permission in place at the very least. This is because the main risk to the project is that the property will not be completed or will not be worth the value that the mortgage assumes, and not securing planning permission is seen as a major risk to the value being realised. You should apply for planning permission before securing your mortgage.
How do I find a self-build mortgage?
The best way to find a self-build mortgage is to speak to a mortgage advisor. They will be able to find the right deal for you and give you advice on how to finance your project.
If you're looking for free mortgage advice, self build mortgage rates, deals without early repayment fees, or other self-build finance options, Teito can help. We’ll make sure the process is as smooth and stress-free as possible - so your full attention is on your build.
So why wait? Get in touch with us today and let us help you get started on your dream home.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.
Last updated 21 February 2024