Right to Build and Self Build Mortgages: Financing Your Project
Words: Paul Winter, Ipswich Building Society
It is a common theme in the media to highlight the UK housing shortage, and the ever-debated issue of house prices. Yet one option overlooked by many is the self build market, which offers control and choice to those with a clear vision of their housing options.
However, a self build project can be far from simple and given the complex nature it is important that those seeking financing via specialist mortgages research the market to find a provider and product that best suits their individual needs and circumstances. It can also be worth considering the use of a mortgage broker.
One of the key things about a self build mortgage is the facility for monies to be released in stages. Stage payments enable the borrower to only pay interest on the actual amount released, and not the total amount required. The stages will differ from lender to lender, but there are usually 5-8 stages at benchmarks of the build, which can include initial purchase of the land and key milestones such as completion of foundations, the property being made watertight and completion of fixtures and fittings.
As with standard residential mortgages, borrowing money for a self build project may be possible on a range of products, such as;
- Fixed (the payments will remain the same for a set period of time),
- Variable (a rate set by the lender which may fluctuate) and
- Tracker (a set rate above or below the Bank of England Base Rate).
There may also be the option to make mortgage payments on a repayment basis (paying back the capital amount borrowed as well as accrued interest) or on ‘interest only’ basis (where payments only cover the interest, and the total sum borrowed must be repaid at the end of the mortgage term).
When approaching a lender or mortgage broker to arrange a self build mortgage it helps to be prepared. Consider compiling the following information prior to your enquiry:
- Details about your self build project, such as land acquired, planning permission, detailed plans, realistic cost projections
- Deposit amount
- Financial information such as bank statements, details of income, balances of other outstanding loans / credit cards and any other relevant information, such as evidence of child tax credits. If you are self employed you should also prepare your accounts and have these signed off by a suitably qualified accountant (the more years the better, however some providers will consider applications with just one or two years’ accounts)
Of course – like all self build projects – all lenders are different. It’s worth seeking out a provider experienced in self build mortgages and who utilises manual underwriting, such as Ipswich Building Society, using real people to assess the application, in order to fully understand each build on its individual merits.