WHAT IS SELF BUILD MORTGAGE?

To own a house is a dream that everyone has and to build the home on your own is like a cherry on top of the cake. But does everyone have that kind of money to build their home on their own? The answer is No. So how would you finance your home? That is where a self build mortgage comes into play.

When talking about building your own house, there are 3 ways you can go about it

• 1st is you can do the work on your own if you are good at building and construction. You will only need to hire a plumber and electrician or other personnel as required.
• 2nd is you can hire architect, builder and surveyor that will complete your house while you just manage the project.
• lastly you can hire a contractor who in turn will manage your project and hire necessary employees as needed. Although it might be expensive for you.

If you decide to build the house on your own that are greater chances that you will need a mortgage to finance your plan. But the typical loan will not be an option for you. You will need to get a self build mortgage which is provided by only certain special mortgage lender.

How self build mortgage works?

You need to prepare an application where you need to share your plan about how are you going to build the house. Your application should build confidence in the lender that their money is safe in your hand and you could repay them without any problem.

In self build mortgage you receive payments in stages

• 1^st when you buy the land
• Once the foundation is completed you get the second payment
• You get 3^rd payment after the construction reaches the roof.
• On completion of the roof construction you receive 4^th payment.
• 5^th payment after the complete plastering of inner wall of house.
• And subsequent payment after completion of the of the home.

There may be slight changes in the payment, but more or less it will be the same.

The lender will be more cautious when it comes to self build house so you need to have a good credit score and reasonable deposit amount.

Types of self build mortgage

There are two types

The arrears type, here the payment is given after the completion of each stage. This type is most suitable for those that have enough cash in hand to put into the house

The advance type here the payments are given at the start of each stage of building. So you will have money when you need it, when bill and payment are due. This type is suitable for those that don’t have enough savings to put into the house.

Required documents

Most of the documents are same as that required for the residential mortgage

• Copy of planning permission
• Copy of construction drawings and specifications
• Copy of total project cost estimate
• Copy of Building Regulations approval
• Copy of site insurance and structural warranty
• Architect’s professional indemnity cover (if required)
• SAP calculation (this will be in the Building Regulations package)
• Experian credit report.

 You also need to include the report containing initial, interim, and final valuation of the house. Out of which you will need to pay for initial valuation and latter 2 will be calculated by RICS evaluator

Disadvantages

High rate of interest as compared to standard residential mortgage.

You need to pay a larger down payment of around 25% (in some cases 50%) as compared to 10%-20% in residential mortgage.

More paper work is required. Some lender may need to see the proof of the permission granted to your plan by local planning authorities.

You will require enough money in the bank as you will also be having your running expense where you live.

Advantages

The value of the finished property turns out to be much higher than its cost

The mortgage amount is lower to build the house as compared to the mortgage amount for buying the house ready made

Precaution

You need to do the research properly because if you have a good plan you may get to pay lower down payment. Also, you need to be prepared to handle some additional expense if it comes up. Will it be easy for you to get the permission on the land you want to build the house?

Conclusion

Self build mortgage is a great way to finance your dream house. Also, you could get a high value house at lower cost if you build it on your own.