Self Build

A self-build mortgage in the UK is a specialized financing option tailored for individuals or developers embarking on the construction of their own property from the ground up. It provides the necessary funds to cover the costs of building the home according to the borrower's bespoke specifications and requirements.

In a self-build mortgage, the funds are not disbursed in a lump sum as with traditional mortgages for existing properties. Instead, the funds are released to the borrower in a series of stage payments. These stage payments are made at different milestones throughout the construction process, and each release is subject to the lender's approval and verification that the construction is progressing according to the agreed-upon plans.

The stage payment process typically involves the following steps:

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  • Application and Planning: During the application process, borrowers are required to submit detailed plans and cost estimates for the construction project. Lenders assess the feasibility of the project, including the borrower's ability to skillfully manage the construction and the potential value of the completed property.

  • Stage Payment Schedule: Once the application is approved, the lender and borrower agree on a stage payment schedule. This schedule outlines the specific points in the construction process when funds will be released to the borrower. Common stages include foundation completion, roofing, walling, and completion of the structure.

  • Valuations: Before each stage payment is released, the lender conducts valuations to ensure that the construction work completed aligns with the stage outlined in the payment schedule. Valuers assess the progress and quality of the construction to ensure it matches the planned timeline and cost estimates.

  • Interest Payments: During the construction phase, borrowers typically make interest-only payments on the funds that have been released. These payments help manage the initial financial burden and keep borrowing costs lower during the construction period.

  • Completion and Conversion: Once the construction is complete, borrowers can choose to convert the self-build mortgage into a standard residential mortgage or, if the intention is to sell or rent the property, they may opt for a buy-to-let mortgage.

It is essential for potential borrowers to carefully consider the financial and logistical aspects of a self-build project before proceeding with a self-build mortgage. Self-build mortgages may have higher interest rates and stricter eligibility criteria due to the higher perceived risks associated with construction projects. Seeking professional advice from mortgage advisors and construction experts is crucial to understanding the terms, costs, and requirements of self-build mortgages and ensuring a successful and well-managed project.

A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.