Building your own home using self build finance
You don’t want to do things the traditional way and buy a property someone else built. You want to create your own vision of a home and have it built right before your eyes. If you are planning to build your own house there are two routes. You can either go for the DIY route where you do most of it yourself and use professionals where necessary. Or you can go down the route of getting a contractor to handle the whole process for you. Either way you will be looking at self build finance, let’s go into that and provide you with some information on the process.
Well, what exactly is self build finance?
That’s a great question, and something not a lot of people know about. Let’s fill you in… Building property from scratch can be a daunting process, especially with no financial plan. Self build finance fill this gap in the market and the need for finance for a property you want to build yourself. The biggest difference between self build mortgages and a standard residential mortgage is that the funds are given to you at different stages of the process. Whereas in a normal purchase mortgage you are given the lump sum to buy the property outright. This is so lenders can mitigate the risk. Spending and budgets can be regulated by lenders by using this method. When you get the sections of money depends lender to lender. In general you will be getting the first installment when you buy the land. The next payment being released when the foundations are laid and a further installment when the property is built up to the eaves level. Water proofing the roof and plastering the walls will be when the final payments will be made. The last payment being on completion.
So what types of self build finance can I get?
Generally you split self build finance into two types, in advance and in arrears. Valuers visiting site and verifying the works will release the installments of money. You can get mortgages where each payment sum is made for the next stage as that proceeds. The other option to this would be paying in arrears which can help greatly on the cash flow of the process. Rates on self build finance will generally be higher than your normal residential mortgages, all of the market rates are available for us to look at and advise you on the best one. Due to the higher risk on these loan to values usually cap at around 75-85%.
Self build finance lenders and interest rates
Similar to residential mortgages, there are many different lenders and rates out there. The rates for self build finance are going to be more expensive than your traditional build mortgages. This is because of the risk involved in the process. In the build process from purchase of land to completion, a lot can go wrong. The lender has to plan against this risk and does so by making the rates higher. This doesn’t mean that self build financing is impossible, just more expensive. The main advantage of the self build finance process is the increase in equity of the property. Yes, you will be paying higher monthly payments on your mortgage. Gaining equity on the property though is the key to this process. Unless the build process goes massively over budget or horrifyingly wrong, generally the price of buying land, plus contractors and materials comes out to less than the final value of the property. Meaning you see that equity gain at the end of the process. You can then look at remortgaging at a later date into a better interest rate.
The self build finance process
As whole of market mortgage brokers ourselves, we offer mortgage advice across the board when it comes to mortgages. Self build being a more specialist section with limited lenders but still something we can advise on. Firstly it would be securing a plot of land to purchase and typically moving on from there. The land would be like your property in a normal residential purchase. You would obviously also need planning permission in order to build otherwise the lender has no plan to lend against. Once you have a plot you like, along with a suitable deposit, we can look at potential deals for you. As mentioned before you can see lenders can cap their maximum loan to value at 75%. This means you will potentially need to come up with at least a 25% deposit. The 75% would be the amount of loan you would get. 100% of the price would be the land cost & build cost in total. But as mentioned earlier, you get this money in drips.
Our advice process
With access to all the market, we have the best deals at our fingertips. We guide you from looking at budgets in the beginning, through to a mortgage application. We then take this all the way through to the offer process. The lender will want to see the land and make a valuation to make sure there is planning permission and an adequate piece of land to build on. Once all this is satisfied along with their other criteria, a mortgage offer will be released. This typically signals the end of the mortgage advice process but we monitor it through the legal process to make sure you are looked after until completion.
Get in touch with us today
The best way for us to advise you is by you getting in touch. This way we can have an informal discussion to decide what is best for you. They we can look how to move forward if possible. Contact us today to get advice on your self build finance. Please do be advised as well that we also cover the full remit of financial advice including pensions, investments & insurance.