Self Build Mortgages

• The cost of borrowing is generally higher than other arrangements due to the level of ‘risk’
• Very few lenders offer this facility too
• Currently advance funding may only be secured on a Single Premium Policy, which provides additional security to the lender. The cost of this premium is high
• 10% of total borrowing will be retained until Building Control has issued a completion certificate

Have an open dialogue with all of your contributors to ensure the lender’s stage release funding model is compatible with their payment terms.

Cash flow management is critical.

Where Are You Going to Live During the Works?

Where you intend to live while you build will have an impact on your affordability to borrow monies to build your dream home. For instance, the monthly rental payments or mortgage payments will have an impact on your affordability calculation.

Some lenders will accept you making upfront rental payments, which will not have an impact on your monthly income versus expenditure.

What Build System Do You Plan to Use?

Some lending institutions will not lend on certain types of construction, so do ensure you check with them. Of course, all your design and construction methods will need to be compliant with the current Building Regulations.

Each lender’s criteria are different, but you do need to ensure they are aware of your build type and of the payment terms and conditions your supplier has stipulated.

Do not agree any payment schedule with your builder or suppliers until you know how your lender will release funds to you.

What’s Your Estimated Build Cost?

Some lenders require that you must work to a fixed build cost budget; others may request that a qualified quantity surveyor provides the information on the build costs. Check with your lender what they require. Also, ensure that you include a minimum of a 20% contingency built into your build cost estimate.

(MORE: Use our free build cost calculator to estimate your build costs)

In addition, as part of your full project costs and budget control estimate that you provide your lender with, you’ll need to identify (or at the very least estimate) the following costs:

• Land purchase and associated fees
• Project management, including health and safety compliance
• Gaining planning consent, if not already achieved, and associated fees
• Demolition and/or site preparation
• Construction design fees
• Construction costs (preferably estimated against Building Regulations drawings).

You must demonstrate to the lender that you will have sufficient funding ability and competence in place to complete the project.

The supporting documentation required is essentially the same as a standard mortgage.

Additional supporting documentation required will typically include:

• Copy of planning permission
• Copy of construction drawings and specifications
• Copy of total project cost estimate (where possible, fixed-price contracts)
• 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.

An initial valuation will be carried out to establish current value and anticipated end value, too. You will be required to pay the valuation fees. Interim and final valuations will also be requested and carried out by a RICS valuer.

The reports will be presented to the lender to evidence the increase of the interim value(s) prior to interim and final release of funds from the lender. Again, you, the client, will pay the valuation fees.

• A typical timescale for processing a stage release mortgage is up to three months
• Consultants, brokers, banks and building societies will carry out a forensic analysis of all supporting documents
• In particular, they will focus on income and expenditure cross checked with the bank statements