Pros and Cons of Self Build Mortgages

What is a Self Build Mortgage?

The main difference between a self build mortgage and a house purchase mortgage is that with a self-build mortgage money is released in stages as the build progresses rather than as a single amount.

There are two types of self-build mortgage each defined by when you get money during the build.

• The arrears type, where the stage payments are given as each stage of the build is reached.
• The advance type, where the stage payments are released at the start of each stage of the build.

Speak to one of our mortgage advisors about which is best for your self-build.

The Pros

• One of the advantages of building your own home using a self build mortgage is that you could save yourself thousands of pounds in stamp duty. This is because you there is no stamp duty on the cost of the building work, or the value of the property once the work has been completed. You only have to pay duty on the cost of the plot of land itself if the cost exceeds £125,000.
• The potential financial gains from building your own home are another advantage. Often self-builders find their finished property is worth much more than it cost them to construct.

The Cons

• The overall cost of borrowing in this way is generally higher than other arrangements due to the level of ‘risk’
• Only a very few lenders offer this facility too, so there is limited access to lender products so more research and hunting may be required to get a good deal.
• 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
• Up to ten percent of the amount you’re borrowing will be retained until a 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.

Often there is more paperwork involved when you take out a self build mortgages compared to a standard mortgage, as you will have to produce detailed plans for the property and any other details that your provider deems important to the build.

You may also have to provide a projection of the costs involved and most lenders will also want to see that planning permission has been granted.

You may need to put down a deposit of at least 25%, although you might be required to put down as much as 50%. Remember that on top of this deposit, you will need to pay for alternative accommodation while your new property is being built.