Building your dream home can be one of the most rewarding experiences, allowing you to design a property tailored perfectly to your lifestyle. However, financing such a project often requires a specialised mortgage known as a self-build mortgage. Unlike traditional mortgages, funds are released in stages as the build progresses. Here’s how to navigate the process to secure a self-build mortgage…

1. Understand What a Self-Build Mortgage Is

A self-build mortgage differs from a standard mortgage in its payment structure. Instead of receiving a lump sum upfront, funds are typically released at key stages of the project, such as:

– Purchase of the plot

– Foundation completion

– Wall plate level (the base of the roof structure)

– Roof completion

– Final completion and sign-off

This staged approach helps ensure that funds are used as planned, reducing risks for both you and the lender.

2. Prepare a Detailed Budget and Plan

Lenders need assurance that your project is feasible and well-planned. You’ll need to submit:

– A detailed budget outlining all costs

– Approved architectural plans

– A schedule of works

– Planning permission from your local council

– A contingency fund, typically 10-15% of the overall cost

– An experienced contractor managing the build

Be realistic and thorough—underestimating costs could lead to issues later.

3. Determine How Much You Can Borrow for your self-build mortgage

Self-build mortgages usually cover up to 75-80% of the land cost and construction expenses. If you already own a plot or have the funds to buy the plot outright, you may only need the funds for the build.

Lenders will assess affordability based on your income, outgoings, and credit history the same as with a regular mortgage. In most cases you will require a regular mortgage at the end of the build to repay this self-build mortgage. It is important that the total mortgage amount you are left with at the end of the build, is deemed affordable on a standard mortgage.

4. Choose Between Fixed-Price or Custom-Build Projects

Some lenders offer specific products for fixed-price contracts, where a builder provides a set quote to complete the project regardless of unexpected costs or fluctuations, while others cater to custom builds where the homeowner has more control. Ensure the chosen mortgage aligns with your type of project.

5. Approach the Right Lender for your self-build mortgage

Not all lenders offer self-build mortgages, and criteria can vary significantly between those that do. Working with a mortgage broker experienced in self-build projects can help identify the most suitable lender.

6. Gather Your Documentation

To apply, you’ll need to provide:

– Proof of identity and address

– Evidence of income (e.g., payslips or tax returns for self-employed applicants)

– Planning permission and building regulations approval

– A breakdown of the project’s costs from an experienced contractor

Having all documentation ready will speed up the approval process.

7. Expect Regular Valuations

During the build, the lender will arrange inspections before each stage payment. These valuations ensure the project is progressing as planned. Keep in mind that you may be charged for each inspection.

8. Arrange Insurance

You’ll need specific insurance for self-build projects, such as:

– Site insurance to cover risks like theft or damage during construction

– Structural warranty to ensure the property is covered for defects after completion

Most lenders will require proof of these policies before releasing funds.

9. Manage Cash Flow 

While stage payments are helpful, they often come after each milestone is completed. You may need personal savings or bridging finance to cover upfront costs until funds are released. You may be able to agree with the main contractor to pay in arrears or even open accounts with local merchants that you can pay for in arrears to aid cashflow.

10. Complete the Build and Move In

Once your home is finished, your mortgage can typically convert to a standard residential mortgage. This final step simplifies your repayments and often results in lower interest rates.

Securing a self-build mortgage can seem daunting, but with careful preparation and the right support, it is entirely achievable. At Your Mortgage Consultants we specialise in guiding clients through the complexities of self-build financing. Contact us today for expert advice tailored to your unique project.

Ready to build your dream home? Reach out to us to explore your mortgage options!