Self-Build Affordability
If you want to live in your current home while you build your new one, it is possible to get a self build mortgage along side your existing mortgage, but with stricter lending criteria, affordability is key. In this advertisement feature, self build finance experts BuildStore provide some insight into how lenders assess affordability for self builders.
The only way a self build mortgage is similar to a mortgage used to buy a house is that the amount you can borrow will be based on what the lender judges you can afford to repay, and on the lender's maximum loan to value (LTV) - typically up to 80%. However, one area where it differs is if you want to live in your current house while carrying out the self build project and you have a mortgage on that house, or if you are planning to live in rented accommodation during the build.
With the creation of advance stage payment mortgages by BuildStore over ten years ago, many budding self builders do not need to sell their current homes to release funds for their project, and in the current climate, they may even struggle to sell, or don't want to sell while house prices are still comparatively low. This means that many people will have two mortgages to pay whilst they are building. Similarly, if you are planning to sell, or have already sold your property, and are planning to live in rented accommodation during the build, you will have mortgage payments and rent each month throughout the build.
When applying for a self build mortgage, your current mortgage or rent commitments will be taken into account by a lender when deciding how much you can borrow for your project. The way affordability is assessed depends on the lender.
Some lenders will calculate the total amount you can borrow based on your income and then deduct the amount of your current mortgage from this. For example, if the maximum you can borrow based on your income is £150,000 and the mortgage on your current house is £100,000, the lender would limit the borrowing on your self build mortgage to £50,000. Unless you have a very high income or a tiny current mortgage, this method is unlikely to provide you with sufficient borrowing for your project.
There are however a number of more enlightened lenders who view affordability differently. They treat your mortgage or rent as a regular commitment in the same way as they treat a personal loan, and include your monthly mortgage or rent payment amount to their affordability calculation. They then will provide you with a loan amount that your remaining income will support.
As a general rule of thumb, this means is that if your current mortgage or rent payments are £500 per month, the maximum the lender will lend on a self build mortgage would be reduced by somewhere in the region of £20,000, although everyone's circumstances are different. All of the lenders who work with BuildStore and offer the Accelerator mortgage base their lending on this method.
