How Self Build Mortgages Work
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.
Every self build project has identifiable stages from the initial digging of the foundations to the final fix and at each stage the value of the build increases. The following chart shows the typical stages in a traditional brick and block construction and in a timber frame construction.
Stage |
Brick & Block | Timber Frame |
|---|---|---|
1 |
Purchase of land | Purchase of land |
2 |
Preliminary costs & foundations | Preliminary costs & foundations |
3 |
Wall plate level | Timber frame kit erected |
4 |
Wind & watertight | Wind & watertight |
5 |
First fix & plastering | First fix & plastering |
6 |
Second fix to completion | Second fix to completion |
There are two types of self build mortgage each defined by when you get money during the build. They are called advance and arrears and each are described below.
The traditional type of self build mortgage is on an ‘arrears’ basis. With this type, the lender will release money to buy the plot, usually between 50% to 85% of the purchase price or value of the land and then will release the money for the build in stages to correspond with the build stages outlined above. The money for each stage is paid out at the end of the stage once the work has been completed and a valuer has visited the site i.e. in arrears of the work being done.
An arrears self build mortgage is best suited to self builders who have sufficient savings to fund the early stages of the build as well as sufficient savings for the deposit on the land. For example, if you already own the plot of land and can remortgage it to provide the funds to start the build or if you have already sold your existing house and have cash available to buy the land and start the build then an arrears mortgage may be the best option for you.
However, at BuildStore Mortgage Services we recognise that not every self builder has access to the cash required to pay the deposit on the land and the first build stages so we have created an alternative – the Accelerator Mortgage Scheme. Here money is released for each stage of the build at the beginning rather than the end of the stage giving you the cash you need to buy materials and pay your builder. It also lends a generous percentage of the costs - up to 95% of the cost of the land and up to 95% of the cost of the build.
Accelerator is ideal for many situations, for example if you have only a small amount of cash available and don’t want to sell your existing house to release equity before your new one is complete or if you want to keep the cash you have available until later in the project to maintain a good contingency fund.
BuildStore Mortgage Services has access to all the types of self build mortgage, both advance and arrears, as well as over 15 years experience in advising on the best type of finance for self build projects. So to make sure you get the best advice give us a call today on 0345 223 4888 to discuss your specific requirements and we can help you choose the most suitable way of financing your dream home.
