Self Build Mortgage

Self build mortgage in the UK is also called stage payment mortgage. When it comes to options for mortgage, this great option has seen an increase in popularity over the past several years. With more and more people in the UK now deciding to renovate homes or build new homes, this type of mortgage is on the rise.

The thing about a self build mortgage is that the average cost associated with renovation or new build is £150,000. Because of this, approximately 65% of people in this category have to secure long-term financing. Today, 10% of all homes in the UK are self build or renovation projects. Of these, one out of four is a new detached home. Years ago, building was not considered much of an option but we are now seeing about 20,000 people annually in this category of self build or renovation.

If you travel to Northern Ireland, the number of people building a new home or renovating an existing home is actually much higher than what you would find in England. However, experts expect to see more and more self build mortgages throughout the UK. Keep in mind that although people in the UK are now building, there are still less than 50 different mortgage options on the market.

Of the self build mortgage options, each is unique with different features that cover underwriting policy, maximum permissible LTV, and even the way in which the lender views the planning permission, approval of the loan, and the warranty. While you will see many different aspects of a self build mortgage, probably the one that stands out the most is the point at which the lender decides to release the needed funds. For example, some lenders wait until all work is done to let go of the money, which means you build on your own funds. Other lends will give you the money so you can buy the land, which is the biggest expense, especially in the UK.

Choosing to build your own home has become a very popular choice for many people in the UK for a number of reasons. First, there is the profit or savings aspect. After all, the completed market value for this type of property is generally as much as 30% higher than the cost of development. In other words, you are buying the property at cost. In addition, building your own home allows you to maintain control of the location of the land. Finally, you gain more input into the overall design of the home, as well as materials being used, the layout of the home, dimension and size of the rooms, and so on. Therefore, you end up with a home that is what you really want, not just a home.

The type of people that take advantage of building their own home and using a self build mortgage generally follow in three categories. First, you have people who want involvement in the overall design of the home, as well as say in construction decisions. However, these same people are usually busy with work and other things so they do not have much time to invest. Second, there are people who simply need the financing of a self build mortgage. These people carry out the entire project and often are significantly involved, almost serving as a project manager. Finally, you have people who want to have some say in the design and materials used, preferring to leave everything to the professionals.

Then as far as the actual mortgage, you have two primary options, which include arrears stage payment and advance payment. With arrears, the lending falls between 75% and 95% of the amount needed to build the home. The downside is that some lenders will require a special loan provision in which the builder has to purchase the land on which the home will be constructed. For the advance payment option, the cost of the land along with stages of the building would be worked out and split with money up to 95% of the cost of both land and home. However, in this case, the money is released at the start of each phase with money not being held back until completion, which is opposite of the arrears mortgage option.

- James M

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