What is a self build mortgage?

Most of us require a self build mortgage to finance our builds'.

Although the credit crunch led to a contraction in self build finance, there are still plenty of lenders out there with the right products.

What Are They?

Self build mortgages differ from regular mortgages by releasing money in stages as the build progresses, as opposed to paying out a lump sum in order to purchase the property.

They will offer the usual choices of fixed, variable, offset or discount mortgages and an option to remortgage your existing property might also be available.

If you are going for an alternative build method or a green eco home then understandably lenders will be cautious. There are a few out there, including Ecology Building Society, who could be willing to take you on.

Staged Release of Funds

There are two formats for releasing stage payments:

Advance

Payments are made at the beginning of a stage. This improves cash flow and makes funds available for payments when you need them. They are usually a bit more expensive and charge an additional fee, as there is more risk for the lender.

Arrears

Payments are released after a stage is completed and a surveyor has made an interim valuation. This can cause cash flow problems and you may need to retain a cash buffer or set up some form of bridging loan to make payments when you need to. There will also be additional fees to pay for the stage inspections.

The Stages

Borrowing Limits

Income multiples are generally the same as regular mortgages but you should consult individual mortgage providers for details.

Most lenders offer loan to value ratios of around 75% but some, including BuildStore offer up to 80%.

The usual income multiples apply and the amount you will be able to borrow is based on an assessment of your ability to pay it back and the size of deposit you'll make.

Requirements

Lenders will want to see the following:

• Planning permission: At least outline permission for the land purchase and detailed for build costs.
• Building regulation approval.
• Plans and specification.
• A full set of build costs.
• Evidence of your registration with a warranty scheme.
• Details of your builder and their qualifications.
• Insurance documents.
• Other supporting information.

As always, be sure to read and compare the small print carefully. Make sure you know exactly what you are being offered and what criteria actually trigger the release of stage payments. Check each policy's requirements, conditions and restrictions.

Self Build Mortgage Lenders

Some well know providers of self build mortgages are listed below:

• BuildStore - Accelerator Mortgage.
• Ecology Building Society
• Lloyds TSB
• BM Solutions
• Astra Mortgages
• Norwich and Peterborough
• Progressive Building Society
• Ipswich Building Society

If you need a self build mortgage then do your research, compare what is out there and look at the details before deciding which one will work best for you.

For information on insurance, costings and other financial matters return to our Building Costs/Money section.