What is a self-build mortgage?

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Thursday March 23, 2023

Q. Can I borrow money from a bank to build my own home?

A. Yes! A self-build mortgage is the answer.

A self-build mortgage is a loan designed for people who want to build their own home. It’s a way to get money from a bank or lender to help you pay for the land, materials, and other costs involved in constructing your dream house.

Unlike a regular mortgage, which gives you a lump sum to buy an existing home, a self-build mortgage releases money in stages as your construction project progresses. This helps to ensure you have enough funds available at each step of the building process, from buying the land to completing the construction.

10 key points:

  1. ️Stage payments: Self-build mortgages release funds in stages as the construction progresses. This can be done in arrears (after each stage is completed) or in advance (before each stage begins). Arrears stage payments are more common, but advance stage payments can be beneficial for those with limited cash flow during the build.
  2. ️Planning permission and building regulations: You must have planning permission for your self-build project and comply with UK building regulations. Lenders usually require evidence of these approvals before releasing funds.
  3. ️Loan-to-value (LTV): Expect to secure a lower LTV ratio than with a traditional mortgage. You’ll likely need a larger deposit (approx. 25-40% of the total project cost) to secure the mortgage.
  4. ️Valuations and inspections: Lenders require regular valuations and inspections of the construction site to monitor progress and ensure the project is on track. These checks help determine when stage payments should be released.️
  5. Specialist lenders and brokers: Self-build mortgages are a niche product. Speak to a mortgage broker, like largemortgageloans.com, who is experienced in self-build mortgages to find the right loan for your project.
  6. Interest rates: these may be higher than traditional mortgages due to the increased risk associated with construction projects.️
  7. Completion deadlines: Lenders may set a deadline for the completion of your self-build project. Failing to meet this could result in penalties.
  8. Mortgage conversion: Once your property is complete, you may be able to convert your self-build mortgage to a traditional repayment mortgage with more favourable interest rates.
  9. Self-build insurance: Consider self-build insurance during the construction process, as standard home insurance policies won’t cover the risks associated with building your own home.️
  10. Warranty: After completion, obtain a warranty, such as the National House Building Council (NHBC) Buildmark warranty, to protect against defects in construction and offer peace of mind to both you and the lender.


Thinking of building your own home? Give us a call ️or drop us a message to discuss your finance options.

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Your home or property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it. Changes in the exchange rate may increase the sterling equivalent of your debt. You may have to pay an early repayment charge to your existing lender if you remortgage. Think carefully before securing any other debts against your home.  

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