I’ve always had the ambition to build my own house, but my lifestyle has never been right for me to do so – until now. I’ve decided to do this in 2021 but will need a mortgage. We will sell our existing house which will give us sufficient capital to buy the plot of land and a deposit towards the work and we’ll live in a caravan on-site during the build. Is it possible to get a mortgage on a property that doesn’t actually exist yet?
Diane Fish of Smith & Pinching responds:
Yes, there are specific self-build mortgages available on the market. They operate differently from standard mortgages in that the mortgage is released in stages as you need it for the build, rather than all upfront.
Before agreeing the mortgage, the lender will want to know that the appropriate planning permissions have been granted. You will be expected to have a detailed plan for the build with costs identified for each stage. The stages themselves will be agreed between you and the lender and usually follow natural milestones in the build such as the completion of the foundations, brickwork to roof level, roof on, building becoming watertight, etc.
There will normally be around five to seven stages. Some lenders will agree to provide funding for the next phase – i.e. in advance – whereas others may expect you to have a capital pot to do the work then provide the funding for the stage retrospectively to allow you to move onto the next step.
The lender will probably want to arrange for the work that has been done to be inspected before releasing further cash.
This type of mortgage does have a benefit for the borrower in that you only incur interest on the money you have received so far rather than on the whole amount that has been agreed.
The lender will expect to carry out all the usual affordability checks based on the total mortgage you require. The mortgage rate on offer for a self-build may be a little higher than that for a standard mortgage and there may be a number of conditions attached, such as a maximum timeframe for the build. There may also be arrangement fees and advice fees to take into account. It’s important to understand all of the terms and conditions before you sign up.
Rates and conditions vary from lender to lender, so I recommend you get advice to obtain the most suitable mortgage for you.
Your home may be repossessed if you do not keep up payments on your mortgage. There will be a fee for the mortgage advice. The precise amount will depend upon your circumstances, and the type of lending taken. Smith & Pinching’s minimum advice fee is £700. Any opinions expressed in this article do not constitute advice.
For more information visit www.smith-pinching.co.uk
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