General

General

Can I get a mortgage to purchase a plot of land?

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Time to state the obvious, when you’re planning to build your own home the first thing you need to secure is the land to build on.  The question is can you get a mortgage to help you buy the land?

The answer is… maybe. You’re beginning to wonder why you’re reading this aren’t you? But stick with it.

Most Self Build Mortgage lenders want you to get your build to at least foundation stage prior to releasing any monies. However there are lenders who will allow you to purchase or release funds from the value of the land.  There are, as you might guess, a few stipulations and expectations.

What makes a site suitable security for a mortgage?

Note that I asked what makes a ‘site’ suitable security for a self build mortgage and not simply ‘land’.

First of all  lenders will expect that the site has full Planning Permission and normally passed Building Control before they will lend a penny. For those buying a property will Planning already approved it’s worth noting that lenders are not keen on lending to purchase a property only to have the plans resubmitted for further changes.

How much will they lend?

It depends on the lender on how much they will release however a good rule of thumb would be between 50-75% of the value of the plot of land. For example if your plot values at £100,000 then you could get anywhere between £50-75,000.

How do Self Build Mortgages Work?

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So you’re thinking about self building your own home. After months, possibly years of planning your dream home it’s time to start organising the practicalities of the financing. This may be your first home or you may have bought a property previously and have a good understanding of how normal mortgages work. Either way the next question on soon-to-be Self Builder’s lips is how do self build mortgages work?

Self Build Mortgages and their stage releases

The first thing you need to know is that your money will be released in stages.  These stages will be released as the build progresses and will depend on the lender and the type of build. It’s important to understand that you will only pay the amount you have drawn down at any particular stage of the build i.e. you may have applied for a mortgage of £250,000 however if your first stage release is for £50,000 then you monthly repayments will be based on only the £50,000 you have borrowed so far.

Every lender has their own way of arranging the stage payments however the table below serves as a good guide to how many self build mortgages will structure the stage releases.

Stage Release for different constructions

Brick & Block Timber Frame
1st Stage Purchase or release of funds from of land Purchase or release of funds from of land
2nd Stage Foundations Foundations
3rd Stage Wall plate level Kit erected
4th Stage Wind & watertight Wind & watertight
5th Stage Plastered Plastered
6th Stage Completion Completion

 

With most self-build mortgages and certainly all those in Northern Ireland (NI) the stages are released in arrears.  Depending on the lender money may be released from the value of the land or to purchase the land.  From there on any work required to get to the next stage must be completed prior to money being paid out from the self-build mortgage i.e. in arrears of the work being done.  At each stage the quality of the work must be assessed and signed off by a qualified surveyor.

As the money is released in arrears it is important to have sufficient savings to produce a deposit for the land (if purchasing) and to fund the early stages of the build.  However, if you have been gifted or already own the site you can re-mortgage to help provide funds to kick-start your self-build.

In England there are a few self build mortgage providers out there willing to look at providing the funds in advance of each stage.  This means the funds are released at the start of each stage rather than the end.  This is obviously beneficial to your cash flow and is worth considering when it’s available however this generally comes at an additional cost.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

What is a Self Build Mortgage?

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A Self Build Mortgage is a mortgage loan generally secured on a site, run-down property or barn conversion with full Planning Permission and Building Control.   The loan is based on the current and end value of the property.  Money is released in stages as the build progresses and rarely exceeds 75% loan-to-value* (LTV).

Each Self Build Mortgage lender has individual views on the risks involved and generally structure their offering accordingly.  Therefore careful research is required before applying for a mortgage.

*Loan-to-value is the ratio of mortgage debt to property value i.e. if the mortgage is £100,000 and the end value of the property is £200,000 then the LTV is said to be 50%