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|
|3rd Stage||Wall plate level||Kit erected|
|4th Stage||Wind & watertight||Wind & watertight|
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.