If you’re wealthy enough, you can finance the whole project through your assets and cash input. But, more than likely, you’ll need a self build mortgage, so that you can borrow money upfront and throughout. Mortgage brokers advise a minimum of 25% of the cost of the plot and the build, plus an extra 10% for emergencies or unforeseen issues. A typical example would be £97,500 for a £350,000 build. The more money you have, the easier your application process should be, and the easier your project should flow. However, it is possible to secure a self-build mortgage at a lower rate; you just have to enquire and hope the mortgage broker appreciates your individual circumstances.
Currently, a self build mortgage can be approved with a 15% deposit of the land and build costs. It’s important to do your calculations beforehand, as your plans and finances will be scrutinised. It’s important to have the cash in your bank as evidence to a mortgage broker. Some brokers will consider your assets to borrow against, but most prefer concrete cash.
Each lender will have their own criteria, and methods, of assessing an individual’s finances. Usually, they will calculate a total of your monthly outgoings, from rent, loans, credit cards and bills to childcare costs and personal purchases. Next, they will multiply the total amount by 12 to achieve an annual cost, deduct it from your singular or joint incomes and multiply it once more by around 4, to give a rough indication of how much you can borrow.
The most obvious starting point would be to utilise your own savings. The more cash you can put in, at this initial stage, without off-selling any of your assets or properties, the better. Alternatively, you can raise extra capital through equity. By selling your home, you can free up that much needed cash. The rest is usually made up through borrowing, either from friends or family or a mortgage provider.
Obviously, this will vary depending on which lender you choose and the deal you secure but, generally the interest rate will fall somewhere between 5-6%. The overall amount you pay back is determined by the size of your mortgage and the length of its term. It can also be determined by the type of mortgage product you choose like an interest only mortgage, for example.
Definitely. There’s no use in having a rough figure in mind. It requires a certain level of research, planning and preparation to even be considered for a self build mortgage. Having a clear idea will help you hugely throughout the process and give you a clear focus and strategy.
Your lender will release your money at different stages throughout your self build project. Whether it’s an Arrears mortgage or an Advanced mortgage, you can discover more here.
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