There are specialist mortgage deals to support you through this process, and our advisors can help you achieve all of your self-build ambitions.
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Self-build mortgages are somewhat different to a regular mortgage deal as your loan is released in stages, rather than an upfront amount of borrowing, lessening the risk for the lender but also giving you the opportunity to plan and build a home that may have originally been out of your budget.
These mortgages are a great option for people who don’t have the finances to fund a build project, but want to put their own stamp on a new property.
There are two main types - Arrears and Advanced.
Arrears is the more traditional option and sees you borrow money to purchase the plot and then receive cash injections in different instalments to complete the project, once each stage has been signed off. This option is more suited to builders or those with experience of such projects. Advanced self-build mortgages grants you the money before each stage, rather than after. This route is designed for those with less capital and experience, but places greater focus on more the financial planning process for each stage,
Like any mortgage, lenders will look at your financial situation and in the case of self-build mortgages seek at a deposit of at least 15% of the land and build costs.
Having cash in your bank as evidence to a mortgage broker certainly helps, as most lenders prefer this to borrowing against assets.
Expect your financial position to be assessed in detail, whist lenders will also want to complete an on-site evaluation of land or properties involved, and determine any other assets you may have, ahead of parting with the money.
You will need clear details on your expected build costs, to even be considered for a self-build mortgage, and this will also help give you a clear focus and strategy.
Additionally, any land must come with planning consent and abide by Detailed Planning Permissions (DPP) or Outline Planning Permissions (OPP). These must have approval well in advance of the construction phase.
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.
As our team at MortgageKey, our industry experts take the time to compare and search through thousands of self-build mortgage deals from leading providers, so they can present you with the options they believe are right for you and your property.
Valuations are a key element as not only may a surveyor's valuation of the works needed differ from the actual costs but the time taken from a valuation until the funds are released can be of considerable length.
You should also consider your ability to manage and organise large projects under pressure. Finally, expect the interest rate of your self-build mortgage to fall somewhere between 5-6%. Of course, the overall amount you pay back will be determined by the size of your mortgage, length of its term, and type of mortgage product you choose.
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