Mortgages for self build and custom build homes

What are self build and custom build homes?

These are properties which homeowners are involved in building.

Ways to build your home include:

• Self build one-off
  You manage the design and construction of your home, and are involved in some of the actual building too
• Contractor built one-off
  You manage the design process, but leave the construction of your home to a contractor
• Kit home
  You choose your kit home, which a kit home company builds for you. You may be required to set up the foundations of the property.
• Independent community collaboration
  You are part of a group that owns a site. This is divided into plots. You manage the design and construction of you home, on your plot.
• Supported community self build group
  A group of homes is built – you can purchase one of these.

Meanwhile, methods of custom building include:

• Developer built one off homes
  The developer is in charge of sourcing the building site and developing the home. You can opt to finish the building work yourself.
• Developer led group project
  Instead of one-off homes, the developer gets together a group of homebuyers and builds the property. Self builders can choose to complete construction themselves.

How to finance a self build property

You can fund your self build project in a number of ways. Some methods include:

• Your own savings
• Loans from family and/or friends
• Selling your current property (you may have to find a place to stay while you’re building your new home)
• Getting a mortgage on your new self build home (you can normally borrow up to 75% of the cost of the land and 60% of the cost of building, so you’ll need a large deposit)
• If you’re part of a group self build scheme, you could apply for a Custom Build Serviced Plots Loan Fund, provided by the Government

Self build mortgages

Unlike a normal mortgage with monthly repayments, a self build mortgage involves payments in stages. In addition to buying the land, the loan will cover different stages of the building process.

There are two types of mortgages for this type of property, arrears and advance. An arrears self build mortgage involves making stage payments at the completion of each stage. This is usually suitable for people with enough cash flow to finance the building work before receiving the loan at each stage. Lenders may release a proportion of the costs at each stage and keep the rest until the project is done.

On the other hand, an advance self build mortgage provides funds at the beginning of each building stage. This allows you to finance each phase of the process.

Given that self build mortgages are a specialist type of borrowing, lenders typically charge higher interest rates and charges than they do for ordinary mortgages. Penalties may also apply for early repayment.

If you’re applying for a self-build mortgage, you may find it useful to check your Equifax Credit Report & Score beforehand – it’s free for the first 30 days then £14.95 a month. This will provide you with a view of your credit history, as well as an indication of how a lender may view your ability to make your mortgage repayments.