Let’s break down the Self Build Mortgage process
Building your own home might be your dream, but figuring out how to finance it can definitely be a big challenge.
Unlike buying a standard property with a traditional mortgage, self builds come with a completely different financing process. They are assessed differently by lenders and the funds are released in staging throughout the project. And will require a lot more information and detail in your application.
This means it’s important to fully understand the self build mortgage process before you start, as if you know what to expect then you can plan ahead and avoid any unnecessary delays.
To help with your journey, we’re breaking down the full process step by step, covering how Self Build Mortgages work, what lenders will look for, how your funding will be released, and some of the common mistakes you can avoid.
If you’re looking for expert advice, we’re here to help you throughout your entire process. Visit our Self Build Mortgage page or book in for a free consultation with our team.
What is a Self Build Mortgage?
To put it simply, a Self Build Mortgage is a specialised loan designed for people who want to build their own home rather than buying an existing property. Unlike standard mortgages, where you borrow the lump sum to buy a completed house, Self Build Mortgages will release your funds in stages as your project progresses.
Since self builds are seen to come with lots of extra risks (think construction delays, increased costs, and things like planning permissions), you’ll find that lenders have stricter requirements than with a traditional mortgage. This means you’ll need to provide:
A detailed construction plan that includes cost estimates and timelines.
Planning permissions and any necessary building regulation approvals.
A large deposit (typically 20-25% of the total build cost)
Proof of your income to show that you will be able to keep up with the repayments.
Typically, Self Build Mortgages stars as interest only during your build phase. This means you only pay interest on any money that’s been released to you. Once your home is finished, your mortgage will then usually switch to a standard repayment mortgage.
Because of the differences with these loans to traditional mortgages, we think it’s important that you work with a specialist lender or mortgage broker, like us, who can understand the self build process.
How to prepare for your Self Build Mortgage application
It’s more complex to get approved for a Self Build Mortgage over a standard mortgage. We recommend that you:
Get all your paperwork in order to prove your income (or tax returns if you’re self employed) and savings for your deposit.
Create a detailed build plan to outline your construction timeline, a breakdown of the budget, and any suppliers you’re working with who’ll conduct the work.
Secure planning permissions and building regulation approvals before you apply.
Make sure you have at least a 10 to 15% contingency fund in case of any unexpected costs, and are clear on your budget.
You’ll find that if you work with a specific Self Build Mortgage broker, they will be able to match you with the right lender for you and help you to prepare your application to increase your chances of approval.
How do you choose the right Self Build Mortgage lender?
Not all mortgage lenders offer Self Build Mortgages, and those that do will have different criteria and processes. If you work with a specialised Self Build Mortgage broker (like us), then they’ll help match you with the right lender based on your project and finances. But if you’re looking into different lenders yourself, then before you commit to one you should consider:
Do they specialise in Self Build Mortgages?
Some mainstream banks and lenders don’t offer Self Build Mortgages at all, and others only approve a few each year. If you instead work with a specialist self build lender, you can improve your chance of getting your application approved and make your process smoother.
What deposit do they require?
Most self build lenders will ask for a minimum deposit of about 25% of your total build cost. But some will offer lower deposit options if you have:
Additional assets like another property or significant savings.
A high income and/or an excellent credit score.
If you already have a mortgage with the lender.
If you’re struggling with getting this high deposit amount, then some lenders will also allow you to borrow against any land or property you already own, to reduce the cash deposit required.
Do they offer arrears of advance stage payments?
Self Build Mortgages are typically paid in stages, but there are two different ways this can happen:
Arrears stage payments: You’ll pay for each stage of the build upfront, and the lender will reimburse you after that stage is completed and inspected by them. This is the most common option.
Advance stage payments: The lender will release funds at the start of each stage to help with your cash flow. This is a useful option if you don’t have large savings to cover costs upfront.
We recommend working out which payment plan works best for you, and then making sure you find a lender who offers this type.
What are their interest rates and repayment terms?
Due to the perceived higher risk, Self Build Mortgages tend to have higher interest rates than standard mortgages. So once your build is complete, most lenders will switch you over to a standard repayment mortgage with a lower rate. You should check:
What the interest rate is during the build phase.
What the repayment mortgage rate will be after completion.
If there are any early repayment penalties.
How long is their approval process?
Some lenders can process Self Build Mortgages faster than others. So if you’re working on a tight timeline then it can be worth asking:
How long their application review process will take.
How quickly they will release the funds at each stage of the build.
Whether they require additional lender valuations at each stage (this can slow things down).
Do they require extra protections like warranties?
Some self build lenders will require a warranty, for example a 10 year structural warranty, to protect against major defects. And others might ask for specific types of insurance, like site insurance. These extra asks can add to your upfront costs, so it’s worth checking what you’ll need before committing to a lender.
How long does it take to get a Self Build Mortgage?
It can be a long approval process for a Self Build Mortgage. We’ve found on average each stage can take:
Mortgage approval: 4 to 8 weeks, depending on lender checks and how prepared your documents are.
Valuation and lender assessment: 2 to 4 weeks for lenders to assess the site and project plans.
Legal processes: 4 to 6 weeks for things like solicitor work and finalising your contracts.
In total, we’d advise you to e expect the full process to take around 3 to 4 months, but it can vary depending on any specific requirements.
Typical stages of fund releases
As we covered, Self Build Mortgages release the funds in stages rather than a lump sum. This is mainly to protect the lenders and to make sure that you have money available for each stage. Standard stages will involve:
Land purchase: If you don’t yet own your land then the first release will likely cover the cost of this. Note that some lenders will require you to have planning permission in place first.
Foundations and groundworks: This could involve clearing the site, laying foundations, and installing any necessary drainage.
Superstructure: You’ll likely hit the next stage when you’re ready for the main structure to go up, including the walls and roofing.
Watertight stage: This will be to cover the costs of windows and doors, after the roof is secured.
First fix and internal works: A further stage can be used to install electrics, plumbing, heating and insulation.
Second fix and finishing: Often the final stage will be for the more aesthetic elements like kitchens, bathrooms, flooring and any final decorating.
You’ll likely have a lender inspection after each stage, so they can confirm that you’re on track with your schedule before releasing the next round of payment.
Managing your budget and costs
Budgeting is one of the main problems our self build clients face. Often costs will spiral quickly, and so you’ll need to be super clear with your budget so you can stay on top of everything. To do this, we recommend:
Setting a realistic budget that factors in everything from land to materials to any legal fees.
Tracking your costs in real time with budgeting software or spreadsheets so you can monitor your spending.
Getting fixed price contracts where possible to prevent unexpected price increases from suppliers or contractors.
Having a 10 to 15% contingency fund so that you can cover the costs of any (likely) unexpected costs.
If you’re not sure about any of this, then we have found that it’s very helpful if you bring an experienced project manager on board. Paying for their service will increase your upfront costs, but they can then help you with keeping everything on schedule and within budget, and will likely save you money in the long run.
Common mistakes to avoid
We often see self builders getting into the same issues when approaching their build. Try to avoid:
Underestimating the costs. Make sure you add everything into your budget, as the small costs add up.
Delaying securing your planning permissions. The earlier the better.
Choosing the wrong mortgage type. Try to work with a specialist lender who will understand the set up and can advise accordingly.
Skipping professional help. Services like architects and project managers can seem like an extra cost, but they’ll avoid expensive mistakes.
Failing to plan for delays. Things like bad weather and supply chain issues happen, so have a backup plan in place.
Are you ready to start your Self Build Mortgage process?
Once you’ve got your head around the Self Build Mortgage process, you’ll agree that it’s one of the best ways to finance building your dream home.
Key takeaways:
Self Build Mortgages will release your funds in stages rather than as an upfront lump sum.
Lenders will require detailed plans, a large deposit, and proof of contingency funds.
Your mortgage application process can take 3 to 4 months, so plan ahead for this.
The key to a successful build is to manage your budget carefully and to work with the right people.
If you’re ready to get started then we can help you to find the best Self Build Mortgage for your project and support you throughout your journey. Visit our Self Build Mortgage page or book a free call with our experts.