Morgan Stewart returns to answer your questions on Self-build mortgages.
Is it hard to get a Self-build Mortgage?
There’s more paperwork involved than a Standard Residential Mortgage, and there’s planning issues, as well as building regulations to deal with. There could also be Section 106 local government factors to consider, such as CIL tax (community infrastructure Levy). So it is much more in depth than just buying a house that’s ready built.
Are Self-build mortgages more expensive?
The mortgage interest rates are more expensive, usually double, but if you buy a house ‘off the shelf’, whoever built it has obviously made a profit, so the whole idea of building your own home is that you will get a home more fit for your circumstances at a cheaper rate. So yes, the interest rate is more expensive, but in the long run you should be better off because you’re saving that builder’s profit. It should be 20-25% cheaper in the long run.
Do you need planning permission for a Self-build mortgage?
Yes, you do. There aren’t many lenders who will finance a piece of land without planning permission. If you’re looking for land to build on, and find some land without planning permission, you may be able to do a deal with a landowner whereby if you apply for planning permission yourself, they knock an amount off the asking price, or they apply for planning permission first, if they want you to pay a bit more.
Do you need to own the land?
You don’t have to buy the land, lease options can be good for the Self-build option, but you do need to have planning permission for the Self-build mortgage. Anybody could request planning permission with a landowner’s permission, but you do need to own the land to start building on it.
Do many lenders offer Self-build mortgages?
This type of lending is really in the territory of building societies, rather than banks, but many building societies will lend for this purpose.
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How does the application process work for a Self-build mortgage?
The lender will want to see the planning permission and any conditions attached to that plan. There are local taxes to pay, one of the main ones being the CIL tax, these can be mitigated with a good architect, but if they can’t then you will have to put money back into the local economy. The lender will then underwrite the planning, and learn about the builder. This is crucial, as whoever you are contracting to build will need experience in projects such as building a house.
If you’re a tradesman and you’ve built a house before, they may let you do the work, otherwise you will need a local established builder to provide you with a JCT contract. The release payments are in stages, so the lender will underwrite every stage of that process.
First of all, they’ll give you a sum of money to buy the land. For Self-build mortgages, you can get up to 85% Loan to Value. You’ll need to put a 25% deposit down and then you’ll need some money to start the work. The site groundwork is usually the first stage, there is a lot of work that goes into the ground, such as services, foundations, and all the prep work, and that can take quite a long time.
Once your foundations are in place, you confirm with the lender that you’ve hit the first stage. At this point they will send out a quantity surveyor asset manager to look at the site and make sure the work is satisfactory. Then they’ll release a bit more money for you to proceed to the next stage which could be wallplate. Once your walls are up and your foundations, walls and windows are wateright, they release the money for the internal stages. When the house is finally built, you will have borrowed upto 85% of its total cost, depending on what the lender allows.
Can you use land as a deposit for a Self-build mortgage?
Yes, you can. If you own some land and get some planning permission to build on it, you’ve increased the value of that land, and lenders will give you 75% of the value of that land which helps to get you started on the build.
Can you get a mortgage on a half-built house?
Half-built houses are a little bit more of a challenge because works have already been done.
As long as building regulation inspectors have come out and approved the site, and you’ve had a warranty provider signed off on the important stages, you should be able to get finance. However, finance would be more in the realm of Bridging Finance, rather than a Self-build mortgage. Some lenders will provide renovation products as well.
Will a lender finance a fixer-upper?
If the property is dilapidated with no kitchen or bathroom obviously it’s not going to be mortgageable, but a lot of building societies have renovation products which are really good for tradesmen. If you’re a self-employed Tradesman you’re obviously going to be looking for a house that needs some work, because of the greater potential for profit. Most lenders in this niche will allow that.
What credit score do you need to buy land?
As with any finance, you’ll need a decent credit score. It’s not purely about your credit score, however, it’s about your wider credit profile. A lot of building societies will look at your payment history, as you could have a poor score for many reasons. If you’ve been missing payments on mortgages and credit cards it may affect your application, but if your payment history is good and your credit score is low then there won’t be a problem, as it’s not based on the score directly.
Are there any other Self-build recommendations?
The benefits of a Self-build are that you could design your property the way you want your family to live, and if you could find the land, you can live in an area where you might not be able to afford to buy a property off the shelf. If you can find the land and you’re willing to take the risk and hard work to build that house, it’s all worth it in the end.