Self-build mortgages: How to fund your own grand design
Channel 4's Grand Designs program has tempted more people to build their own homes and escape to the country.
Self-builders are increasingly trying to work out how to build modern glass houses and eco-homes or convert windmills and old barns into stunning homes.
Trinity Financial has access to lenders funding new build projects, basement digs, conversions, significant property renovations, knockdowns, and rebuilds. We also work with lenders providing funds to people running out of cash halfway through their build.
Grand Designs presenter Kevin McCloud consistently shows that the journey for self-builders is challenging and demonstrates how people struggle to secure finance. The show highlights the importance of having a financial expert to make funding the building process as smooth as possible.
Get self-build funding agreed in advance
Trinity Financial's brokers have access to lenders who can pre-vet borrowers to indicate whether a potential build is viable. This covers two parts—firstly, the property itself and the viability of the build, plus the mortgage affordability pre and post-build.
Aaron Strutt, product director at Trinity Financial, says: "Many people start planning their self-builds over the winter months or early in the year to try and build over the summer.
"The most organised self-builders have their finance agreed in principle well before any build. They have plans from approved architects and are prepared to have full planning permission at the time of the mortgage application.
"Many lenders will ask for the link to the planning portal to assess the project as part of the application to determine if it is a safe bet."
What is the difference between a standard mortgage and a self-build mortgage?
While most high street lenders do not offer self-build mortgages, many private banks and building societies regularly issue them. These lenders provide self-build mortgages from £100,000 in to the millions.
The main difference between a self-build mortgage and a standard mortgage is how the funds are released. With a standard mortgage, there is one payment secured against a property. With self-build, funds are released at agreed stages, often when parts of the build are finished. This reduces the lender's risk and ensures that the money is spent as planned.
Self-build mortgages tend to be more expensive than standard mortgages, although some lenders are willing to offer bespoke pricing, especially to borrowers looking for £1 million+ loans.
Funds are typically released in five stages:
- Land purchase
- Footings and foundations stage
- Construction of the walls (Wall Plate Level)
- Roofed In
- Internal/Final completion certificate issued
Some self-build lenders can issue flexible drawdowns, so they do not have set stages. This might be capped at one drawdown per month.
Are there other ways to fund self-builds?
If you have equity in your property or a buy-to-let, it may be possible for you to refinance to take out cash, and it may be a more cost-effective way to fund the build.
If you refinance a property, it is well worth considering a flexible mortgage without early repayment charges if you need to refinance or sell the property to raise more cash.
Self-builders must try to access the most competitively priced funds, whether through refinance or a specialist mortgage.
Development finance and bridging loans are more expensive and used by self-builders without alternative options. Many people also approach their families for funds and then refinance the property to repay them when it is completed. Typically, This happens when they can get a standard mortgage and building control signs off their home. This is clearly a risk and could lead to ongoing family disputes.
Is it worth using a private bank to fund your build?
If you want a £1 million+ self-build mortgage, it might be worth going through one of the private banks as they may offer the most competitive terms.
Two private bank lenders Trinty Financial works with offer self-build mortgages, typically priced between two and four per cent over the Bank of England base rate.
Self-build mortgage question and answer
- How much of a deposit will self-builders need? You will need a deposit of between 20 and 25 per cent. You can also borrow against the land value.
- How easy is it to remortgage a grand design? For a remortgage, applicants need to be the owner on the Land Registry and there needs to be a certificate of completion.
- Are cheaper rates available for energy-efficient homes? Eco self-build products are available. Some lenders will provide a lower interest rate and completion fee for self-builders and renovators aiming for EPC A or B.
- Is it possible to secure interest-only self-build mortgages? Many lenders offer interest-only on a self-build mortgage.
Call Trinity Financial on 020 7016 0790 to secure a self-build mortgage, book a consultation, or complete our mortgage questionnaire. Feel free to send us your architect's plans.
The information contained within was correct at the time of publication but is subject to change.
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