Is it Hard to Get a Self-Build Mortgage?
Building Your Dream, Brick by Financial Brick
The allure of a self-build project is undeniable. Crafting your ideal home from the ground up, tailored to your exact needs and preferences, is a dream for many. But the financial realities can be daunting. So, when it comes to funding your vision, the question arises: is it hard to get a self-build mortgage?
While the process differs from a standard mortgage, obtaining a self-build mortgage isn't insurmountable. However, it requires careful planning, strong financial standing, and a good understanding of what lenders look for.
Why Self-Build Mortgages Are Different
Traditional mortgages are straightforward. You borrow a set amount based on the value of a pre-existing property. Self-build mortgages, on the other hand, finance a project that's yet to be built. This inherent uncertainty makes lenders naturally more cautious.
Here's what sets self-build mortgages apart:
Fewer Lenders: Not all lenders offer self-build mortgages. You'll have a smaller pool to choose from compared to traditional options, most of which you may never have heard of.
Detailed Project Plans: Lenders will require comprehensive plans outlining the build costs, timelines, and a breakdown of materials and labour.
Phased Payments: The mortgage is released in stages, this ensures the funds are used as intended and reduces the risk for the lender.
Higher Interest Rates: Due to the increased risk, self-build mortgages often come with a slightly higher interest rates than standard mortgages.
Can You Get a Self-Build Mortgage?
While it's not a walk in the park, securing a self-build mortgage is achievable with the right preparation. Here's what lenders typically look for:
Strong Financial Standing: A healthy deposit, usually between 15% and 25% as a minimum and a good credit history are essential. Lenders want to be confident you can manage the repayments alongside any existing debts.
Experience or Expertise: While prior building experience isn't always mandatory, a team of qualified professionals on board will strengthen your application.
Watertight Plans: A detailed project plan with realistic budgets, timelines, and contingency funds demonstrates your seriousness and reduces the perceived risk for the lender.
Planning Permission Secured: Having planning permission in place proves you've done your due diligence and reduces delays.
Top Tips for Getting Your Self-Build Mortgage Approved
Work with a Mortgage Broker: A broker specialising in self-build mortgages can navigate the complexities and find you the best deal.
Factor in All Costs: Don't underestimate the total project cost. Include legal fees, professional fees, insurnace fees, unexpected expenses, and potential cost overruns in your budget.
Leave Room for Buffer: Unexpected delays or cost increases are common. Having a financial buffer built into your plan demonstrates foresight and reduces risk for the lender.
Self-Build Mortgages: Challenges and Rewards
The self-build journey comes with its own set of challenges. Obtaining financing requires more effort, and the build itself can be unpredictable. However, the rewards are substantial.
Building Your Dream Home: You get to create a space that perfectly suits your needs and style.
Potential Cost Savings: While not always guaranteed, self-building can sometimes be more cost-effective than buying an existing property, especially when considering renovation needs.
Increased Equity: The finished property will likely be worth more than the build cost, creating instant equity.
The Final Word
While securing a self-build mortgage requires extra effort, it can be the key to achieving your dream home. With careful planning, a strong financial foundation, and the right team in place, you can navigate the process and turn your vision into reality. Remember, building your dream home is a marathon, not a sprint. Patience, meticulous planning, and a dose of financial savvy will pave the way for a successful self-build journey.
Find out how much you could borrow in less than 3 minutes by using our online mortgage calculator
Then find out how much your build will cost by using this self build cost calculator