What’s the difference between a Custom Build and a Self Build mortgage?
The first thing you’ll need to figure out when planning to build your own home is how you’re going to finance it. And this often means choosing between a Custom Build and a Self Build mortgage.
Lots of people often mistake these for being the same, but there’s big differences between the two. Mainly, a self build mortgage means you’re going to be in charge of everything, from buying the land to managing the project. Whereas in a custom build mortgage, a developer will typically take care of some parts of the process (like site preparation and planning permission), with you still getting an input on the design and layout.
And because these two routes are different, the way you finance them is different too. That’s why it’s important to know if you need a self build mortgage or a custom build mortgage, and what the best option is for your situation.
In this blog, we will break both options down so you can figure out which is right for you. And if you’d rather chat through your options with an expert? That’s exactly what we do at Mayflower Mortgage. You can visit our Self Build Mortgage page or book a free call with our team.
What is a Self Build Mortgage?
A self build mortgage is for those who want to build their own home from scratch and manage the project themselves. Unlike a standard mortgage, where you get a lump sum upfront to cover the cost of the house, a self build mortgage will release the money in stages as your house build progresses.
How does a Self Build Mortgage work?
To break it down simply:
You apply for a mortgage to cover the cost of land and construction.
Your lender will release money for each stage of your build, like after all the foundations are laid, once the structure is up, and so on.
The lender will check that each phase is completed before they release your next stage of funds.
Most self build mortgages start with interest-only payments, sp you only pay interest on the money you’ve borrowed so far. Full repayments kick in once the build is complete.
Because self builds are seen as a higher risk, lenders will usually ask you for:
A 20-25% deposit (or sometimes more).
A detailed build plan, including cost breakdowns.
Proof of planning permission and approval from building regulations.
If you like the idea of being completely in control? So choosing the plot, hiring the builders and managing the timeline, then a self build mortgage could be the best option for you. But if that all sounds a bit much? A custom build could be a better fit.
What is a Custom Build Mortgage?
A custom build mortgage is for people who want to build their own home, but with some help along the way. Instead of managing every part of the project yourself, you’ll work with a developer who takes care of some of the trickier bits. Your developer could prepare the site, help you get planning permission, and even handle parts of the construction.
How does a Custom Build Mortgage work?
Custom build mortgages work in a similar way to self build mortgages, but with a few differences:
You partner with a developer who already owns the land and oversees some (or all) of the build.
You still need a mortgage, but because the developer is involved, some lenders offer lower deposit requirements.
Like a self build mortgage, funds are released in stages as the construction progresses.
Custom builds can be a great option if you like the idea of a unique, self built home, but don’t want to deal with the full project management side of things.
Pros and cons of Self Build vs. Custom Build Mortgages
Before making a decision, it’s good to weigh up the advantages and potential challenges of both options.
Pros of a Self Build Mortgage:
Full control over the design, layout, and materials used.
Potential for higher property value once the project is complete.
You can manage costs more closely and choose where to save or spend.
Cons of a Self Build Mortgage:
Requires significant time, effort, and project management skills.
A larger deposit is often required.
More complex mortgage approval process with staged payments.
Pros of a Custom Build Mortgage:
Some of the difficult steps, like planning permission and site prep, are handled for you.
Often lower deposit requirements compared to a self build.
A less hands-on process but still gives you the freedom to design your dream home.
Cons of a Custom Build Mortgage:
Less control over the entire process.
Costs might be higher than expected, depending on the developer’s pricing.
Fewer lenders offer custom build mortgages compared to self build mortgages.
What are the different costs with a Self Build vs Custom Build Mortgage?
One of the biggest differences between a self build and a custom build is what you’re paying for. As we’ve covered, with a self build you’re responsible for everything. So from a monetary perspective, this means you’ll need to pay for things like the land, planning permission, builders, and materials. The amount of money you need will massively vary depending on your physical location, house size, and the materials you use.
This can be the more cost-effective option as you’ll have more control over the costs due to having more control over the project details. But it does require a bigger upfront investment and good budgeting skills to keep everything on track.
In contrast, a custom build often involves you buying into a development, meaning that some of these costs can be bundled into one total (sometimes fixed) price. This can be because the developer already owns the land, or just already has things like planning permissions in place, so the price they’ll charge you for those are set. This can definitely make budgeting and project management easier, but it also means you’ll likely have higher upfront costs if you need to make a bigger payment at the start rather than paying for those things in stages.
With custom build mortgages, in some cases there may also be service charges or extra fees for any design changes you’d want that go beyond what the developer offers as standard, so that’s something to think about if you’re looking at a truly unique design. And you’ll be paying the extra for the convenience of having some of the work done for you.
As both options come with their own financial pros and cons, the choice really depends on whether you’d prefer to have full control over your budget, or the ease of having some of the groundwork done for you.
How lenders assess Self Build vs. Custom Build Mortgages
When you apply for a mortgage, lenders look at different factors depending on whether you’re going for a self build or a custom build.
For Self Build Mortgages, lenders will check:
That you’ve secured land and have full planning permission.
Your credit history, income, and deposit amount.
A clear construction plan and budget, with cost breakdowns.
That you have the right insurance in place for the build.
For Custom Build Mortgages, lenders will check:
That the developer has the right permissions and project approvals.
Your ability to keep up with payments throughout the staged releases.
The long-term affordability of your mortgage.
Both mortgage types have their own challenges, but at Mayflower Mortgage, we help our clients work through the approval process so everything runs as smoothly as possible.
Common mistakes to avoid with a custom build or self build mortgage
Whichever route you take, there are a few mistakes we see people make time and time again. One of the biggest is underestimating costs. It’s easy to focus on just the build itself, but there are lots of hidden costs, like planning fees, professional fees, and contingency funds. We always advise clients to have a solid budget with at least a 10-15% buffer for unexpected expenses. And sometimes this will also be a requirement from your lender.
Another mistake is choosing the wrong type of mortgage. A standard mortgage won’t work for a self build or custom build, so you’ll need to make sure you’re getting specialist advice. Some clients assume they can get the same rates and terms as a traditional mortgage, but lenders will assess these types of loans differently.
And finally, not checking for planning permissions properly can cause major delays. If you’re going for a self build, you’ll need to make sure all approvals are in place before applying for a mortgage. With a custom build, the developer usually handles this, but it’s still worth double-checking everything before you commit.
How to prepare for your Custom Build or Self Build Mortgage application
Getting a self build or custom build mortgage requires a bit more preparation than a standard mortgage. Your lender will need to see a detailed plan of your project to make sure it’s financially viable. You’ll need:
Proof of income and credit history so lenders can see you’re able to afford the repayments.
A detailed construction plan, including details like your timeline and budget.
For a self build mortgage, you’ll need planning permission and building regulation approvals in place before applying.
For a custom build, you’ll need to check your developer has this in place.
An estimate of total costs, including materials, labour, and any additional fees.
Self build mortgage applications tend to be more complex because they involve multiple stages of funding, so working with a specialist broker (like us!) can make the process much smoother.
Which mortgage option is right for you?
So, should you go for a self build or a custom build? We advise our clients to:
Choose a self build mortgage if: You want full control over the design and construction, and you’re happy managing builders and suppliers.
Choose a custom build mortgage if: You want a say in the design but prefer a developer to handle the complicated bits.
If you’re still not sure, that’s totally normal! We help self builders and custom builders every day, making sure they get the right financing for their project. Visit our Self Build Mortgage page to learn more or book a free call with one of our mortgage experts today.