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By Pete Mugleston | Mortgage Advisor

Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 23rd June 2020*

To consider the full range of financing options available to anyone looking to build their own house via a self-build mortgage, we have produced this detailed article which covers the following areas:

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Is a self build mortgage a viable option if I already own a plot of land?

The short answer to this question is yes, absolutely. Self build mortgages release funds at specific, identifiable stages during the build, and whilst these may vary from lender to lender, the first stage is always for the purchase of land. By skipping this stage, as you already own the land, you are at a financial advantage in terms of the overall cost of the build and the amount you may need to borrow for a self build mortgage. Building your own home is a dream shared by many of us. However the reality is there’s a lot of work involved. It can also require a significant capital injection from the owners. Due to the risks involved, lenders will usually adopt a more conservative approach to the loan-to-value (LTV) they will offer for self build mortgages. Most lenders will offer a LTV of 60%, some will go up to 70% and a few will go as high as 80%. If you already own the land but your capital reserves are low, you can remortgage the land in order to raise initial finance to cover the building costs and bridge the gap between your self build loan and the total cost estimated in your budget plan.

What type of self build mortgage should I use in this instance?

There are two types of self build mortgages, based on when the funds are released at each stage in the build process:

  • Arrears – funds released upon completion of each build stage
  • In advance – funds released upon commencement of each build stage

The arrears option is better suited to those who already have sufficient capital of their own to help fund the construction of the property – particularly at the outset where cost estimates are more vulnerable to fluctuations. If you already own the land you’re looking to build on and are happy to remortgage it in order to raise additional capital to kick-start your building project, the arrears option would likely be the best fit for your circumstances. If you’d like to know more about the types of self build mortgages available make an enquiry and we can arrange for an advisor we work with to get in touch.

Will I need planning permission before I will be able to get a self build mortgage?

The application process for a self build mortgage can take a lot longer than a traditional one. In addition to all the usual affordability criteria they will also want to see a detailed plan for the build, cost projections and planning permissions. If planning permission is not in place it’s unlikely a lender will proceed because without this you can’t build on the land. In the UK, planning permission usually comes in two stages –

  • Outline consent – agreement with local authority to build on the plot of land but no agreement for the specifics of the property
  • Detailed consent – agreement on the specifics of the property

Some lenders may let you borrow some of the money, once outline consent has been received. However, further stage payments could be withheld until full detailed consent is in place. In any case, you should always have the requisite planning permission in place before starting any construction projects as if the permission is denied you could be ordered to return the land back to its original state and bare the cost for doing so. Planning permission is an integral part of the house building process. 

What other alternatives can I consider to finance my house build?

In addition to self build mortgages if you already own the land, depending on how much finance you require and over how long there are a number of other alternatives you could consider.

Personal finance

If you’re building a property for personal use for yourself you could consider:

Commercial finance

If you’re building a property through a business or commercial venture you could consider:

Speak to an expert on self build mortgages

Applying for finance to build your own home can be quite a complex affair so it’s important you understand all the potential pitfalls before taking the leap. Lots of people in your situation seek professional advice to assist them before making a final decision. If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry. Then sit back and let us do all the hard work in finding the advisor with the right expertise for your circumstances.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.  

Updated: 23rd June 2020
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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.