In this article we’ll explain how you can get a self-build mortgage on land you already own or are yet to buy, how lenders release the finances and how much you’ll be able to borrow
What is a self-build mortgage?
A self-build mortgage (sometimes known as a construction mortgage) is a loan that you can use to buy a plot of land and finance the construction of a home there, that you’ll live in yourself. You can’t do this with a regular mortgage, which is only intended to help you buy a home that’s already built.
With a regular mortgage, lenders will give you the money you need all at once, securing the loan against the property, which must be worth more than the loan. So, if you fail to repay the loan, they can repossess the property and sell it to get their money back.
Can you get a self-build mortgage to develop on land you own?
Yes. Such a mortgage is designed to help those who want to develop their own property. While a lot of people apply for a mortgage before they’ve found a plot of land and use some of the money to buy it, you can certainly apply if you already own some land. In fact, you’ll likely be in a better position because you’ll require a smaller loan than if you needed to purchase a plot. This could mean access to more lenders, boosting your chances of getting a good de
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How much will you need to borrow?
Each lender sets their lending cap on self-build mortgages, with the highest being £3 million. How much you can borrow will be based on the estimated value of the completed property. You’ll usually be able to borrow up to 60% to 70% of this value if that’s within the lender’s borrowing cap.
If the land has already been purchased, a broker could help you find a lender who is willing to go up to an 80% loan-to-value ratio. This means you’ll need to have saved between 20% and 40% of the building costs yourself.
How a lender releases the finances
As the property isn’t built yet, it makes it difficult for lenders to get their money back if you don’t repay the loan. So, to keep the risk low, lenders will agree to lend you a total amount, but they’ll only release it to you in instalments, to cover construction in stages.
There are two ways they might do this:
- In advance, meaning that you’ll get an amount of money at the beginning of each stage of purchase and construction
- Or more commonly, In arrears, meaning you’ll get an amount of money upon completion of each stage of purchase and construction.
The release of funds is usually aligned with several stages of the project:
- Land purchase
- Excavation and foundations
- Construction to eaves height
- Roofing, waterproofing and windproofing
- Internal completion, which is sometimes subdivided into:
- First fix, e.g. floors and ceilings, wiring, plastering
- Second fix, e.g. doors, fitted bathroom and kitchen, electrical fixture
- Certified completion
Often, your loan repayments will be interest-only during the building phase of the project. This means you’ll be paying off the interest each month on the portion of the loan you’ve received so far, but you won’t start repaying the loan itself until construction is complete.
Things you should consider
Given that self-build finance differs from other types of residential mortgages, there are factors you should consider when applying for it when already in possession of the land.
- Is the land fit for construction?
- This is a key question to have answered by a chartered surveyor before you begin your mortgage hunt. Lenders will need reassurances and it’s key to get this verification before you spend money on designs and plans.
- Do you have planning permission?
- It could be that this came with the property when you bought it. If not, apply before submitting a loan application as it’ll put you in a better position with lenders. If approved, you should first receive online consent from the local authority granting general permission to build and later should come detailed consent which permits the building of a specific property. You can apply to a lender with online consent but the majority prefer the detailed consent.
- Do you have an architect and builder?
- Before applying for a self-build mortgage, you should be working with professionals to develop, based on the land, detailed architectural plans as well as a budget and timeline that can then be submitted as part of your application – unless you have this knowledge and experience yourself. Sometimes lenders also ask for credentials so they can be sure your plan is legitimate and likely to happen.
- What kind of construction are you opting for?
- While a glass-fronted house or a thatched roof may sound appealing, elements that deviate from standard construction give some lenders pause. If however, you want to explore building a non-standard property on your land, a broker would be able to help but finding you the right lender.
- Are you prepared for the loan to come in instalments?
- Unlike other residential mortgages, a self-build mortgage is delivered in instalments rather than a lump sum. Typically this happens at various stages of the project and should be accounted for in your timeline.
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How to get a self-build mortgage
If you’ve purchased the land or not, there are several steps in the self-build process you can skip. The next steps include:
- Preparing your project plan for approval and readying all the necessary paperwork: A lender will want to understand what your plans are for the property you’re building. They will also want assurance that all relevant planning permission certificates are in place. Your broker will be able to help guide you through these stages to make sure your application is robust before submitting it.
- Download and optimise your credit reports: Once you’ve downloaded your credit reports, your broker will help to identify any inaccurate or outdated information that could slow down the mortgage process.
- Finding the right mortgage lenders: Your mortgage broker will be able to quickly identify those lenders who specialise in self-build mortgages. This is particularly valuable assistance if, for example, you’re using non-standard materials for the property you’re building or if you need some leeway on the construction time required. They will then complete your application and send it across for approval.
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Many major banks and building societies (e.g. Barclays, HSBC, Nationwide, NatWest) do not offer self-build mortgages. Neither do several of the largest mortgage specialists, such as Accord or Aldermore.
Halifax and Together are two of the larger lenders who offer self-build mortgages, along with several smaller building societies. The products they offer differ in important ways (such as when the funding is released and on what basis the amount you’ll receive is decided) so you should speak to an expert before applying to check that the product meets your needs.
Here is some more information about the lenders:
Ecology Building Society: A very specialist lender which backs sustainable and eco-friendly self-build projects, known for its incentives for those dedicated to energy efficient innovation.
Furness Building Society: Accepts applications for self-builds only via BuildLoan, with a maximum loan-to-value (LTV) of 80% in England and Wales, and 75% in Scotland.
Halifax: Considerations will be made for loans to a maximum of 75% LTV with the condition that it does not exceed the total cost of buying the land and building costs.
Scottish Building Society: Aimed at customers in Scotland and the North of England, applications are accepted for loans between £30,000 and £600,000 up to 80% LTV.
Newcastle Building Society: Offers mortgages via BuildStore up to a maximum of £1 million, depending on the LTV at the end of the build.
Lloyds: Doesn’t give any specific criteria away for self-build lending, except that it tailors loans to projects and time frames.
AIB(NI): Formerly known as First Trust, this lender offers mortgage options if you’re hoping to build your own home in Northern Ireland, up to a value of 75% LTV.
Interest rates to expect
Since the risk of non-payment is greater than with a regular mortgage, the interest rates for a self-build mortgage are usually around 1-1.5% higher. Once the project is complete, however, you’ll be able to remortgage at a lower rate. The table below illustrates some of the best interest-rate deals currently available.
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Last updated September 2023
What are BuildLoan and BuildStore?
BuildStore is an end-to-end service for self-builders, offering a holistic support framework. It provides help with everything, from finding land and securing finance to finding an architect and planning permission.
BuildLoan is an intermediary arm of BuildStore, which provides mortgages that outside brokers can access separately for their clients. Many mainstream lenders will insist on any self-build mortgage going via this organisation because of the specific expertise involved and therefore minimising risk.
Eligibility criteria and deposit requirements
General eligibility criteria are:
Your deposit – Self-build mortgages usually need a larger deposit. Generally, lenders will need an LTV of 60% though some will go to 70%, others may go to 80%, if not higher, while some may accept using the land as a deposit.
What type of property you are building – Some lenders prefer certain types of construction over others, which can reduce your choice of provider and therefore impact your final loan amount. For example, a number of mortgage providers won’t lend at all for buildings with a timber frame.
Construction length – Many lenders have a set time in which the construction needs to be completed. It’s usually around 2 years. Plans that look likely to take longer could affect your mortgage options and therefore the final amount you can borrow.
Your age – Lenders will typically want applicants to be between 21-70 years old, though some may accept an application if you’re slightly older.
Your income source – If you are self-employed or a contractor, you can still get a self-build mortgage, but your choice of lender may be fewer.
Your credit history – Having a poor credit rating won’t automatically preclude you from securing a mortgage, but your options of lender may not be as broad.
If it turns out that a self-build mortgage isn’t a viable option for you, there are other ways of accessing the funding you need to build on your land. You might consider:
Remortgaging the land: If you have a mortgage on the land or own it outright, you could look to see if there’s a better deal you could remortgage onto in order to free up some capital. That could then be used to finance the construction.
Remortgaging another property: If you already own a home, you could look to remortgage it and invest the subsequent equity into building the new property.
Applying for Help to Build: Not an alternative per se, but the Help to Build government scheme would see your deposit boosted by between 5% and 20%. This would lower the amount you’d need to borrow from a lender in a self-build loan and increase the chances of finding a good deal, especially when combined with the fact that you also already have your land.
Taking out a personal loan: Typically used for holidays or other big expenses, some lenders allow for such short-term personal loans to be used on construction projects, provided you plan to personally live in the property afterwards.
Applying for commercial finance: This is only an option if the property you plan to build will be for business purposes. If it is, then the likes of commercial development finance, mezzanine finance or joint venture property development finance might help.
Choosing bridging finance: Another short-term solution, a bridging loan would finance the project for between 6 and 24 months, until such a time as you can either transition onto another type of residential mortgage or sell the property you’ve built.
Get matched with a self-build mortgage specialist
The self-build mortgage brokers we work with understand the complexities of applying for a construction loan, and doing so when you’ve already selected the land, and can guide you through the process so that the lender you ultimately apply to is more likely to give an approval.
Start off by getting matched with one of our experts and enjoy a free consultation before allowing our team to help you turn your land into your luxury home. Just call 0808 189 2301 or fill out this form to start the matching process.
In very unique cases, land can be put up as collateral but typically lenders want a borrower to use their own savings to fund a portion of the project.
This will depend on two things – what you want to use the building site for and whether a lender deems it mortgageable. A construction / self-build mortgage might be the right route for you, but an agricultural mortgage or commercial mortgage might be better suited instead, depending on the circumstances. A good mortgage broker will be able to help you here and talk you through your viable options. Read more about how to get a land mortgage here.ㅤ
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