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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: 20th November 2020*

Many of us dream of building our own home, but for those turning this dream into a reality, a self-build mortgage could provide an affordable way to get a new build off the ground.

Different than a standard mortgage, a self-build loan releases funds at key development stages of the build as opposed to being released as one lump-sum. This is because lenders see self-builds as more of a risk as, in the event that the development goes awry and/or you cannot meet your payments, they may have no complete asset to sell on.

In these circumstances, lenders who provide this mortgage type are likely to charge higher rates than for regular mortgages. However, that doesn’t mean that you can’t get a great mortgage deal to fund the construction of your home.

In this article, we cover the following topics:

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Self-build mortgage providers: what you need to know

Essentially, lenders want to trust your completed building will be worth their investments.

To help you convince them, you may want to provide evidence of:

  • A qualified builder and/or construction team. Your builder (or you if you’re overseeing the build yourself) should be a licensed contractor with a reputation for building safe projects.
  • A detailed construction plan.  This is also called the ‘blue book’. Lenders will want to see precise details of your construction plan that includes an inventory of the building materials, names of suppliers and subcontractors, and a timeline for construction.
  • An appraisal. You’ll need a ‘comp’ from a licensed appraiser who draws up a rough value of your future home based on items like your blue book, your construction team, your plot of land and a ‘comparison’ (hence the term ‘comp’) with similar properties.
  • Architect’s Drawings. Designs for your build will need to be provided by a suitably qualified architect and will be sense checked to ensure that the plans are realistic for the costs and timescales.

Many lenders also require proof of building insurance to receive their loans.

How do lenders process self-build mortgage applications?

Lenders will be thorough before approving a self-build mortgage application.

They often need a deposit of between 20%–25%, though this will vary from lender-to-lender. A higher deposit is usually required in order to protect the lender in the event of the customer defaulting on the loan, the project not getting completed, or the final construction falling short of its initial design and/or promises. Lenders also tend to apply higher interest rates to self-build mortgages compared to standard residential products.

Lenders will also review your credit history and income to make sure that you meet their affordability standards, especially for applicants who already have a primary mortgage.

Loan-to-value (LTV) ratios are typically varied. So, for example, you could get 75% of the purchase price for your land, but the construction funds are released in stages and the lender will conduct a site inspection before agreeing to release funds for the next stage.

Many lenders insist on an insurance policy that’s paid for by the applicant that they can claim on in the event they have to repossess a half-built property. This will allow them to complete the build and sell the property once it’s finished. These can cost upwards of £2,000.

For help sourcing, the right self-build mortgage providers for your project make an enquiry with us and we’ll introduce you to the right self-build mortgage broker.

Which companies provide self-build mortgages?

To get you started on the right foot and for comparison purposes, below we’ve listed a selection of lenders who provide self-build mortgages (correct at the time of writing).

For more information on any of the lenders listed below or others that do provide self-build mortgages, make an enquiry today. The experts will be able to see how well you fit into their criteria, and if they’re likely to give you the best offer.

Ulster Bank

Ulster Bank only provides self-build mortgages to residents of Northern Ireland. They offer fixed and variable mortgage options, ranging 35 years for loans under £500,000 and 30 years for loans above that amount. Ulster gives you up to 80% of the LTV of both home and land combined.

The loan is given in four stages, and they expect you to use the money within six months of accessing the loan.

Newcastle Building Society

Newcastle’s self-build products are available via Build Store Direct or offered to intermediaries via Build Loan.

Applicants from ages 18 to 80 can apply. The lender undertakes a thorough affordability assessment and lends only to borrowers who permanently reside in the UK. Newcastle gives a maximum of £600,000 at 85% LTV at the end of the build. It also gives you an 85% loan of your building costs during the build.

Expect anywhere from £50,000 to £600,000, depending on your circumstances. Newcastle’s loan term is five to 40 years. If you want repeat funds, its minimum loan term is three years.

Bank of Scotland

These loans are only for properties in Scotland.

The Bank of Scotland extends anywhere from £30,000 to £300,000, depending on your circumstances. It accepts applicants who are aged 18 to 85 and lends up to 80% of the LTV of the building and land, with around 60% LTV for the land alone. Loans are distributed in stages on an arrears basis. Loan term ranges between five to 40 years.

Halifax

Funds are released in arrears. The maximum LTV is 75% of the final valuation and includes land and the cost of building. The penultimate stage of funds (at least 10%) are released only after the property is complete and Halifax is satisfied with your final completion certificate.

Virgin Money

Virgin Money offers low upfront costs, with Virgin covering your indemnity insurance. Its self-build mortgage is interest-only for the first two years, with capital and interest repayments thereafter.

Chorley Building Society

Chorley’s accelerator-based self-build loans offer up to 85% of the purchase price or up to 85% of the value of the land. The loan amount depends on lending criteria and building products. Intermediaries get a Build Loan mortgage with its own terms.

Furness Building Society

The company offers accelerator-based self-build mortgages through Buildstore/Buildloan at a standard variable rate of 4.99%, at the time of writing.

You could get the following: 80% LTV of the land purchase price, 85% loan-to-cost for the middle stages of the build and 80% LTV of the building’s completion value.

Loan amounts range between £50,000 to £500,000, with early repayment charges of 2% for two years. Borrowers can choose interest-only for the build period, which has to be finished before two years.

Swansea Building Society

Swansea mostly lends in the South Wales area, and provide tailored and flexible solutions to their clients. Because each self-build mortgage quote is bespoke, it’s best to speak with an advisor for more information.

Dudley Building Society

Dudley offers self-build mortgages through Build Store. They promise borrowers flexible terms. There is no minimum loan term (repayment lasts 35 years), while the company sets flexible staged payments based upon the LTV of your property and home. There is no upper age limit for applicants. Best of all, there is no credit scoring and both expatriates and self-employed applicants are also accepted (under the right circumstances).

Applicants are offered up to £500k. If you already have the land, you’re given 50% to 80% of the total amount upfront. Dudley offers either up to 75% LTV of the completed valuation or up to 80% LTV of land valuation. Borrowers can pay interest-only repayments during the build phase.

Tipton Mortgage Intermediaries

Tipton offers self and custom-build mortgages through Build Loan.

The company lends up to £450,000 at 85% LTV during the build stages and up to 75% LTV at completion of the build. Funds are released on an arrears basis.

Bath Building Society

Bath Building Society offers accelerator loans at 80% LTV. Clients can borrow up to 95% of their land and build costs, subject to a final maximum LTV of 80%.

Loans are available in England and Wales.

Lloyds Bank

Lloyds Bank offers mortgages for self-build homes. Broken down into stages, the loans are structured to meet the needs of your project.

Ecology Mortgages

Ecology differentiates by specialising in self-build projects that meet specific Energy Standard ratings or that promote sustainable living. The company welcomes non-standard construction types. They release funds once your self-build has increased in value. The company gives a discount for buildings certified energy-efficient.

They lend up to four times the LTV of the property, or four times your affordability assessment. Their LTV is 80% of the property’s value or purchase price, whichever is lower. Loans can stretch 30 years, subject to eligibility.

Melton Building Society

Melton offers many different types of self build mortgages with varying different rates and terms. Depending on whether you select an accelerator or arrears product, you may find your LTV restricted.

EBS

EBS offers up to 90% LTV for first-time buyers and up to 80% LTV for the non-first-time buyer. The company also offers 90% of the purchase price or 90% of the valuation, whichever is lower, plus 80% LTV on one-bedroom properties.

The borrower makes monthly repayments of up to 35% of the loan for up to 35 years (depending on your age). EBS has variable and fixed interest rates and only lends for property in Ireland.

Cumberland Building Society

Cumberland’s self-build mortgages are only for property in the following areas: Cumbria, South-West Scotland, West Northumberland and North Lancashire.

The company’s self-build products are mostly bespoke. Cumberland loans up to 75% of the purchase price or up to 75% of the current valuation of the land—whichever is lower.

Cumberland offers a wide range of repayment methods.

Progressive Building Society

Progressive Mortgage only provide loans for property in Northern Ireland. They offer up to 75% LTV on self-built products with discounted rates for the first three years at a 5.00% Standard Variable Rate. Their non-refundable management fee is £995, with no monthly payment for the first three years.

Mansfield Building Society

Mansfield’s accelerator-based self-build loans are 85% LTV and, at the time of writing, many of their products have no early repayment charges and allows you unlimited overpayments without penalty.

The company only funds self-build properties in England and Wales.

Haven

Haven gives first-time self build buyers up to 90% LTV, while it gives next-time buyers up to 80% LTV. The company assesses its LTV either on the cost of the site and the cost of construction or on the building’s value on completion; whichever is lower.

Haven gives you up to 3.5 times your income and offers variable and fixed interest rate options, with an option of a split loan amount that integrates the options. Loan repayment is 35 years. Borrowers access cash in six stages. The exact amount you can borrow will depend on your overall financial circumstances.

Loughborough Building Society

Loughborough offers up to 80% LTV of both the property and building costs.

Danske Bank

Danske Bank offers short-term, variable interest-only loans. Funds start from £10,000 with both the interest rate and total amount depending on your circumstances and financial situation. Total loan repayment is 6–18 months, with your home (and possibly other security) serving as collateral.

Vernon Building Society

Vernon gives intermediaries access to experienced underwriters. Only applicants in certain areas can apply for the company’s self build loans. For more information, make an enquiry.

First Trust Bank

First Trust, at the time of writing, has no application fees or booking fees. Its loan term is up to 35 years, and they have a standard minimum loan amount of £25,000. The Bank lends only for primary residence.

Newbury Building Society

Funds are released as an interest-only mortgage until the project has been completed. Borrowers can choose the accelerator or the arrears option, or a combination of both. Make an enquiry for more information.

Hanley Economic Building Society

Hanley releases its loans on an arrears basis in five stages. If you qualify, Hanley may give you 80% LTV for land purchase and 80% LTV for the remainder of the build, with a maximum lend of £1,000,000, depending on your circumstances. Payments can be interest-only or repayment basis. Hanley services only for a primary residence.

Saffron Building Society

Saffron teams with BuildStore/ BuildLoan for self and custom-build mortgages. The company’s self-build funds are released in-line with the progress of the project and are interest-only until project completion. When applicants go through Buildstore, the fees and standard variable rate are adjusted to your particular financial and building circumstances.

Companies that don’t provide self-build mortgages

There are a number of lenders who do not offer self-build mortgages, of which we’ve listed some below.

  • Natwest
  • Pepper
  • Yorkshire
  • Yorkshire Building Society
  • Barclays UK
  • Santander
  • Woolwich (now Barclays)
  • Precise
  • RBS
  • Coventry
  • Birmingham Midshires
  • Harpenden
  • Monmouthshire
  • The Mortgage Works
  • Accord

To find the best lenders that are currently offering self-build mortgages, make an enquiry. The experts we work with offer impartial advice and can find lenders based on your personal requirements.

Companies that no longer provide self-build mortgages

There are some companies who used to provide mortgages for self-build projects but no longer do so, including…

  • HSBC
  • Nationwide
  • Yorkshire Building Society
  • Skipton Building Society
  • Kent Reliance
  • Norwich Peterborough (N&P)

For information on which lenders offer self-build loans for your circumstances, make an enquiry and we’ll introduce you to the right expert.

Self-build mortgage providers and their relation to Buildstore/BuildLoan

Many self-build mortgage providers collaborate with Buildstore (also known as BuildLoan to intermediary channels). Many lenders due to the complex nature of self-builds will only work with people if they go through Buildstore.

Buildstore covers all aspects of a self-build project, from researching a project, and finding land for sale, to providing bespoke self-build finance and insurance, buying building materials, and creating models on building your own home.

For more information on lenders who collaborate with Buildstore, make an enquiry and we’ll put you in touch with an expert.

Speak to an expert about self-build mortgage lenders

It’s always recommended to seek advice before committing to a large financial decision. By directly approaching a lender you could be missing out on the best deals, which is where the experts we work with can help. They have whole-of-market access, meaning that they get access to offers that aren’t necessarily available to the public.

Call us on 0808 189 2301 or make an enquiry and we’ll put you in touch with the right self-build mortgage broker for your needs and circumstances.

Updated: 20th November 2020
OnlineMortgageAdvisor 2020 ©

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 information 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.