A self-build mortgage is a type of mortgage specifically designed for people who want to build their own homes rather than buying an existing property.

Unlike traditional mortgages, which release funds in a lump sum to purchase a home, self-build mortgages provide funds in stages to align with the progress of the build. This staged release structure helps cover costs as the project advances, from buying land to completing the final touches.

Here’s how a self-build mortgage typically works:

• Staged Payments

Funds are released at key milestones in the building process, such as land purchase, foundations, wall completion, roof completion, and final completion. Lenders may release funds at different stages, so it’s essential to confirm specifics with each lender.

• Types of Self-Build Mortgages:

• Arrears: Payments are released after each stage is completed, meaning the borrower needs to cover the initial costs until reimbursed.
• Advance: Payments are made at the start of each stage, providing funds upfront to cover expenses. This option is less common but can be helpful for borrowers without large savings.

• Interest Rates and Deposit Requirements:

Self-build mortgages often require higher deposits (usually 20-25%) and may come with slightly higher interest rates due to the additional risk involved.

• Additional Considerations:

Lenders may require detailed building plans, planning permission, and cost projections to assess the project’s feasibility. A valuation is also conducted at each stage to confirm the work done.

Self-build mortgages can be ideal for those with a specific vision for their home and the resources to manage the construction process.