Summary: Information on how to go about finding a mortgage to start a selfbuild project.
This project contains the information, together with the product, that you have come here for. Mortgages of all kinds are available for self builders.
The main difference between a self build mortgage and a house purchase mortgage is that with a self build mortgage, money is released in stages as the build progresses rather than as a single amount.
Some lenders will lend you money to purchase land, typically 75% of the purchase price or value, whichever is lowest.
After this, the money for the build is released in a series of stages. These can be fixed or flexible depending on the lender but usually there are five.
During the build you can borrow typically 75% of the cost of the value of the house as the project progresses, depending on the chosen lender.
There are two methods by which the money can be released during the build – at the end of each stage or at the start of each stage. These are respectively known as arrears stage payments and advance stage payments.
In the arrears stage payment method, the money for that stage is released after the stage has been completed and a valuer has visited the site. This can cause some self builders to have cash flow difficulties.
The advance stage payment method was developed by BuildStore. With it the money required for that stage is released at the start of the stage before work starts.
The following is a report about self-build mortgages which appeared in the Guardian newspaper 2 years ago. There are also a lot of useful links to follow up. The more information you can get about your mortgage and everything involved with your self build, the better:
If you've had to compromise when buying a home, building your own could be the answer. And now, writes Rachel Gordon, there is an increasing amount of mortgage help available
Friday May 17, 2002
If you're someone who's had to compromise when buying a home before because there's always been something not quite right, then building your own home could be the answer.
A growing number of people are prepared to live in the cramped conditions of a caravan while their dream home is built to their exact specifications.
You choose the land, are involved in the plans and pick the builders. And now, there is an increasing amount of mortgage help available.
John Hay, marketing director of Build Store left a job with a large insurance company to work for what remains a niche sector. But he insists the move was well worth it. "The enthusiasm here is incredible. Self-build remains small but is taking off in the UK. Research in the mid 1990s showed around 10,000 people built their own home; now the figure has doubled. And, of all new detached houses, 25% are self built."
So why are more people doing it? According to Mr Hay, it means real value for money as well as choice. "You cut out hefty developer's fees as well as having your own specification. Plus, self build also means you save on stamp duty, you pay this just on the plot of land and not the house, and so it's likely to be far less."
As an investment it can also make sense - estimates suggest a home will be worth 30% more that the outlay on the day you move in. Of course it is not all plain sailing - planning permission remains a stumbling block for many after they have submitted plans.
But finance is now far easier to arrange. There are 30 lenders in the market, a number of which offer flexible arrangements that can mean you can avoid the caravan experience.
With a traditional self build mortgage, the client has to find large amounts of money to pay for the land and materials in advance of getting funds from the lender. This results in many of these self builders having to sell their existing homes and either moving in with friends, family or into a caravan.
With an Accelerator Mortgage, payments are made in advance of the major purchases and, with up to 95% of the purchase price released, the client has to find a much lower amount of money from their own resources.
Providers of this type of loan include Britannia, Stroud & Swindon and Norwich & Peterborough building societies.
Self-employed people often receive a raw deal in the mortgage market, but their situation is also improving in the self-build market.
As long as a set of accounts for the past 2 years can be produced, in some cases a mortgage of this type can be arranged. Some companies that are producing good work in this area are Verso and they work through Britannia. The interest payable is Bank of England base rate (currently 4%) plus 1.25%.
Mr Hay says: "This mortgage will appeal to the keen self-builder who is very often self-employed or freelance. Until now they have struggled to find a self-build mortgage."
Those determined to build a home based on sustaining the environment can also find funds from The Ecology Building Society. It lends up to 90% of the purchase price or valuation of a property. Apart form self build, it also lends to buy sound but derelict property. But The Ecology has fairly strict criteria and will normally only lend up to three times joint incomes. Self-employed people need accounts for the past three years.
Some very useful links for self build information.
The Housing Corporation
Independent housing ombudsman
UK housing information resource
National Association of Estate Agents
Council of Mortgage Lenders
All project content written and produced by Mike Edwards
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