What is staged funding?
Self-build mortgages differ from standard mortgages in how you receive the funds. Instead of all the mortgage funds being released at once, the lender releases the money in stages as the construction progresses. This protects the lender by ensuring the funds are used as planned but should also mean that the project doesn't stall due to a lack of cash flow. The specific stages for releasing funds vary depending on the lender, but typically cover milestones like land purchase, foundation completion and the property being wind and watertight.
What is the maximum Loan-to-Value ratio (LTV) on a self-build mortgage?
Generally, self-build mortgages offer a lower LTV (Loan-to-Value) ratio compared to traditional mortgages. This means you'll likely need a larger deposit, with lenders typically offering a maximum LTV of around 75% of the project’s value, assessed at each stage funds are released. The overall borrowing is also capped at 75% of the combined land and build costs. Some specialist lenders may go as high as 95%, but these often come with stricter criteria.
Renovation mortgages and conversion mortgages
If you’re looking to renovate a property which requires significant work or convert an existing property, for example into flats or vice versa, a staged payment mortgage may be able to help here too. By releasing funds at certain stages of the project these mortgages can help fund purchases where a standard mortgage would not be available due to the amount of work being carried out.
Interest rates on self-build-mortgages
Interest rates on self-build mortgages can be higher than standard mortgages. This reflects the increased risk for the lender associated with a construction project as well as the additional work involved in handling the staged payments.
Lenders who provide self-build mortgages.
Several lenders offer self-build mortgages in the UK, including high-street banks and building societies. Specialist lenders often have more experience with self-build projects and may offer more flexible products tailored to the unique needs of this type of construction.
Key considerations:
Before embarking on a self-build project, it's crucial to have a comprehensive budget, a detailed project plan, and secure qualified builders. Unexpected costs and delays can significantly impact your finances and the progress of your project. Consulting a specialist self-build mortgage broker can be extremely beneficial in navigating the process and getting the right financing option.
By understanding the pros and cons of self-build mortgages and planning meticulously, you can turn your dream home into a reality. Remember, self-build projects require a significant commitment of time, resources, and expertise. However, with careful planning and the right funding, you can build a home that perfectly reflects your vision and lifestyle.
We’re pleased to have teamed up with Buildstore to offer our customers expert advice on self-build mortgages. Their team will
- Help you find the best mortgage for your project
- Guide you through the build cost assessment
- Provide guidance on budgeting and cash flow
- Support you with lender applications
- Ensure funding is aligned with your build schedule
- Offer ongoing advice to keep your project running smoothly
- Support you through the stage payment process
Please note Buildstore are not part of L&C and will charge a fee of £95 on application and £300 when your mortgage offer is issued. L&C will receive a % of any commission received by Buildstore should you chose to proceed with them. All applications are subject to lending and eligibility criteria.
