Self build mortgage
A self-build mortgage is specifically designed for individuals who are building their own homes rather than purchasing a pre-built property. Unlike standard mortgages, where funds are released in a lump sum at the point of purchase, self-build mortgages release funds in stages as the construction progresses. This type of mortgage is ideal for barn conversions, where the project typically involves significant structural changes and renovations.
PROCESS BREAKDOWN
Information gathering and advice
The first process in your mortgage application will be gathering or updating information in relation to the property, tenants, or yourself. Once this has been established your Self Build Mortgage will make a product recommendation.
Credit approval
Once you are satisfied with the product recommended and have confirmed to proceed, this will usually be submitted the same day to give you a decision, until this point there is still nothing to pay! As long as the Agreement in Principle (AIP) was approved, we can move to application stage where fees become payable.
Application, valuation & underwrite
Once the application is submitted, your valuation will be booked in and most of the time (depending on the lender). This will usually completed once your initial underwriting has been completed. Once the valuation is returned, if acceptable, the lender would then look to make a formal offer. You can then move to legal stage.
Offer and completion
Once you have had your self build offer, you will require adequate legal advice and then once youâre happy, your solicitor can draw this down once the legal requirements are satisfied. Your broker at Mortgage Lane will always be checking in on the application post offer, so we are chasing for you too!
How much can I borrow?
Self build mortgages are Indexed with residential affordability, which is around 4.5x-5x joint gross annual income for most lenders and usually capped at around 75% of the end value of the property. This means that borrowers will only be able to get funding towards part of their purchase and potentially 100% of build costs. A self build mortgage lender will want to make sure borrowers can exit with onto a residential mortgage after the build has completed or if the self build mortgage comes to an end. Some lenders may disregard the current mortgage or rent payment for the applicants if they plan to complete the build and sell their current residential property within 12 months of the build starting. Check out our self build mortgage calculator below.
Agricultural restrictions
Land with Agricultural restrictions can be considered by self build mortgage lenders (subject to the applicants satisfying the requirements of any restrictions) and subject to valuers comments. Borrowers may be required to undertake not to use the land for any agricultural or business purposes. Some lenders may offer lower LTVs on these build types and can max at 60%LTV or higher. Some borrowers may take a rural bridging loan on these schemes if planning permission has not be granted before the purchase needs to complete.Acreage restrictions
We work with lenders that donât have a max acreage restriction but policy can be different when lending on farms or properties/land with any commercial aspect. It must be used solely for residential purposes for most self build mortgage lenders and the lenders underwriter may ask the intentions of the land.What newbuild warranty providers do lenders accept?
- Advantage HCI
- Ark Residential Insurance
- Build Assure (FMBâs âBuild Assureâ)
- Build-Zone
- BW Build Warranty Group
- CADIS
- Castle 10/Checkmate
- Compariqo
- Global Home Warranties (Global Homes)
- ICW Limited (ICW)
- LABC
- NHBC
- One Guarantee
- Premier Guarantee
- Protek
- Q Assure
The Stages of a Self-Build Mortgage for Barn Conversions
A self-build mortgage for a barn conversion is typically released in the following stages:
- Initial Purchase: If youâre purchasing the barn, the first tranche of funds may be released to buy the property, provided you already have planning permission.
- Preliminary Works: Funds are released for initial groundwork, possibly including demolition, site preparation, and laying foundations if necessary.
- Structural Work: As the main structure of the property is built, funds are released to cover these substantial costs.
- Internal Work: This includes the installation of internal walls, electrical systems, plumbing, and other essential services.
- Finishing Touches: The final tranche is typically released for the completion of the interior, including flooring, kitchens, bathrooms, and decoration.
Are development funds released in arrears
It is important to remember that a self build mortgage lender will release funds in arrears. Re-inspection is required to confirm uplift in value for funds to be released, but to also check the quality of the works and to therefore sign off the respective phase as completed for payment. Self build mortgage lenders may use Quantity Surveyors, or Asset Managers to assess the works on a completed phase, they may also have queries in relation to the works and therefore there may be correspondence between the borrowers and the Surveyor before the phase is deemed completed.Self build mortgages for Barn Conversions
Barn Conversions are acceptable security for us providing they have the relevant warranties, barn conversions often require substantial upfront investment for structural work, planning permissions, and bespoke designs. A self-build mortgage provides the flexibility needed for such projects, allowing you to access funds as each stage of your conversion is completed. This staged release of funds helps manage cash flow and ensures that you only borrow what you need when you need it, reducing overall interest costs.Eligibility Criteria for a Self-Build Mortgage on Barn Conversions
Securing a self-build mortgage for a barn conversion can be more challenging than for a traditional self-build project. Lenders will typically assess the following factors:
- Planning Permission: Before applying, you must have full planning permission for the conversion. This includes detailed plans and permissions for any structural changes, as well as compliance with local building regulations.
- Project Costs and Budget: Lenders will require a detailed breakdown of the total project costs, including labour, materials, and contingency funds. A realistic and well-structured budget is crucial.
- Builder and Architect Credentials: Lenders prefer projects managed by experienced builders and architects with a track record of similar conversions. Their expertise reassures lenders that the project will be completed to a high standard.
- Deposit: The deposit required for a self-build mortgage is usually higher than for a standard mortgage, typically ranging from 25% to 30% of the total project cost.
- Experience: Some lenders may require you to demonstrate previous experience with property development or similar projects, though this is not always mandatory and can also be experience provided from the main contractor.
Not all lenders offer self-build mortgages, and even fewer specialise in barn conversions. At Mortgage Lane, we work closely with a network of lenders who understand the intricacies of such projects. We can help match you with a lender that offers competitive rates, flexible terms, and a deep understanding of the challenges associated with barn conversions.
QUESTIONS ABOUT SELF BUILD MORTGAGES
Most self build mortgage lenders will need approximately 12 months left on the planning permission at the time of submission if the build already hasnât started.
Yes, the mortgage can be on interest-only throughout the duration of the build which will help to keep repayments down, this must however be requested.
Yes a re-inspection is required to confirm uplift in value for funds to be released and to check the quality of the build.
Yes, self-build mortgages are regulated in the UK, much like standard residential mortgages. The regulation ensures that lenders adhere to strict guidelines and that borrowers are protected throughout the mortgage process. Here are the key points regarding the regulation of self-build mortgages:
- Financial Conduct Authority (FCA) Regulation:
- Self-build mortgages are regulated by the Financial Conduct Authority (FCA). This means that lenders offering self-build mortgages must comply with the rules set out by the FCA, which are designed to ensure fair treatment of customers and transparency in the lending process.
- Mortgage Conduct of Business (MCOB) Rules:
- The FCAâs Mortgage Conduct of Business (MCOB) rules apply to self-build mortgages. These rules cover various aspects of mortgage lending, including how lenders should assess affordability, provide information to borrowers, and manage arrears or repossessions.
- Consumer Protection:
- As with standard mortgages, self-build mortgages offer consumer protection. This includes the right to complain to the Financial Ombudsman Service if something goes wrong, and the protection offered by the Financial Services Compensation Scheme (FSCS) if the lender goes out of business.
- Affordability and Suitability Assessments:
- Lenders are required to assess the borrowerâs affordability and ensure the mortgage is suitable for their needs. This includes evaluating the borrowerâs income, expenditure, and the specific risks associated with self-build projects.
- Key Facts Illustration (KFI):
- When applying for a self-build mortgage, lenders must provide a Key Facts Illustration (KFI) or an equivalent document that outlines the terms of the mortgage, including interest rates, fees, and the total amount repayable. This document is essential for helping borrowers understand the financial commitment they are making.
- Advice Requirement:
- In many cases, lenders are required to offer advice on whether a self-build mortgage is suitable for the borrowerâs circumstances. This advice must be given by a qualified mortgage adviser.
- Mortgage Market Review (MMR) Compliance:
- Self-build mortgages must comply with the Mortgage Market Review (MMR) guidelines, which were introduced to ensure responsible lending practices. This includes stricter affordability checks and the requirement that interest-only mortgages must have a clearly defined repayment strategy.
We can consider builds that have been started subject to usual underwriting and affordability, lenders may require build control sign off and a consistent architects certificate (PCC) or even new build warranty to be in place prior.
While self-build mortgages offer many benefits, there are also challenges to consider:
Complex Process: Building a home from scratch is a complex process that requires careful planning, coordination, and project management. Itâs essential to have a clear understanding of the build process and timelines.
- Higher Deposits: Lenders typically require a larger deposit for self-build mortgages, often between 25% and 30% of the projectâs total cost. This is higher than the deposit required for a standard mortgage.
- Cost Overruns: Unexpected costs can arise during construction, whether due to unforeseen issues with the land, delays in construction, or changes in material costs. Having a contingency fund is crucial.
- Finding the Right Lender: Not all lenders offer self-build mortgages, and those that do may have specific requirements. Itâs important to work with a knowledgeable broker like Mortgage Lane to find the best lender for your project.
We have access to lenders that can consider modern methods of construction, but will require all the necessary warranties to be in place.
Yes you can but it is important that you use a professional that is qualified to a lenders specifications such as the following bodies:
- Member or Fellow of the Chartered Institute of Building (MCIOB or FCIOB)
- Member or Fellow of the Institution of Civil Engineers (MICE or FICE)
- Member or Fellow of the Royal Institution of Chartered Surveyors (MRICS or FRICS)
- Registered architect with the Architects Registration Board (ARB). Architects must be registered with the ARB, regardless of membership in other organizations, such as the Royal Institute of British Architects (RIBA).
- Member or Fellow of the Institution of Structural Engineers (M.I.Struct.E or F.I.Struct.E)
- Member or Fellow of the Chartered Association of Building Engineers (MCABE or FCABE)
- Member or Fellow of the Chartered Institute of Architectural Technologists (formerly the British Institute of Architectural Technologists) (MCIAT)
- Member or Fellow of the Architecture and Surveying Institute (MASI or FASI)
If you already own the land, with planning permission to build your dream home then you may be able to get up to 100% funding towards your build costs without further collateral. If your land is unencumbered then you will be able to use that equity as collateral for the self build funding project.
Lenders exposure limits tend to be up to 25% of a site, which means that borrowers may need to consider what other applications have been made on neighbouring plots before approaching self build mortgage lenders.
We understand that custom build homes offer the perfect blend of personalisation and convenience. Unlike traditional self-builds, where youâre deeply involved in every aspect of construction, custom build homes are facilitated by a professional developer, allowing you to create a unique property tailored to your lifestyle and preferences without the extensive hands-on commitment.
Custom build projects can range from a single, bespoke home commissioned by an individual and constructed by a developer, to a development of multiple homes where future occupants have the opportunity to influence the design. This approach provides the flexibility to craft a home that truly reflects your needs, with the support of professional expertise throughout the process.
Applying for a self-build mortgage requires careful preparation and planning. Hereâs a step-by-step guide to help you navigate the process:
Step 1: Develop a Detailed Plan
Before approaching lenders, ensure you have a comprehensive plan for your build. This includes obtaining planning permission, creating detailed architectural drawings, and developing a realistic budget. Consider consulting with professionals such as architects, surveyors, and builders to refine your plans.
Step 2: Prepare Your Financial Documents
Gather all necessary financial documents, including proof of income, bank statements, tax returns, and details of any existing debts. Having these documents ready will streamline the application process.
Step 3: Consult with a Mortgage Broker
Working with a specialist mortgage broker like Mortgage Lane can simplify the process of finding the right self-build mortgage. We can help you compare products, understand the terms and conditions, and find a lender that suits your needs.
Step 4: Submit Your Application
Once youâve identified a suitable lender, you can submit your mortgage application. Be prepared for the lender to conduct a thorough review of your project plans, financial status, and creditworthiness. This process may take several weeks.
Step 5: Arrange Insurance
Self-build projects require specialized insurance, often referred to as self-build insurance or site insurance. This covers risks such as theft, damage, and liability during the construction phase. Lenders typically require proof of insurance before releasing funds.
Step 6: Manage the Build and Draw Down Funds
As your project progresses, youâll need to manage the build carefully and coordinate with your lender to draw down funds at each stage. Keep detailed records of all expenses and maintain regular communication with your lender to ensure smooth disbursement of funds.
Step 7: Complete the Build and Move In
Once your home is completed, conduct a final inspection to ensure everything meets your expectations and building regulations. After receiving a completion certificate, you can move into your new home. At this stage, your self-build mortgage may convert into a standard residential mortgage.