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Financing Self-Build
The number of people in the UK choosing the self-build
route into home ownership is increasing each year, with some twenty
thousand people building homes for themselves last year alone.
A third of these were completely self-funded, however the remaining
two-thirds required external financing in the form of a specialised
self-build mortgages.
Most mainstream lenders do not offer products for those looking
to finance a self-build project, partly because of the specialised
knowledge required by the staff to handle such mortgages and complexity
of managing them, and also because of the increase of regulations
that makes the sale of such products more time-consuming.
The self-build mortgage market is serviced by niche lenders who
specialise in these types of mortgage that require funding to
be released in stages, starting with the money for the land purchase
through to the build materials. The way that the amount that can
be borrowed is worked out can be complex, based on the cost of
the land and the build costs, and the lender has to assess the
final value as well.
If you are looking to self-build, and you require a mortgage
in order to do so then there are certain things that you need
to be aware of. Firstly you will need to have a good deposit to
put down, as the risk to the lender is relatively high with self-builds,
they require larger deposits than standard mortgages.
The interest rates charged on this type of mortgage will also
be higher, which is why it is important that when arranging one
you ensure that it does not carry any early repayment penalties.
Why is this important? Well, once the build is complete the likelihood
is that the property will be worth substantially more that the
original mortgage amount, and so getting a standard mortgage secured
on it shouldn’t be a problem – switching to a standard
mortgage will give you lower rates and so save you money.
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