Interest rates are higher than a standard
house purchase/re-mortgage and vary from 3.75 per cent to 6.5 per cent per annum, also arrangement fees also vary from lender to lender.
Bridging facilities are more expensive, rang-
ing from 0.59 per cent to 1.5 per cent per month, and the arrangement fees can be quite high; between 1-2 per cent of the total borrow- ing facility, with or without incurring exit fees. You may be tied into the lender for between one and three years – again depending on lender and mortgage product. Consultant/broker fees vary – beware of ‘hid-
den’ fees that you only become aware of at a later stage. A typical timescale for processing a stage
release mortgage is up to three months. Consultants, brokers, banks and building soci- eties will carry out a forensic analysis of all supporting documents, in particular income and expenditure cross checking with the bank statements.
Borrowing facility
As a guide to help you gauge your potential borrowing facility the income multiplier may either up to 4.5 x single income (single appli- cation) or up to 4.5 x the highest salary plus sec- ond applicants salary, or 3.5 x joint income, in the case of a joint mortgage application. This is purely a guide, and I prefer to work on the basis of ‘up to four times plus one’ for single mortgages and ‘up to three or four times’ for joint mortgages. Banks and building societies apply their own affordability calculation to assess your borrowing limits.
Check your own affordability
Would your net monthly disposable income enable you to borrow funds based on a stress test rate of interest of up to 7.5 per cent on a capital and interest basis (repayment)? A mort- gage will not be granted if it is deemed not to be affordable and responsible lending!
Types of self-build mortgages
In effect a self-build mortgage is what it sounds like – the only difference is the fact that funding is released at key, identifiable stages during the construction. Some lending institutions lend on land purchase/existing property and at key
A self-build mortgage is what it sounds like – the only difference is the fact that funding is released at key, identifiable stages during the construction
Stage-release mortgage payments – what are the stages cash gets released at?
Self-build •Land (with outline planning consent as minimum)
stages during and on completion of the build. This can vary from up to 75-90 per cent of the purchase price or valuation and up to 80-90 per cent of build costs – or up to 75 per cent of the growth in value of your build at key stages during construction. Other institutions do not lend on land but they will lend at a later stage during the build period. It is important to have an open dialogue with
all your contributors to ensure the lender’s stage release funding model is compatible with your payment terms – managing cash flow is critical!
Applying for a stage release mortgage
Supporting documentation required is basically the same as a ‘standard’ mortgage as Stage Release Residential Funding is a mortgage from day one, with the exception that funds are released in stages. Initial valuation will be car- ried out to establish current value and anticipated end value. The client will pay the valuation fees and interim and final valuations will be requested and carried out by a RICS valuer. The reports will be presented to the lender to evidence the increase of the interim value(s) prior to interim and final release of funds from the lender. They will not release initial funds until you can demonstrate that you have adequate site insur- ance and a 10 year structural warranty, and all parties involved should have these.
Advance/arrears stage payments
In the current economic climate it is increasingly difficult to have funding in place in advance of each of the stages of your build. However pro- viding you are upfront and discuss your funding with your suppliers and other contributors they will generally be willing to negotiate payment terms. To provide additional security, in some instances a lender may take a charge on your existing prop- erty – which may facilitate funding in advance. If you already own the land or existing struc-
ture and it is unencumbered (ie has no loan secured against it), the lender may secure funds against the land/existing property title. In effect your funding will be released in advance of each stage of your build, to conclusion of the project. Remember 10 per cent of total
•Substructure •Wallplate /eaves height, (just before the roof trusses go on)
•Roof wind and watertight (tiled) •First fix •Second fix •Certified completion
Renovation/conversion •Purchase of existing structure •Inspected completion of structural survey and cost estimate of necessary works
•Completion of load bearing elements •First fix •Second fix •Certified completion
Custom-build/group self-build •Purchase of land •Associated preliminary costs and substructure
•Construction to wind and water tight stage
•First fix •Second fix and completion
Supporting documentation required for a stage release mortgage
•Copy of planning permission •Copy of construction drawings and specifications
• Copy of total project cost estimate (where possible fixed price contracts)
•Copy of Building Regulation approval •Copy of site insurance and structural warranty
•Architect PI cover (if required) •SAP calculation – this will be in the Building Regulations package •Experian credit report
borrowing retained until Building Control has issued a completion certificate. Remember to take this into account when addressing your cash flow during and on conclusion of the build. In conclusion, subject to affordability, banks
and building societies have a healthy appetite to lend on projects, providing you have carried out due diligence as the client, in order to ensure you engage the right team to construct your home. The keys to success are research, clear defini- tion and communication with all parties involved.
Enq. 159 selfbuilder & homemaker
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