FINANCE & INSURANCE
Managing your build’s bottom line
Despite the numbers of self-builds growing rapidly, getting the right advice on mortgages can be tricky. David Lownds of Hanley Economic Building Society outlines the basics of self-build financing, and gives some tips on how to manage your build’s budget
H
ave you ever imagined what your dream home would look like? Would you have an open plan
kitchen, a spiral staircase reaching all floors or even floor to ceiling windows? While building a dream home is just a dream for some, for others, it’s a reality. The self-build trend appears to be sticking around, as more and more people choose to take ownership of the design of their home. Accessibility to more creative solutions and ideas is encouraging self-builders to incorporate aspects they want to have such as a more environmentally friendly home or unique construction types. Circumstance is also encouraging self- builders out of the oak framed woodwork. Whether it’s parents gifting land to their children, people downsizing and building in their back garden, or first time buyers taking the plunge to create their dream home because of a lack of housing available, circumstance is definitely supporting this growing area. When thinking about their dream home, most people think about the finished product, the physical bricks and mortar (or steel frame!) but at what stage do you need to think about financing those bricks? Do you know what type of mortgage you need, or what advice to get?
A mortgage to help you build a home
is different from a mortgage you may have had before, such as a residential mortgage. For a residential mortgage, a lender would offer you a mortgage for a house that already has plumbing and heating – somewhere that you can move straight into and then make the cosmetic changes to create your home.
DOING THINGS DIFFERENTLY With self-build, of course, there is no house to lend against! It is difficult to assess the risk as a lender and the
july/august 2019
valuation of the property can fluctuate greatly in comparison with buying a house the traditional way.
Initially arriving at the potential lending amount means a different calculation. Most lenders will require more paperwork upfront such as outline planning permission before looking at a mortgage application. Self-builders will also need to have a good idea of the costings for the project, have a warranty provider in mind and the building plans available before a formal application can be submitted. A self-build mortgage is there to help you stay financially stable throughout the build, and money is therefore released differently – in most circumstances, it will be offered on a staged payment basis – arrears or advanced (dependent on your lender). These staged payments are arranged in accordance with your
costings, so your amounts may differ throughout the build. For example, you may need a higher amount earlier in the process to input your footings, so the remaining staged payments will be smaller.
Some lenders will allow you to have your self-build mortgage on interest-only terms whilst your house is being built. This will keep your monthly mortgage payments as low as possible which in turn improves your cashflow.
WHERE TO FIND FUNDING
Not all bank and building societies provide self-build mortgages so it’s important to know which ones do. If you already have a mortgage, start with your existing lender. They may be able to switch your current mortgage to a self-build mortgage with minimum costs
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