Self Build Mortgages
Building and designing your own home is something special. To do this you will want to feel assured that you have the right amount of funds to proceed and that you face no obstacles relating to the financing of your dream home. By accessing a self-build Mortgage, you can finally bring that idea to life in a creative and unique manner. Finbud will outline below the key elements of a self-build Mortgage and the benefits you could receive from pursuing this type of mortgage.
What is a Build Mortgage?
This is very similar to a traditional mortgage, but the only difference is that with a self-build mortgage money is released in stages. What this essentially means is that you do not get all of the money at once, and instead you will get paid at different stages i.e.in instalments. . The idea is that money is first released in order for you to acquire the raw materials to build, and you will then obtain subsequent amounts as the building stage progresses. Since you are not buying a home that is already built, it makes sense to receive money in smaller amounts instead of getting it all at once.
Another thing to note is that the type of home you are building will dictate how many stages for payment release you will have to go through. Sometimes it’s just a single stage, at other times there will be multiple stages. So that’s definitely something you have to take into consideration in a situation like this.
Below are the typical stages for Brick and/or block and timber frame construction:
Brick and/or block
- 1. The first step is purchasing the land you want to build on
- 2. Then you have to think about the preliminary costs and foundations
- 3. The third step is to focus on the wall plate level
- 4. Then focus on wind and watertight
- 5. First fix and plastering are next
- 6. Lastly, you have the second fix to completion
- 1. You initiate the process by purchasing the land
- 2. Then you focus on the foundations and preliminary costs
- 3. At this point you need to have the timber frame kit erected
- 4. Wind and watertight are next
- 5. Now you need to complete the first fix and plastering
- 6. Then you will have the second fix to completion
As you can see, the two types are very similar, the only difference mostly comes from what type of construction you are working with.
Guaranteed based project costs vs valuation based stage payments?
Your choice of which mostly depends on individual circumstances. No two projects are the same, so trying to assess them in a similar manner can be very tricky and challenging. That being said, valuation is not always the best option because the lender’s chosen surveyor may come up with a lower valuation figure than expected. That is why it may be better to opt for the guarantee based option on the project costs. It’s good to keep this in mind, as it has the potential to really make a huge difference and offer you the value and quality that you want. The cost base method brings you guaranteed stage payments and as such, it may provide greater rewards in the long run.
The arrears stage payments
This is a type of self-build mortgage whereby payments are released after every stage of the build that is complete. The main focus for lenders is that they obtain a level of certainty that you will not be requesting more money than you actually need. The lender will want to evaluate the process, so they will have a surveyor do this as mentioned above.
This method of payment can be of great benefit when you already have access to funds for the beginning stages. However, the stage payments will not be guaranteed, which means that the lender needs to go through those interim valuations to be sure that you can pay him back. Obviously, this is not going to help you that much all of the time, but it can be a good starting point.
Advance stage payments
This option allows you to have all of the funds released at the start of every build stage, most likely before starting any work. The benefit of this is that the stage payments are guaranteed and they reflect the project cost, based on the lender valuations. It is also an ideal option if you want to avoid selling your property to release some equity or if you lack any kind of savings. It also allows you to utilize the option of having cash up front, so you can adequately pay your bills and also acquire the materials you need. It will place you in a cash positive position, something that rarely happens nowadays, so it makes sense to use such an approach to make it work the way that you want.
It can also help if you want to create a manufactured construction off-site where you are able to get the funds you need. The only thing about advance stage payments is that they require a 5% deposit in order for the project to get started.
What about interest rates?
The interest rates differ for self-build mortgages. They are a bit higher when compared to mortgages for the regular house purchase. Rates can be anywhere from 3.5 to 6% each year. Another thing to note is that the arrangement fees will differ based on the lender and broker and that if you choose the self- build mortgage route, you might be tied to a certain lender for up to 3 years. That is why you need to choose wisely, so you can obtain the best possible experience and results.
Furthermore, the amount of money you can get also differs based on an individual’s financial circumstances. The outstanding debts you might have as well as your income will show just how much you are able to borrow. Building societies, banks or a broker will assess this in order to see what borrowing limits you will be able to qualify for.
A final note on Self Build Mortgages
All in all, self-build mortgages can be advantageous if you want funds to build and design a home yourself which in itself is a major accomplishment in your life.
Finbud recommends you utilize this type of mortgage if you need money for building your new home at the outset and as you go along. Granted, the interest rates are slightly higher, but the return can be very impressive!
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