02 Sep 2015

Self-build mortgage Q&A

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In response to your self-build mortgage queries, Buildstore's Group Sales Director, Rachel Pyne, shares and answers the most frequently asked questions put forward to their specialist finance advisors.

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Will I need a lot of savings to build my own house?

Not necessarily, although your choice of build ‘fabric’ can dictate whether you need to fund production in advance. For example, a timber frame build requires the whole system to be paid for up front. With an advance-stage mortgage arrangement, you can start your build with a relatively small deposit and borrow up to 90% of your land costs and up to 90% of your build costs. However, if you do have savings or access to other cash then you may prefer to use an arrears stage payment mortgage.

Will I have to sell my current house before my new home is ready?

This will depend on how you wish to finance your build and how much cash you have in savings. If you choose an arrears stage payment mortgage then you will need sufficient money for a deposit of between 15 and 25% of the land cost, as well as money to pay for the materials and labour for the early stages of the build. If you do not have sufficient savings then you may decide to sell your current house to release equity before starting your new project.

If you don’t want to sell your existing house and move into temporary accommodation before your new build is complete then an advance-stage mortgage arrangement, such as BuildStore’s Accelerator scheme, may be right for you. Receiving your stage payments in advance during the project will ensure that cashflow is not an issue during the build, meaning you can continue living in your current house until you are ready to move.

Is there only one type of mortgage available for self-building?

There are in fact two types of self-build mortgage available from specialist lenders. An arrears based mortgage releases funds at the completion of each stage, requiring the self-builder to initially provide funding for works, whereas an advance-stage mortgage releases funds at the beginning of each stage, allowing for enhanced cashflow and budgeting benefits. By talking to a specialist financial adviser, you will be able to ascertain the best product for your individual requirements.

How can I be ready to buy my ideal plot of land as soon as it becomes available?

Before you have found your land, it is strongly advised that you talk to a mortgage adviser to explore the various options for financing your project and work out how much you can borrow based on your current finances and commitments. Your existing mortgage will be reviewed and, if applicable, a remortgage with a cash drawdown facility will be arranged to make it easier to put an offer on a plot as soon as it becomes available.

Alternatively, the BuildStore Accelerator Mortgage Scheme will also lend money on land that has Outline Planning Permission – compared to some lenders that will only lend on land with detailed planning permission, which can take months to arrange and restrict the plot opportunities you have.

What is the position on stamp duty?

One area where you get better value is in stamp duty, as you only pay this based on the purchase price of the plot and not on the value of the completed house. You are exempt from paying stamp duty if the cost of your plot is less than £125,000.

Compared to buying a completed property, it is estimated that self-built homes are worth on average 25-30% more on completion than they cost to build.

Further information....

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