Planning to self-build your home? If you’re not lucky enough to have savings or fund the self-build with the sale of your former home, you may have to borrow cash to finance it. A self-build mortgage will be the perfect thing for you. This can accompany financing new double glazing windows, or a new conservatory.
The separation between a self-build mortgage and a house purchase mortgage
A self-build mortgage is generally the same as an house purchase mortgage with a couple of differences. From interest only to repayment, a self-build mortgage can all have the same similar diverse forms as a house purchase mortgage.
The main differences between the two is that self-building mortgages or funding include stage payments instead of a single amount. If none stage payments happen during the self-build, or if these payments are pushed back so far while doing the self-build making them pointless, then it won’t be a self-build mortgage. during
As well as this, it’s a necessity for the payments to take place in the stages of land purchase, which is also a factor in ensuring it is a proper self-build mortgage.
When do you in actual fact get the stage payments?
Below are the two different types of self-build mortgage:
Arrears Mortgage – You receive the stage payments as each stage of the build is completed.
For those who have whoppingly huge amount of cash for their self-build mortgage, then the arrears type is the one for you. This is because if you are not on such a big budget with this type of mortgage, this can lead to cash shortfalls throughout the build and delays whilst waiting for more cash. On top of this, with this type of self-build mortgage the lender will merely issue 75% of costs throughout the self-build and they will keep the rest of this loan until the job is complete.
Advance Mortgage – You will receive the stage payments at the start of each stage of the build.
The advance type of self-build mortgage is brilliant for people with a low budget as there are no worries about any cash shortfalls and borrowing loans. This is ensured because the money for the build is in their bank, which means the money is available at the exact time it is needed, such as when labour and material bills become due.
Usually this type of mortgage payment will give:
- 90% of the building costs
- 90% of the worth of the land
- A maximum of 90% of the final value of the home which is subjective to the borrower’s
The cash is generally released at six stages, starting with land purchase, foundation work, watertight, wall plate level, and so on.
When are these fees due?
It may be surprising but rates for self-build mortgages are typically higher than you might just expect compared to a regular mortgage. You might be looking at a decent payment of £1-2,000 to achieve a self-build mortgage after the completion fees, application fees and broker fees have been fully paid for. For the arrears type of mortgage, an interim valuation is obligatory to break down each stage and the funds before the money is released.
The advance type of mortgage doesn’t require interim stage valuations but there are further costs for receiving the cash in advance. This cost depends to a certain extent on the amount of extra cash-flow that is needed and the amount that the self-builders themselves are putting in.
Can you receive penalties for early repayment?
It is possible on a few mortgages to receive the initial repayment charges – if you’re looking to repay by the next two years, normally it will be around 2-3% of the entire loan. Do ensure that you head to your mortgage consultant or advisor if you are able to do this, that way before you begin the self-build they will be able to receive the perfect package just for you.