Self Build Mortgages FAQ
Can I obtain a mortgage if I only have outline planning permission?
Yes. Funds can be advanced to pay for the land even if it only has outline planning permission. Detailed planning permission is required before building work commences.
Why do standard self build mortgages not release funds until the end of a build stage?
Lenders want to make sure that the money they lend to you is protected so that if they have to repossess a partly completed house they will get the money they have lent back. For this reason they wait until you have completed each stage of the build and have had an interim valuation completed before releasing the funds.
The Accelerator self build mortgage and Advance short term building finance are different. With them you get money at the start of each stage of the build and there is no need for interim valuations. However, the lender is still protected but this time by the valuation guarantee which the borrower pays for before drawing down their first payment. This protects the lender if the partially completed property is repossessed and there is a shortfall when it is sold by the lender.
How much can I borrow?
This depends on a number of things. For example whether you are borrowing on your own or with someone else and on what other monetary commitments you have. It also depends on whether or not you have a mortgage on your current house and are planning to stay in it while you build your new home.
The standard income multiples used to calculate the amount you can borrow are 3.5 x single income or for joint incomes, the higher of 3.5 x income 1 plus income 2 or 2.75 x joint income. However, other financial commitments you have are taken into account.
The amounts of any bonus, commission and overtime you earn can also have an effect on how much you can borrow as can income from “Buy to let” properties.
What do I do if I am not sure what type of mortgage will suit me?
This web site includes a self build mortgage finder which will take you step by step through the selection process. This will help narrow down your choices. You can then apply for a decision in principle for your chosen mortgage on line.
You can also call The Mortgage Shop on 0800 092 0800
How can the Accelerator Self Build Mortgage and Advance short term building finance lend money in advance of the build stage?
www.MORTGAGE SHOP.com designs products from a customer viewpoint. We realised that standard self build mortgages caused some self builders to have cash flow problems because money was not released when they needed it – at the start of each stage of the build. We also understood the reason why lenders take this approach – to ensure that their money is protected by only lending when there is sufficient value in the property to support the lending. We then developed the valuation guarantee scheme which gives the lender the protection they need to lend money before the value has been added to the property. The valuation guarantee gives the lender protection if the partially completed property is repossessed and sold for less than has been lent. This protection means that the lender is therefore prepared to lend money at the start of the build stage to people who have an Accelerator self build mortgage or Advance short term building finance.
Can I get a decision in principle?
Yes, The Mortgage Shop offers an agreement in principle on its mortgages. This lets you know that the lender will lend to you and how much they will lend.
When should I apply?
Applying for a mortgage should be one of the first steps taken in self build. It will enable you to know the extent of your budget and if you have not yet purchased land, obtaining an agreement in principle can put you in the same position as a cash buyer enabling you to move quickly on land. This is especially useful if you are considering purchasing a plot or property at an auction.
How can I stay in my current house while I am building my new one?
Many self build mortgages can now run alongside the mortgage you have on your current house while you build your new home. This can be a more economical way of structuring your finances than selling your current home and moving into rented accommodation. This is because as well as avoiding the hassle and cost of an interim move, the cost of rented accommodation is likely to be more than your current mortgage.
Your current house is ignored for the purposes of your Accelerator self build mortgage with this mortgage being based on the projected value of your new self build home.
If you do decide to remain in your current house while building your new home most lenders will take this into account when calculating the maximum amount you can borrow. They do this by reducing your stated income by an amount equivalent to 6 times your current monthly mortgage payment before calculating the maximum amount you can borrow.
How long do I have to build?
Under the Accelerator Mortgage and Advance short term finance the building work must be completed within 24 months.
On a self build mortgage do I pay interest on the whole amount I want to borrow or just what I have borrowed so far?
You only pay interest on the amount you have actually borrowed. This means that as your build progresses and you borrow more, your monthly interest payments will increase.
Can I choose the mortgage repayment type I want?
Yes. You can have your mortgage on a capital and interest basis (where each month you repay some of the capital you have borrowed as well as interest) or on an interest only basis (where no capital is repaid until the end of the mortgage term with the capital being repaid by some sort of investment policy such as an ISA, an endowment plan or a pension plan). You can even split it so that it is partly capital and interest and partly interest only.
On some mortgages you pay interest only during the build regardless of the style of mortgage you choose while with others you pay the style chosen both during and after the build.
What is the valuation guarantee fee for?
This is used in the advanced stage payment mortgages (Advance and Accelerator) to give the lender the protection it requires to allow it to lend you money at the start of each build stage rather than wait until the end of the stage when the value has been added.
Why do you have a panel of lenders?
Different lenders specialise in different products and have different lending criteria. This means that by having a select panel of lenders we can provide self build mortgages to a wider range of people than if we only worked with one lender.
Can I get a mortgage if I am self employed?
Yes, we offer mortgages for the self employed. Most lenders will want to see either accounts or self assessment documentation but we do have a self certification mortgage for those self employed people who are unable to provide proof of earnings.
Will you lend me money to build a holiday home?
We are not able to lend money for the construction of holiday homes.
How do I work out how much I need to borrow at each stage of the build?
A self build mortgage is split into a number of stages and you need to work out the amount that you need to borrow at each stage. If you are working with an Architect or Architectural Technologist they will be able to help or you can go to a Quantity Surveyor. Alternatively, The Mortgage Shop offers a materials and cost quantification service BuildGuide which will breakdown your plans into the various stages and work out the quantities of materials needed at each stage and give you guide costs for materials and labour. This will help you calculate how much you are likely to need at each stage. To organise the correct borrowing for you during your project we need to know how much you are going to require at each stage. Our Mortgage Advisers can help you through this process. Advisers are available from 8.30 – 7 Monday to Sunday.
Can I manage the project myself?
Yes, both the Accelerator self build mortgage and Advance short term building finance allow you to manage the project yourself using as many subcontractors as you wish. The only condition is that the work is suitably certified either by a qualified architect, architectural technologist, NHBC or other recognised structural warranty guarantee.