Best self build mortgage rates

Self-build mortgages explained

How do self-build mortgages work?

A self-build mortgage provides you with the money necessary to cover everything you need to build your home, from buying building materials to paying contractors and workmen. Unlike with a residential mortgage, the money will be released in stages, and you’ll only have access to the funds once specific stages of the build are complete (for example once the foundations are laid, the walls built, etc.). This reduces risk for the lender by ensuring that the money is used as intended, but it also means there’s less risk of you running out of money part-way through the build, which could be more likely if you received the funds in a lump sum.

Note that this style of self-build mortgage is known as an arrears type, where payments are made at the end of each stage. This means you’ll need some other form of financing in order to start the project, or will need to fund the initial stage yourself. However, there’s also an advance type, which is where payments are made at the beginning of each stage, but these mortgages are less common.

How much could I borrow?

This will depend on a number of different factors, from the lender you choose to your own personal circumstances, as well as whether or not you already own the land. If you do, you can expect to borrow up to 75% of its value to fund the build, but if you don’t, the percentage offered may be less.

Bear in mind that, while building a home is often cheaper than buying a house, unexpected costs can still arise. This is why it’s important to make sure you’re borrowing a sufficient amount, and is why the advice of a specialist broker can be invaluable.

How much deposit do I need?

Just as with a residential mortgage, you’ll need to put down a deposit for a self-build mortgage. However, the deposit requirements can be far higher, with self-build mortgage lenders typically expecting a deposit of between 25% and 40%, and some asking you to put down 50% or more.

Are self-build mortgages more expensive?

Self-build mortgage rates tend to be higher than for a typical or equivalent loan-to-value (LTV) residential mortgage because of the extra risk involved to the lender, and fees are often higher as well. This is why many borrowers choose to remortgage to a lower rate once the house is completed (bearing in mind any early repayment charges and the cost of any new fees for the remortgage).

However, this doesn’t necessarily mean that self-build mortgages are more expensive overall. The costs involved in building your own home will often be less than if you were to purchase one that’s already built, which means the mortgage itself could be lower and the repayments smaller. You may also find that, once completed, the property is worth significantly more than the initial build cost, allowing you to remortgage to a lower LTV to save money for the long-term.

Are self-build mortgages hard to get?

Self-build mortgage lenders will each have their own specific requirements about who they’ll accept, and you will need to meet their affordability requirements in exactly the same way as you would for a standard residential mortgage. Ensuring you have a stable regular income, a good credit score and few to no debts will help towards being accepted for the best self-build mortgage rates available.

Should I speak to a self-build mortgage broker?

Given the niche nature of these products, it’s often recommended to speak to an adviser who specialises in self-build mortgages. That way you can be sure you’re getting advice that’s tailored to your unique requirements, while also giving you access to self-build rates that would be difficult to source elsewhere. Find out more about why you should use a mortgage broker in our guide, or speak directly to award-winning brokers at Mortgage Advice Bureau, our preferred mortgage broker.