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Self-build and renovation mortgages are growing in popularity, as more people choose to create and construct their dream homes.
You don’t need a background in building or construction – just the persistence, passion, and money to see your project through.
How do self-build mortgages work?
With a self-build mortgage, funds are generally released in stages as the project progresses, rather than in a lump sum, to ensure you don’t run out of money halfway through.
As a guide, there are often six stages:
- Buying the land.
- Initial project costs and laying foundations.
- Construction to wall-plate levels (and timber frame erected if appropriate).
- Building made wind and watertight.
- First fix and plastering.
- Second fix through to finish of the build.
Key features to look for with a self-build mortgage:
Not all self-build mortgages are the same, so it’s important to consider your needs. Here are some things to think about:
- Can you borrow to pay for the land?
- Do you need stage payments in advance?
- Are there any incentives for investment in energy-efficient features?
- Do you need the mortgage on an interest-only basis during the build?
- Can you transfer to a standard mortgage at the end of the build without incurring early-repayment charges?
Top tips for self-builders
Always work with a contingency (back up) fund – at least 10% of your overall budget.
Choose a lender with experience of this type of specialist lending and who offers a personal service.
Be clear about your expectations. You may be building your forever home or creating something to sell in the future for profit. Remember you can reclaim VAT on many of your materials, giving you 20% back on allowable costs.
Choosing to self-build can often result in a house that’s substantially cheaper than an existing property. To start with, stamp duty should be low as tax is due only on the cost of the land – not the value of the completed house.
If you’re looking to renovate instead, you can benefit from the same stamp duty and VAT incentives.
If you want to learn more about mortgages for self-build and renovation, Melton Mortgage Solutions mortgage advisers can help you.