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What You Should Know About Self-Build Mortgages

by | Feb 10, 2024 | Uncategorized | 0 comments

Have you ever caught yourself daydreaming about building the perfect home from scratch? The idea is enchanting but stepping into such an adventure requires more than just dreams—you need a solid financial foundation to bring those dreams to life. This is where The Mortgage Clinic Ormeau Road Belfast comes into play, offering a beacon of hope with self-build mortgages. 

These specialised financial solutions are designed for those looking to construct their own home. But what exactly is a self-build mortgage, and how do you secure one? Join us as we delve into the details of how these mortgages work, explore their risks, and discuss what you should consider before applying, all through the expert guidance of The Mortgage Clinic Ormeau Road Belfast.

Understanding Self-Build Mortgages

A self-build mortgage isn’t your typical home loan. It’s designed specifically for individuals embarking on the journey of building their home. Unlike standard mortgages that hand over a lump sum, self-build mortgages release funds in stages, matching the progress of your construction. This unique approach not only helps manage your cash flow during the build but also aligns with the lender’s interest in minimising risk.

You can expect to receive the initial payment to secure your land, followed by subsequent instalments at key construction milestones—laying the foundation, reaching the eaves level, making the roof watertight, and finally, on completion of the build. This phased funding method ensures you have the financial support you need at every stage, without the worry of running out of funds mid-project.

At The Mortgage Clinic Ormeau Road Belfast, we understand that every homebuyer’s journey is unique, which is why we offer personalised mortgage advice tailored to your individual needs.

Navigating the Types of Self-Build Mortgages: Which One Fits Your Project?

When it comes to self-build mortgages, it’s not a one-size-fits-all situation. There are two main types to choose from, each with its own advantages and considerations: the arrear type and the advance type.

Arrear-Type Self-Build Mortgages

With this more traditional option, funds are released after you’ve completed each stage of the build. This means you’ll need to cover the initial costs—think buying materials and paying your builders—out of pocket or with short-term loans. While this method keeps you on your toes, ensuring you manage your budget efficiently, it requires a significant amount of upfront capital or borrowing.

Advance-Type Self-Build Mortgages

If cash flow is a concern and you’d prefer to have funds available upfront, an advance-type mortgage might be the way to go. Here, the lender provides the money at the beginning of each stage, giving you immediate access to the funds you need. This flexibility, however, often comes at a cost, including higher interest rates and potentially a premium policy. It’s worth noting that this option is less common, so you might have to do a bit of hunting to find a lender that offers it.

Choosing between an arrear and advance mortgage depends on your financial situation, your project’s cash flow needs, and how comfortable you are with managing construction finances. It’s a decision that shouldn’t be taken lightly, as it will impact how you budget and finance your project from start to finish.

Figuring Out How Much You Can Borrow for Your Self-Build Dream

Diving into a self-build project is thrilling, but before you get too carried away with your blueprints and swatches, it’s crucial to understand just how much money you can actually borrow. Lenders won’t simply hand over a blank check—they’ll want to ensure that any amount they lend you is within your means to repay. Typically, lenders offer up to 4.5 times your income for individual applicants. For joint applications, the amount can vary, often up to 3.5 times the combined income, or sometimes up to 4.5 times the higher income of the two.

But here’s the thing: each lender has their own set of rules for figuring out how much they’re willing to lend you. So, if one door closes, don’t lose hope—another lender might just say yes. It’s all about finding the right fit for your financial situation.

With access to a wide range of lenders, our mortgage advisors at The Mortgage Clinic Ormeau Road Belfast can help find the best mortgage deal for you, tailored to your financial situation and goals.

The Price Tag of Pursuing a Self-Build Mortgage

While a self-build mortgage can be your ticket to creating your ideal home, it’s important to be mindful of the costs. Interest rates for these mortgages can be on the higher side, sometimes reaching up to 7.5%. That’s why it’s essential to take a good look at your finances and make sure you can handle the repayments without stretching yourself too thin.

Before you commit to anything, take a moment to consider all the costs involved—not just the interest rates but also any fees and charges that come with the mortgage. It’s not just about being able to afford the mortgage; it’s about ensuring it fits comfortably within your budget, allowing you to build your dream home without financial strain.

Key Considerations Before Embarking on Your Self-Build Journey

Embarking on the self-build path is exciting, but it’s also a journey filled with important decisions. Before you dive in, here are some crucial factors to ponder to ensure your project is as smooth and successful as possible.

Budgeting Beyond the Blueprint

Your dream home isn’t just about the structure itself; it’s also about the land, the design, and all the little details in between. Start with a clear plan that includes the cost of the land, design fees, planning permissions, and a detailed construction budget. It’s wise to add a buffer of at least 20% to your estimates to cover unexpected costs. Lenders will appreciate this level of planning, and some may even require a professional assessment of your budget to ensure feasibility.

Where You’ll Call Home During Construction

Building a home doesn’t happen overnight, and you’ll need a place to stay in the meantime. Whether you’re renting or making other temporary arrangements, consider how this will impact your budget and mortgage affordability. Some lenders may adjust their calculations if you’re able to prepay your rent or demonstrate that your temporary living costs won’t affect your ability to cover mortgage payments.

Choosing the Right Construction Method

The materials and methods you choose for your build not only need to comply with Building Regulations but also meet your lender’s approval. Before finalising any contracts with your builders or suppliers, confirm that your lender is on board with your plans. This ensures that everything from your construction technique to your payment schedule aligns with their requirements.

By taking these considerations into account, you’re not just planning for a house; you’re laying the groundwork for a home that meets your dreams and financial realities. Banks and building societies are often eager to support residential construction projects, so with the right preparation, there’s no reason your self-build project can’t become a reality.

Dreaming of building your own home? The Mortgage Clinic Ormeau Road Belfast specialises in self-build mortgages, offering the support and knowledge you need to turn your dream into reality.

Helmut Elstner

Managing Director – Independent Mortgage Broker and Insurance Advisor

Helmut started working in financial services in early 2012 and founded The Mortgage Clinic in Belfast in early 2015. He specialises in all types of mortgages from First Time Buyer, Co-ownership, Self Build, Home Movers, Remortgages, Debt consolidation, to Buy to Let.

Three Best Rated Winner 2021
Winner Mortgage Broker of the year 2020
Top Rated Advisor 2021 on Vouchedfor