Part Two of Our Self Build Series

by Mark Johnston

The number of new build and renovation projects started by would be home owners rose by a staggering 30% in 2008, although the credit crisis and recession has deterred self builders, with figures dropping to a mere 14,000 from 20,000.

Surveys have shown that many people like the idea of self build projects but when they actually look in to the work and commitment involved it does put a lot of them off. However in the current climate a self build project could bring a proper home with in many first time buyers’ budgets.

For those brave enough to take on a challenge, building their own home not only allows them to have their own property but it can also be a financial winner.

This route is worth thinking about, especially when considering that lenders have altered their lending criteria over the last 24 months and now borrowers are being asked for even higher deposits.

To go down the self build route borrowers only need a 15% deposit to purchase a suitable piece of land or derelict house. The good news does not stop there, if borrowers can secure a self build mortgage they can not only borrow 85% of the purchase price they can also borrow 85% of the build or renovation costs.

So for example with these mortgages a borrower can borrow up to £300,000 in total as long as the finished property value is not less than £453,000.

The number of mortgage lenders offering self build loans has however more than halved in the past 3 years, falling from 36 to just 15.

Financing a self build can be a major problem nut there are still some mortgage lenders willing to help.

The difference between a self build mortgage and a house purchase mortgage is that with a self build mortgage the money is released in stages as the build progresses rather than in a single amount.

There are 2 types of self build mortgages, traditional arrears based mortgage which release payments on completion of each stage, the stages are either fixed or flexible but there are usually 5 taking the project from foundations to the finished property. The other mortgage on offer is an advanced scheme which releases funds in advance of each stage of construction; however the latter is not widely available by lenders due to the risks involved.

In self build mortgages lenders may want to inspect each stage before releasing the next payment, this helps to protect them from throwing good money after bad if a project does start to go wrong.

All mortgage lenders who do provide self build loans will always ask for approximately how much the project will cost in total. Therefore borrowers need to budget carefully making sure all costs are covered such as land costs, professional fees, legal fees, building work and material etc are included.

Self build mortgages can be more expensive than a more conventional mortgage. For example Norwich & Peterborough building society (N&P) rate is 5.3% on a variable deal with a fee of £995 for self build whilst their rate for a discounted rate for a conventional mortgage is 3.1% with the same fee.

The rates of self build loans can range from 4.99% to 5.99% depending on how payments are staged. The loan size and the length of time borrowers lock in to the deal.

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