Self-Build Mortgages:
What You Need to Know

Self-Build Mortgages

If you’re planning to build your dream home, a self-build mortgage can help you finance the purchase of land and cover construction costs. In this guide, we'll explain how self-build mortgages work, whether you can use one for land you already own, and how lenders release funds throughout the building process.

What is a Self-Build Mortgage?

A self-build mortgage, also known as a construction mortgage, is a loan designed specifically for people looking to buy land and build their own home. Unlike a regular mortgage, which covers an already built property, a self-build mortgage provides funds in instalments to support each phase of your home’s construction.

Can You Get a Self-Build Mortgage to Develop on Land You Own?

Yes, if you already own land, you can still apply for a self-build mortgage to finance the construction. Owning the land may even improve your chances of getting a mortgage, as it reduces the total loan required.

How Much Will You Need to Borrow?

Lenders generally cap self-build mortgages at around £3 million. You’ll typically be able to borrow up to 60-70% of the estimated value of the completed property. If you already own the land, some lenders may allow you to borrow up to 80% of the building costs.

How a Lender Releases the Finances

Self-build mortgage funds are released in instalments as each construction phase is completed. These stages might include land purchase, foundations, eaves height, and final completion. The funds can either be released in advance at the start of each phase or in arrears after each phase is completed.

Things You Should Consider

Before applying for a self-build mortgage, make sure to consider the following:

• Land suitability: Ensure the land is ready for construction with a chartered surveyor’s report.

• Planning permission: You need at least outline consent from your local authority before applying for a mortgage.

• Architect and builder: Have detailed plans and a reliable construction team in place.

• Construction type: Unconventional designs may limit your lender options.

How to Get a Self-Build Mortgage

To increase your chances of approval:

1. Prepare a solid project plan with detailed architectural designs and timelines.

2. Check your credit report for any inaccuracies.

3. Work with a mortgage broker to find lenders that specialise in self-build mortgages.

Lenders Available

Many mainstream lenders, such as Barclays and HSBC, do not offer self-build mortgages. However, lenders like Halifax, Ecology Building Society, and Scottish Building Society do provide self-build options. Each lender offers different terms, so it's essential to consult a specialist. Some deals will be “Broker Only”.

Eligibility Criteria

Self-build mortgages usually require a larger deposit, with loan-to-value ratios ranging from 60-80%. The construction timeline, property type, and your financial circumstances also play a significant role in determining your eligibility.

Alternative Financing Options

If a self-build mortgage isn’t suitable, you might consider remortgaging your existing property, applying for a Help to Build scheme, or using bridging finance to cover short-term construction costs.