Financing a Self Build Mortgage

Taking the plunge and making the leap into a self build project and acquiring a self build mortgage will test the very best of us. There’s a lot to consider and questions will be raised. Questions which mainly surrounding the topic of finance. And questions that will need answering.

Given that, we’ve compiled a common list of questions about self build mortgages, to give you an idea of what to expect:

How much cash or capital will I need to raise to secure a self build mortgage?

If you’re wealthy enough, you can finance the whole project through your assets and cash input. But, more than likely, you’ll need a self build mortgage, so that you can borrow money upfront and throughout. Mortgage brokers advise a minimum of 25% of the cost of the plot and the build, plus an extra 10% for emergencies or unforeseen issues. A typical example would be £97,500 for a £350,000 build. The more money you have, the easier your application process should be, and the easier your project should flow. However, it is possible to secure a self-build mortgage at a lower rate; you just have to enquire and hope the mortgage broker appreciates your individual circumstances.

What’s the minimum deposit needed for a self build mortgage?

Currently, a self build mortgage can be approved with a 15% deposit of the land and build costs. It’s important to do your calculations beforehand, as your plans and finances will be scrutinised. It’s important to have the cash in your bank as evidence to a mortgage broker. Some brokers will consider your assets to borrow against, but most prefer concrete cash.

How much can I borrow for a self build mortgage?

Each lender will have their own criteria, and methods, of assessing an individual’s finances. Usually, they will calculate a total of your monthly outgoings, from rent, loans, credit cards and bills to childcare costs and personal purchases. Next, they will multiply the total amount by 12 to achieve an annual cost, deduct it from your singular or joint incomes and multiply it once more by around 4, to give a rough indication of how much you can borrow.

How can I source cash for a self build home?

The most obvious starting point would be to utilise your own savings. The more cash you can put in, at this initial stage, without off-selling any of your assets or properties, the better. Alternatively, you can raise extra capital through equity. By selling your home, you can free up that much needed cash. The rest is usually made up through borrowing, either from friends or family or a mortgage provider.

How much interest will I have to pay on a self build mortgage?

Obviously, this will vary depending on which lender you choose and the deal you secure but, generally the interest rate will fall somewhere between 5-6%. The overall amount you pay back is determined by the size of your mortgage and the length of its term. It can also be determined by the type of mortgage product you choose like an interest only mortgage, for example.

Will I need to detail my build costs?

Definitely. There’s no use in having a rough figure in mind. It requires a certain level of research, planning and preparation to even be considered for a self build mortgage. Having a clear idea will help you hugely throughout the process and give you a clear focus and strategy.

How will my funds be released?

Your lender will release your money at different stages throughout your self build project. Whether it’s an Arrears mortgage or an Advanced mortgage, you can discover more here.

For further advice and information about self build mortgages, read our self build mortgage guides. Alternatively, you can speak to one of our friendly advisors Monday - Friday 9am - 8pm.

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Representative Example

A mortgage of £150,000 payable over 17 years, initially on a fixed rate of 2.44% until 31/12/2022 and then a variable rate of 3.59% for the remaining term, would require 25 payments of £899.04 per month and then 179 payments of £973.58 per month. The total amount payable would be £198,466. Includes Lender Fee of £995 and Broker fee of £695.

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