Self Build Mortgages: Crafting Your Home, Crafting Your Finance
Important Considerations: Before delving into the intricacies of self-build mortgages, it’s crucial to understand the associated risks. Securing debts against your home is a substantial commitment, and failure to maintain repayments could lead to repossession. It’s important to note that certain mortgages, like commercial Buy-to-Let (BTLs), are not regulated by the Financial Conduct Authority (FCA).
Understanding Self Build Mortgages: A self-build mortgage is a unique financing option where funds are released in stages as the construction progresses. The process typically involves the following key aspects:
- Land Purchase: Some lenders may provide funds, typically up to 75% of the land purchase price or value (whichever is lower).
- Staged Funding: Funds for the construction are released in stages, usually six stages determined by the build progress.
Release Methods: There are two primary methods for releasing funds during the build:
- Arrears Stage Payments:
- Money is released after a valuer confirms the completion of each construction stage.
- Potential drawback: This method may lead to cash flow difficulties for self-builders.
- Advance Stage Payments:
- Money is released at the beginning of each construction stage, before work starts.
- Popular choice: This method provides positive cash flow during the build, facilitating easier residence in your current house.
Build Stages Variation: The specific stages of a build vary based on the type of construction:
- Traditional (Brick and Block House):
- Common stages may include foundation, superstructure, roof, first fix, second fix, and completion.
- Timber Frame Construction:
- Stages may involve frame assembly, cladding, roofing, internal work, completion, etc.
- Renovation or Conversion:
- The stages depend on the nature of the renovation or conversion, involving structural changes, refurbishment, and completion.
Decision-Making for Positive Outcomes:
- Detailed Planning: Comprehensive planning is crucial, considering both the financial and construction aspects of the self-build.
- Cash Flow Management: Understanding the implications of the chosen funding release method on cash flow is vital.
- Choosing the Right Lender: Selecting a lender that aligns with your specific self-build needs and preferences is a key decision.
Final Warning: Securing debts against your home requires careful consideration. Repossession remains a real risk if repayments on the mortgage or other secured debts are not maintained.
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.Please note that some mortgages such as commercial BTLs are not regulated by the FCA.