Building your dream home is a lengthy and sometimes daunting process, and finding the financial backing which is right for you can seem impossible. Newbury Building Society has created this guide, which could help make financing your ideal home a reality, by increasing your understanding. When you are thinking of starting a self build, a mortgage should be one of the first places you start. It is essential that you shop around to find the mortgage that suits your needs.
What is the difference between a self build mortgage and a regular mortgage?
A self build mortgage is almost identical to a regular mortgage; the main differences are the repayment methods and the monthly payments. Similar to other mortgages the repayment type can be either interest only or a combination of capital and interest, however with a self build mortgage the monthly payments are made in stages. There are two types of stage payments: the arrears type, when the payments are due as each stage of the build is reached, and the advance type, when the payments are given at the start of each stage of the build. The payments must also take in the land purchase stages.
Arrears type stage payments are released after a stage is completed and a surveyor has made an interim valuation. This can cause cash flow issues and it is recommended that you retain a cash buffer or take out a bridging loan to make payments when they are due. There will also be stage inspection which will involve additional fees. Newbury Building Society provides this payment format.
Newbury Building Society could lend up to 75% of the property’s value at each of the following stages:
- Stage 1 Foundations complete (DPC Level)
- Stage 2 Walls up (to the top)
- Stage 3 Roof fully tiled
- Stage 4 Plastered out
- Stage 5 Fully complete
The advance type means cash flow will be improved, and funds are available for payments when you need them. There is a small increase in risk for the lender using this method, therefore there may be additional fees applicable. Newbury Building Society does not provide this payment format.
What fees do I have to pay?
Depending on whether you apply for the mortgage through a Broker or if you go directly to the Bank or Building Society, there will be a slight difference in the fees you pay. If you use a Broker there may be a Broker fee, otherwise there will be similar fees to when you apply for a regular mortgage. These fees include an application fee, completion fees and a valuation fee. If you prefer to use the arrears type mortgage an interim valuation is required at each stage before the funds are released, which may incur additional fees. You could choose to use the advance stage mortgage instead, where an interim valuation is not required, however there are additional costs involved when requesting the money in advance. These costs vary depending on the lender.
Early Repayment Charges?
Unless you are requesting development finance, Early Repayment Charges (ERC’S) will always be present when taking out a self build mortgage. Some lenders may be happy to transfer your mortgage onto a full residential product, when the build is complete without imposing the ERC. This is only applicable if you are going to another product with an ERC equal to or greater than the one you are leaving.
Which documents do lenders require with my application?
Use this checklist to confirm you have everything you need before applying for your mortgage.
- Planning permission
- Building regulation approval
- Plans and specification
- A full set of build costs
- Insurance documents
- The build must come with a relevant warranty and/or be supervised by a qualified architect
- Contact details of your Builder and their qualifications
Please note, this list could vary for each mortgage provider, and should only be used as a guide.
Pop into your local Newbury Building Society branch or call 01635 555777 to arrange a mortgage appointment today. Visit www.newbury.co.uk for more information.