How to finance your custom or self-build project
There is much uncertainty among banks and building societies about the difference between custom and self-build homes which can make it difficult to obtain finance for your project.
However with the custom and self-build market predicted to grow by 41% by 2020, according to The Self and Custom Build Market Report, the message is getting through to major banks and building societies. Both Virgin Money and Halifax now offer custom build loans from 80% loan to value, which should help towards providing the much needed help to get custom build projects off the ground.
If you are struggling to know where to start on financing your custom build project here is a quick overview of the options available to you.
Unless you are fortunate enough to be in a position to pay for your project outright or have a very generous family member who can loan you the money, you will most likely need to look to banks and building societies for a dedicated custom build mortgage.
You may be wondering what the difference is between a custom build and a standard mortgage and where you go about getting one. We have covered the basics below to help you know where to get started.
What is a custom build mortgage?
Custom and self-build mortgages are seen by lenders as carrying more risk as such they differ from standard mortgages in the following ways:
- Involve stage payments relating to set stages of the build
- This can be either at the end of stage, known as an arrears self-build mortgage or at the start of each stage, known as an advance self-build mortgage
- Interest rates are usually higher and may incur a penalty charge for early repayment
- Lenders will usually want to see detailed plans and a projection of costs
- The amount of deposit required is also higher, typically 25% but sometimes up to 50%
What do I need to apply?
In addition to all the documents and evidence you are expected to supply for a standard mortgage, a custom or self-build mortgage lender will also likely ask to see:
- Copy of planning permission
- Copy of detailed plans and total build cost projection
- Copy of building regulations approval, which you can get from your local authority building control
- Copy of site insurance and structural warranty, such as your LABC Warranty Certificate of Insurance
- Architect’s professional indemnity cover (if used)
- Credit report
Where can I get a custom build mortgage?
There are several lenders that offer custom/self-build mortgages with arrears or advance stage payment terms as described above.
Here is a list of the main providers. Please note that this is not an exhaustive list and inclusion here does not form any endorsement from LABC Warranty:
- Buckinghamshire Building Society
- Darlington Building Society
- Earl Shilton Building Society
- Ecology Building Society
- Furness Building Society
- Hinckley & Rugby Building Society
- Ipswich Building Society
- Loughborough Building Society
- Melton Mowbray
- Newbury Building Society
- Penrith Building Society
- Progressive Building Society
- Saffron Building Society
- Scottish Building Society
- Stafford Railway Building Society
- West Brom Building Society
What other funding is available for custom builds?
At the time of writing, there is no central fund available for self-builders in England. In Wales, the Self Build Wales scheme provides loans for eligible self-builders from the Development Bank of Wales, repayable once the project is completed.
Hopefully this information has helped give you the foundations for embarking upon your custom build project. Good luck!
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Please Note: Every care was taken to ensure the information in this article was correct at the time of publication. Any written guidance provided does not replace the reader’s professional judgement and any construction project should comply with the relevant Building Regulations or applicable technical standards. However, for the most up to date LABC Warranty technical guidance please refer to your Risk Management Surveyor and the latest version of the LABC Warranty technical manual.