Some people appreciate the charm of older second-hand properties, while others prefer the mod cons of a pristine new build. However, many people dream of having a completely custom house that they’ve designed themselves, rather than having to adapt someone else’s design to their needs.
If this is you, and you’re interested in self-build houses, you might be wondering how financing would work for such a project. Without having money from savings, family wealth, or selling assets, you’ll need a loan to fund your self-build – with the most likely option being a mortgage from a bank.
The issue is that a standard residential mortgage won’t apply. So, what can you do to get a self-build loan? Let’s look into self-build mortgages to see how they could help you to achieve your dream of building your own house, and whether or not this type of mortgage requires a structural warranty.
How do self-build mortgages work?
As you’re probably aware, standard mortgages are typically released as a lump sum when a new build is completed. The process is different for self-build mortgages, as your eligibility and the final contract will depend on the specifications of your project. For example, do you need the loan to purchase land to build on, or do you already own the plot and only require financing for the house?
Similarly, factors such as the level of professional involvement will affect your chances of getting a mortgage. While you can have some say in the design and construction, the bank will want to know that someone qualified is responsible for the planning and building. Unless you’re an experienced architect or builder yourself, hiring contractors with reliable credentials will boost your eligibility.
The next issue is the construction loan format. When a lender provides a mortgage for a residential construction project, they can offer an advance loan or an arrears loan. If you receive mortgage payments in arrears, this means you’ll have to pay for everything upfront yourself before receiving the payment at the end, which isn’t viable for most people applying for a self-build mortgage.
However, advance stage payments allow you to fund each stage of the build one at a time as it progresses. Receiving the mortgage loan in instalments can be helpful for keeping the project on track with regards to both timescale and budget. It also helps with ensuring that construction is adhering to the plans and building regulations, as each stage will have to pass formal inspections.
Do you need a structural warranty for a self-build mortgage?
When you purchase a new build home, the developer will typically have taken out a structural warranty that then passes to the buyer along with the property. This type of insurance is a back-up against faulty construction, protecting you financially against the cost of repairing structural defects.
You should also take out a structural warranty for a self-build home – but as it’s your project, either yourself or the appointed head contractor will be responsible for this step. Since lenders will be more cautious about providing money for a house that hasn’t been built yet, your best chance of getting a good deal will be to have every plan completed and all insurances in place before applying.
Having a structural warranty as part of your comprehensive mortgage file can only strengthen your application, as it reassures the bank that their investment will also be protected against structural problems. Whether you’re building on empty land or converting/renovating an existing structure, there’s sure to be a suitable self-build structural warranty for your construction and property type.
Be sure to get the guarantee of structural safety compliance and reduce the risk of structural failures by setting up a structural warranty before construction starts, especially if you need to secure a self-build mortgage before you can begin. Whichever route you go down, we wish you the best of luck!