Financing your self/custom build project
For most of us, taking out a mortgage is the biggest financial commitment we will make. Hunting around for the best deal can be a daunting prospect even when buying a ready built home. When borrowing to build your own home, there are additional challenges that need careful consideration. Choosing the right mortgage provider is arguably more critical for self-builders as the lender will become a major partner, with a vested interest in the progress of your project
For most of us, taking out a mortgage is the biggest financial commitment we will make. Hunting around for the best deal can be a daunting prospect even when buying a ready built home. When borrowing to build your own home, there are additional challenges that need careful consideration. Choosing the right mortgage provider is arguably more critical for self-builders as the lender will become a major partner, with a vested interest in the progress of your project.
Unlike a traditional residential mortgage where a single advance is generally made on completion of purchase, self-build mortgage payments are released in stages. These staged releases reflect the progress and increasing value of the lender’s security (your new home!) from plot purchase to obtaining detailed planning consents and of course the build phases through to completion.
There are lenders out there, including Ecology Building Society, that provide tailored self-build mortgage products, and just as importantly, are familiar with how a self-build project needs to be assessed.
Here are our top tips to help you get the right finance for your self-build or custom build project:
1. Find a plot
Finding the right plot can be the most difficult part of any self-build. If you haven’t secured a site, as well as scouring development land sales in your target area, you can register with your local authority under the Right to Build schemes. Some lenders may be able to help you to buy your plot. Others will only provide support if you already have a plot to offer as security.
2. Cost and plan your build
Budgeting can make or break a project. Lenders will expect you to have full details of any building works you intend to carry out and will scrutinise your project cost estimates with a fine toothcomb, stress-testing to see how vulnerable your budget may be to unforeseen events. The more accurate your estimates, and calculations, the more likely you will complete your build without any crippling overspends.
3. Put your build team together
Choosing the right professional team if you are relying on third parties, including designers, manufacturers and builders is hugely important. Knowing what you want to achieve and finding a suitable plot is one thing – finding partners that can help you deliver it within your budget is another!
4. Think beyond bricks and mortar
We’re used to seeing new-builds emerge block-by-block. However, utilising modern methods of construction, such as the offsite manufacture of building components, can be both more cost-effective and speed up the construction process. Self-build specialists such as Ecology will usually welcome non-standard construction types which other lenders may not accept.
5. Consider energy efficiency
Investing in a ‘fabric first approach’ from the outset can help achieve a goal of a well-insulated, airtight house.
Options might include building to the Passivhaus standard, a leading proven methodology to deliver highly energy-efficient low carbon homes. Low energy consumption means lower bills and a more comfortable, healthier living environment. Ecology’s mortgages also incentivise energy efficiency by basing our mortgage rates on a property’s climate impact.
6. Plan for unforeseen events
Whatever your budget, include a healthy contingency of at least 10% of costs. Even the most meticulously planned projects often need more support than originally costed for. There could be delays on site leading to additional labour costs, increases in materials costs or changes in market conditions that could have an adverse impact on the value of your project over the course of the build.
7. Get planning permission
While you can usually apply for your mortgage based on outline permission, most lenders will need to see your detailed planning permission before releasing any funds.
8. Don’t leave your mortgage to the last minute
Approach the financing of your project as an integral part of the process at an early stage. Self-build mortgages tend to take a little longer to reach a conclusion. Applying for a mortgage at a late stage risks delaying your project.
9. Remember to get a warranty
Most lenders will insist you get a warranty from a recognised source, such as LABC.
Whatever your project, getting your head around the plethora of materials, products and standards out there can seem pretty challenging. However, the benefits to self-builders can be significant with the opportunity to design and build your unique dream home at a budget and finish to suit you. By factoring in your finance requirements from the outset, you may well find that your mortgage lender becomes a valued partner in the self-build process. Best of luck!
Case study: A family self-build project in Sheffield
Ecology helped support a family (husband and wife, and her mother) who wanted to pool their resources to achieve their collective vision of a more sustainable way of living by building an energy-efficient home.
It took three years for them to find a suitable plot, a former country club, which had fallen into disrepair and been damaged by fire.
The family formed a trust to purchase the site - one of the challenges was finding a lender who was prepared to lend to a trust of three people (one retired) and on a large self-build plot.
Having purchased the site and demolished the derelict building, the couple moved into temporary on-site accommodation in 2013. They all finally began living in their new home in 2016. In between, there was a huge amount of work to put in – but they remained focused on what they wanted to achieve.
With an emphasis on sustainable materials and technologies, the warm, draught-free house is now close to Passivhaus standard. It includes recycled building materials, wood-fibre and newspaper insulation, and wooden and cork framed triple-glazed windows throughout. The works also included the removal of large areas of non-permeable ground cover, as well as installing a rainwater storage system.
The water that’s collected is used for washing machines and toilets, as well as irrigation of the fruit and vegetable beds. The build also incorporates renewables including solar thermal and PV panels as well as a log batch boiler.