How to finance your self-build home

There is plenty to keep in mind when financing your self-build. Land purchase to stamp duty, solicitor fees, search fees, architects and project managers to insurance, furniture and furnishings. So how are you going to fund all of this?

Personal finance/savings

Wouldn’t we all love to have a large pot of cash at our disposal to fund the construction of our home. Some self-builders are lucky enough to have saved a sizable amount over a number of years or have received a lump sum through inheritance.

Sell your home

Many self-builders sell their current home and live in rented property or on site in a caravan. Some choose to live with family members during the build. You can take equity from your current home to fund your self-build. If you find you don’t have enough equity you can also take out a self-build mortgage to supplement the rest.

Self-build mortgages

Self-build mortgages are very different to house purchase mortgages. Rather than receiving a large lump sum from a lender, a self-build mortgage is released in stages – from buying the materials to decorating your home.

There are several lenders that offer mortgage funding and finance with arrears or advance stage payment terms. It is wise to obtain a range of quotes and see which one is most suitable for your project and your requirements. Interest rates are usually higher and a penalty charge may apply for late payment. Check carefully about the availability of stage payments, and at what points these can be collected - this can be critical for your cash flow. You need to ensure that you have sufficient funding available to complete the stage requirements. Check what, if any, arrangement fees are charged.

One of the benefits of building your own home using a self-build mortgage is that you could save yourself thousands of pounds in stamp duty. There is no stamp duty on the cost of the building work, or the value of the property once the work has been completed. Stamp duty is applied to the cost of the plot of land itself - if the cost exceeds £125,000. Do note that mortgage offers vary.

Valuation fees

Do bear in mind that mortgage lenders will conduct a survey and valuation of your land for their own records and, even though they charge you for this you will normally find that this valuation is not passed on to you. You may therefore also wish to have an independent valuation carried out by a professional surveyor for your own use and purposes. Mortgage lenders will normally also charge you for each re-inspection and valuation as the different stage payment points are reached. As there can be quite large variations between different lender's charges, you should seek information about these before deciding whose mortgage offer may be most suitable.

Remortgage your home

Interest rates charged on self-build mortgages are much higher than regular ones so it may make sense to remortgage your existing home. You will need a significant amount of equity in your home to make this work but do watch out for early repayment charges (ERCs) to pay.

The information in this article is unbiased and should not be taken as advice. We recommend seeking independent advice regarding self-build finance options.