Self-Build Mortgages

A self-build mortgage is a specialised type of mortgage designed to meet the needs of those who wish to build their own home. These mortgages are often offered by specialist lenders, but many standard mortgage providers will also offer a self-build mortgage. Generally, you are required to hire professional designers and builders since most lenders will not accept your application if you plan to build the property yourself. There are two main types of self-build mortgage: standard (traditional) self-build and advanced flexible self-build.

• Standard self-build mortgages usually allow you to borrow up to seventy-five percent of the price of the land on which your property will be built, and around sixty percent of the cost of building. The money to purchase the land is usually paid to you immediately. However, with this type of self-build mortgage payments towards the cost of building are only made in installments, and only after certain stages of the build have been completed. For many people this leads to cash flow problems and means that they must pay initial costs for materials and labour themselves. To alleviate these problems, some people choose to take out a bridging loan to cover these initial costs, which they can repay when their mortgage lender's money is released to them.
  
  
• Advanced flexible self-build mortgages pay the installments to you before each stage of the building work commences, which means that you do not have to find alternative finance to cover initial costs. In addition, an advanced, flexible self-build mortgage usually allows you to borrow up to ninety-five percent of the costs you are set to incur, although you are usually required to pay a higher fee if you borrow this amount.
  
  

The advantage of self-build is that the final value of your property is typically worth around twenty five percent more than it cost you to build. In addition, you do not have to pay stamp duty land tax on the property itself, which means that you are only required to pay tax on the land you purchase. For example, if your plot of land is worth £150,000 and your property worth £550,000, you are only required to pay £1,500 stamp duty. Conversely, somebody who buys a property worth £550,000 is required to pay £22,000, since any property worth more than £500,000 attracts 4 % tax, in contrast to the one percent charged on amounts less than £250,000.