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Self build mortgage

When looking for your ideal home, the best way to find a house with all the features you want can sometimes be to build it yourself.

A self build mortgage will allow you to do exactly this and provide the funds you need to create the home of your dreams. You can even save on costs like stamp duty when compared to buying an existing property.

It is exciting to be involved in building your own home from the ground up, but it can be very stressful without help and guidance. It can also be difficult to find the right deal for this type of mortgage unless you speak to a broker with the right background.

Good advice from our self build mortgage specialists can be key to making sure you get the best mortgage terms and don’t waste time applying to the wrong lenders.

In this section (self build mortgage):

A self build mortgage is specifically designed to fund the building of a house or property. This is a more specialised mortgage type, as it works slightly differently to a traditional mortgage.

You may be an experienced builder planning to build the property yourself or intending on hiring a contractor or business to complete the work for you. Whichever way you intend on your home being built, we can help you find the right lender willing to offer a self build loan.

You will also need to have planning permission in place, as this proves you are in a position to be able to move ahead with the project.

Getting advice from an experienced broker can help you save thousands on your mortgage. With many expenses to consider during the building process, this saving can make a massive difference.

How do self build mortgages work?

A self build mortgage does not work in the same way as a typical mortgage deal. With a traditional mortgage you will apply and once approved will receive a lump sum to cover the full amount of the loan.

With self build mortgages money is released at each stage of the build, at specific points during the construction process. This is because if lenders provided all the funds up front and you then go over budget, this could leave you more likely to fall into debt and default your repayments.

The lender also usually would have the option of repossession if the borrower were unable to repay. They cannot repossess a property that does not exist due to the build not completing.

Multiple smaller payments reduce the risk for lenders, as this helps ensure the money is spent as planned at each stage. Although when you receive payments can vary from lender to lender, often you will receive payments at each of these stages:

  • A payment when buying the land
  • When the foundations are in place
  • When the walls are in place up to roof level (eaves height)
  • The walls are plastered, and the roof is watertight

Self build mortgages: how much can I borrow?

How much you can borrow and the income multiples available to you will vary no matter which type of mortgage you apply for.

There are several factors that lenders consider when deciding whether they will loan to you and how much they will allow you to borrow. Lenders will look at factors such as:

  • Your occupation (are you employed, or self employed?)
  • If you are self employed, can you evidence your income? (via SA302s for example)
  • Your credit score/history
  • Your deposit amount (loan to value)
  • Any other large outgoing expenses (e.g. other mortgages or debts)

With a mortgage for a self build property, lenders will be particularly interested in your outgoing expenses. You may need to pay for rent on another property alongside your mortgage during the building process.

Types of mortgage self build

There are two types of mortgages available when building your own property. These are:

  • Arrears: you receive a payment after a build stage has completed. This is the type usually offered and you will need to prove how much the building stage cost via receipts/invoices, with the mortgage payment acting as reimbursement.
  • Advance: you receive a payment at the start of each building stage, to fund buying materials etc. This can be useful if you do not have funds available to pay for building costs upfront.

You can take out a self build mortgage for many reasons. You may be building as an investment, with the intention of renting the new property out. This is possible as there is no restriction to say what you do with the property once the build is complete.

Self build mortgage already own land

You may already own a plot of land whether through an outright purchase, inheritance or another reason. It is still possible to get a mortgage to fund a self build project without also needing to buy the land.

This is similar to how you can remortgage a property you already own to fund renovations or improvements.

Find the best self build mortgage

The best way to find the self build mortgage offering the terms you need is to speak to a specialist broker.

Self build mortgages are not as commonly found and can be complicated to arrange, so it is important to get advice from a broker with the right background and experience. Standard banks and building societies are less likely to offer this mortgage type. An experienced broker can help you find a specialist lender better suited to your needs for your mortgage application.

Our specialist brokers have access to hundreds of mortgage deals with over 50 of the UK’s top lenders.  This allows us to compare and assess what is available on the market and pair buyers with the perfect self build mortgage providers for their needs.

Self build mortgage rates

Often, you may face higher interest rates with self-build mortgages. This means it is especially important to consider the various interest rate types available and which will be the most suitable choice.

There are 4 types of interest rate available for mortgages:

  • Fixed rate: the interest element of your mortgage is fixed for a set time period (usually 2, 5 or 10 years)
  • Variable rate: the interest you pay can change if the lender increases or decreases its standard variable rate (SVR)
  • Tracker rate: the interest rate you pay will track the Bank of England (BoE) base rate and adjust to this
  • Discount rate: sometimes lenders will offer a discounted interest rate for a set amount of time to encourage borrowers to choose them for their mortgage

Our mortgage experts can help you assess each interest rate type, and which may be the best fit for your mortgage. Depending on your circumstances, you may even choose to take out a mortgage that is interest only.

This means you only repay the interest element of the loan every month and repay the full amount at the end of the mortgage term. This can be particularly useful if you plan on renting out the property you are building.

Income only repayments will keep monthly costs low and if you manage your rental income well you can use this to repay the capital. If building a home you intend to live in, you may decide capital and repayment is a more appropriate choice.

Our brokers can advise you on the benefits of each option, so you have all the relevant information you need to make the right choice.

Can I get a mortgage for self build if I am self employed?

Self employed mortgages can present additional questions and challenges but can still be found through many brilliant providers.

Some of these lenders will be better than others for self build properties for people who are self employed. We are experts in helping people who are self employed or have complex incomes choose the right lenders for the property type and mortgage type they need.

Can I get a mortgage for self build if I have bad credit?

If you have a poor credit history, you may be worried that this will prevent you from getting a mortgage. Missed payments and debts can happen and often it is not your fault.

Self build mortgages are still available if you have a poor credit history, as long as you approach the right lenders that are best suited to this type of mortgage.

We have a number of great mortgage providers on our panel that specialise in mortgages for people with credit issues.

Specialist self build mortgage brokers

Our team of highly skilled brokers can do an extensive self build mortgage comparison, to help you find the best mortgage deals available.

Building a home is a big financial commitment and with a lot of work involved, mistakes can cost you. It is important to get advice from an experienced broker you can trust.

We know all the possible issues that can be faced with self build mortgages and aim to make the process easier for buyers in any way we can. Our team will work tirelessly to help you get the right mortgage sorted and in place quickly and efficiently.

Useful resources

Build It – 10 steps to your dream home

Homebuilding & Renovating – Self build: The A-Z of building your own home

Gov.uk – Building a new home and VAT

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