5 Ways to Fund Your Custom Self-Build Project
- Francesca Baccarella
5 minute read...
Finance has such a big impact on the success of your build so it is important to get it right. The most successful custom and self-build projects are those that have been planned well from the start and this means knowing your budget and understanding your borrowing options early on.
The most common funding option is a loan from specialist lenders such as specialist building societies and banks. The best loans are ones that have payments matched carefully to your build costs such as the ones offered Ecology Building Society or Buildstore. For many high street lenders, the idea of funding something that is yet to be built is something they won’t consider.
There are two packages typically offered by lenders specifically for custom and self-builders. These packages are defined by when funds are released during the build, either in arrears or advance and are tailored to suit both your income and the stages of your project. This can be useful for example, if you are using a timber frame supplier who will need full payment before the structure is delivered onsite, meaning you need the cash to pay for it upfront.
Some people believe that it is difficult to mortgage a timber frame or SIPS build system property however these are actually regarded as standard construction methods by lenders.
The criteria for lending may be more restrictive when it comes to the material used for the outer skin of the property, as this is what protects it from the elements and is key to its visual appeal. Lending criteria does vary between lenders, so it’s always important to speak with an expert mortgage adviser before deciding on your construction method, to ensure that you are able to get a mortgage.
It’s possible to borrow up to 95% of your plot and build costs with some lenders, and if you already own your plot, it may be possible to borrow up to 100% of your build costs. The soon to be released ‘Help to Build’ loan scheme will make it easier to build your own home with just a 5% deposit. Read more about this initiative HERE.
1. Custom and Self-build Mortgages
These mortgages are different from traditional mortgages as the money is released in stages rather than as a single payment. Interest rates can typically be higher than a traditional mortgage. Though, using a custom build company like Stellco Homes, whereby the lender attaches less risk to the build process, they can offer more competitive rates.
For a custom and self-build mortgage application, you will need to provide plans and a breakdown of your build costs, including your plot cost. You will typically be able to borrow 85% of the land and build costs which means you will still need to find a way to finance the deposit and pay for the initial build costs.
How much you can borrow will of course ultimately depend on your overall finances as the lender will decide what you can afford based on your income and outgoings.
Interest rates on a self-build mortgage can be higher than standard house purchase interest rates as they are providing you with a development loan. These rates can typically vary from 3-5% per annum. Be patient as loan applications can take some time to be agreed so make sure to factor that into your schedule.
2. Re-mortgage your existing home
If you have enough equity in your current home or own it outright, you could re-mortgage or secure a bridging loan to pay for the plot, fund your build costs or both. Then when your new home is finished, you can sell your old one to pay off the loan. This way you can stay in your current home during the build and avoid the upheaval of moving, living onsite or renting during the build. Be careful, though, bridging loans tend to be more expensive.
This funding option can be cost-effective because the interest rates will be lower than a custom and self-build mortgage as long as there are no early repayment charges (ERCs).
3. Sell Your Existing Home
You may wish to consider selling your existing home if you don’t mind staying in temporary accommodation. This may mean living in a rental property, staying with family or living in a caravan on site. All of these options may have to be factored into your overall budget to save costs to ensure you can afford the home that you want. This can be a great way to free up some spare cash however you may not get enough from selling your house alone but it can be a good option to supplement a loan.
4. Cash
If you’ve been fortunate enough to have saved up a lump sum over the years or you have suitable investments or access to private pensions, then cash is by far the best option to fund your home as it gives you the best flexibility.
Family and friends can also be a good source of funding and could cost a lot less! With current very low interest rates, they may be happy to get a better return. Alternatively, mom and dad can help with providing security on their home for you to obtain a more competitive loan. A self-build project is a great investment as it is more than likely your finished home will be worth more than you spent on it.
Which-ever way you choose to fund your project, it is likely you will always need a substantial sum of cash either way.
5. Custom Builder Funded/Assisted
As a final option, your custom builder could help by taking out a loan for you using your existing property to provide as security or other options.
Loan Requirement Stage Payments
As a guide, we've outlined the typical stage payment cycle below. The actual percentages may vary depending on the individual project and type of construction.
Build Stage
| Plot Purchase | 100% |
Build Costs
| To complete foundations inc. timber frame | 32% |
| To erect the timber frame | 14% |
| To complete wind & watertight | 11% |
| To complete 1st fix & plastering | 23% |
| To complete the build | 21% |
| Total Build Cost | 100% |
When it comes to funding your custom or self-build, it’s important to speak with an expert mortgage adviser who can look at your financial circumstances and project requirements to recommend and tailor a borrowing solution to suit you and your new home.