How do I get a custom build mortgage?

Traditional high-street lenders will only allow you to borrow on properties that are completed and habitable, so you will have to look elsewhere for funding if you don’t have cash assets to fund your custom or self-build (CSB).

First, here are some things to consider about your project:

What type of CSB project is it?

• Plot only & self-build
• Golden brick
• Shell
• Shell + basic fit out

What is your financial situation?

• Are you renting or staying with family?
• Do you own your own home?
• Do you have a mortgage on your home that you need to port over?
• Do you plan to sell your home to fund the new purchase?
• If you sell your home, how much equity do you have? Will this be enough or do you have savings?
• What if you can’t sell your home, how will this impact on your finance plans?

What is your practical situation?

• Where will you live during construction? The property will not be ready or suitable to move into for a period of time until completion.
• If you sell your home before you can move in, where will you stay in the interim? How will you pay for this?
• Do you have to give notice on your rental property? How will that work with your move-in date?
• What about your furniture – will there be storage costs?
• Do you want to/can you move into a partially completed home, whilst continuing to build?

Developments can be delayed, sales can go wrong, and it may cost more than you think, so make sure you’ve considered these questions in your project plan.

Additional costs for storage, renting property, ending contracts early, or bridging loans if you cannot sell your property in time, should all be factored in, impacting your finance situation.

Let’s look at the types of CSB projects in detail

Plot only & self-build

Self-build properties are those where an individual buys a plot, upon which they arrange for a bespoke home to be built. They can be involved as much or as little as they want in the actual build, but have overall design approval.

Mortgages for such properties are usually contingent on staging points for release of funds, therefore you may need a large cash flow to manage bills before any mortgages funds are released to you.

Sometimes, however, you can find a mortgage lender who will pay in-advance rather than in arrears, which helps with cash flow. This is the riskiest in terms of cash flow and over-spend potentials, but gives the most potential for bespoking the whole building to your needs.

This option is NOT available for mortgages for flats.

Golden Brick

These are plots which are sold by a custom build developer where the foundations are laid, and then the remainder of the home is yet to be built. Again, the customer can be involved as little or as much as they want in the build process.

The process for funding would work as self build. You may, however, be tied to the existing layout, so there is less room for changing the footprint than self-build. 

This option is NOT available for mortgages for flats.

Shell

Here, the developer would have built the foundations and the shell of the property, and the interior will be ready for you to fit out. You still cannot obtain a traditional mortgage as the property is not habitable.

However, this stage reduces the risk of the costs and timeframes, and provides scope for making the inside layout meet your requirements. You will pay for the shell and then pay for the interior fit-out.

This option IS available for mortgages for flats.

Shell & basic fit-out

Here the shell of the building is completed, as well as the basic fit out of walls, floors, bathrooms and kitchen fittings, but you have the chance to upgrade or add to these finishings to suit your taste.

This is the least risky option, but you have little room for changes to be made. You will be able to get a standard mortgage, but will lose some of the VAT benefits. 

This option IS available for mortgages for flats.

How much do I need for a deposit?

For CSB projects, you will need to have a higher cash deposit than for a traditional mortgage. Normally this is between 10-20% of the final valuation of the property.  (The good news is that the government has announced the Help to Build scheme, which is very similar to the Help to Buy scheme, for which you will need 5% of the total build costs. Read on for more details.)

As for mortgage levels, a good guideline is to take 4x your annual income (single or joint) as an indication of the mortgage you could obtain.

This would be the same for the self-employed, either looking at your last year’s accounts or a SA302 copy.

Be aware that if you are working your figures to minimize tax payments, you may not be able to obtain as much of a mortgage as you need.

An example of a breakdown would be:

Final valuation planned to be £500,000. You will need at least a £50,000 deposit. The remainder is made up of stage payments of £450,000. A household income of around £120,000 would be needed to afford a loan of this level, or a higher deposit.

Another example is:

You have an annual income of £75,000, you may be able to obtain a mortgage of £300,000. Your deposit would need to be at least £75,000 to allow you to reach for a property with a potential final valuation of around £375,000.

What types of mortgages are there?

Accelerator mortgages

Here, payments are made at stages in advance of the work being completed. These types of mortgages can help with cash flow, as you have the mortgage payment in hand before you start work.

These, however, are not widely available and have very strict lending criteria.

Traditional mortgages

Here, payments are made in stages in arrears of the work being completed. These types of mortgages are the normal way custom builds are funded. 

Here you have to manage your cash flow carefully otherwise you may have to pay out on work before you receive the payments.

Help to Build Fund

The government has announced details for the Help to Build fund, which will provide loans of 5-20% of the total estimated cost (and up to 40% in London) of building your home.

If you don’t already own the land, you can spend up to £600,000 for the total cost including the land, and no more than £400,000 on the cost of building it.

Find out more details about the fund here, and see the homes that we are currently selling that are eligible for the scheme.

How do I get a CSB mortgage?

If you have specific questions or have a plot of land in mind and want to find out your options, get in touch with your details and we can introduce you to some custom build specialist mortgage brokers that we work with.