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Self-build mortgage

Our guide shows you all you need to know about self-build mortgages, including how to compare the best self-build mortgage rates

Man and woman in hard hats look at a building plan

What is a self-build mortgage?

A self-build mortgage is for anyone who wants to build their own home, but doesn’t have the funds needed. Standard residential mortgages are not suitable if you want a mortgage to build a house, and this specialist product is designed specifically to suit this need. Most self-build mortgages in the UK are offered by building societies and specialist lenders, although a few mainstream lenders, such as Halifax offer them.

Unlike traditional mortgage loans, self-build finance is released in stages throughout the property building process. This is because your home progresses becomes more valuable the further into the build it is, giving the lender more confidence to release the next chunk of money.

Some lenders allow you to add the cost of buying land to your self-build mortgage, but some only lend to those who already own a building plot. You could also look at land mortgages to purchase development land.

How much can I borrow with a self-build mortgage?

Your personal affordability and credit score play a role in the loan size, but it's calculated differently than for a ready made home.

Most lenders offer up to 75% of the total build cost, if you already own the land you intend to build on. This means you'll need around 25% deposit, although the help-to-build scheme may provide a government equity loan for up to 20% of the deposit cost if you qualify.

If you're using the self-build mortgage to purchase the land as well as complete the build, borrowing is likely to be calculated differently.

Those lenders offering self-build mortgages usually provide a specific self-build mortgage calculator - this should give you a good idea. However, it's often best to speak to an experienced broker with specialist mortgage products like this.

Eligibility criteria for self-build mortgages

Self-build mortgage criteria are similar to a standard mortgage when it comes to personally qualifying, such as affordability, creditworthiness, age and deposit.

In addition to personal criteria, the lender will base their decision largely on the feasibility of the building project. This means that your plans will have to meet their idea of a low-risk property with strong resale potential:

  • The location/suitability of the plot of land

  • Planning permission potential (if not already secured)

  • The design and functionality of the property

  • The type of construction system to be used

  • The professional qualifications of key members of the project team, such as the architect, surveyor and construction lead

  • Compliance with building regulations

  • The accuracy of estimated building costs - potentially including a contingency fund

  • Some lenders may also expect you to have a 10-year structural warranty policy in place and renovation insurance policy before they release funds

It can be easier to get certain self-build mortgages if you're building sustainable and energy efficient elements into the home. As the industry slowly shifts towards green homes, implementing solar panels, high quality multi-glaze windows and elements that consider future building standards can add appeal for lenders.

Types of self-build mortgages

There are two types of self-build mortgages in the UK, and the only difference between them is when the funds are released:

Self-build arrears mortgage

A self-build arrears mortgage is where the money is released after each stage of the self-build project has been completed. This means the bulk of the risk lies with you as you’ll need to fund each stage yourself before being reimbursed by the lender. Cash flow could be tricker with this option.

Self-build arrears mortgages can be cost-based, where the money released is based on what you’ve spent, or value-based, where a surveyor values the property at each stage.

Self-build advance mortgage

The other type of self-build mortgage is an advance mortgage. This is where the lender releases an agreed amount at the beginning of each stage, giving you cash upfront to buy the materials and hire workers.

An advance mortgage could suit you if you don’t have the cash available to start the project. However, you should expect to pay a higher interest rate than with an arrears mortgage as they’re riskier for the lender.

When are funds released during a self build mortgage?

Funds are released either before or after specific stages of the project, depending on the type of self-build mortgage you have. There can be some variation from one lender to the next, but funds are released are typically:

  • To buy the land (where necessary) - you'll need an absolute minimum of outline planning permission for this

  • Preliminary costs including laying the foundations and the substructure

  • Installing the wall plate/eaves height or erecting the timber frame - the stage just before the roof is fitted

  • When the property is wind and watertight with roof tiles and windows etc

  • First fix and plastering

  • Second fix

  • Certified completion

Advantages of self-build mortgages

  • It can be cheaper to build your own home than to buy an existing one

  • You’ll save on stamp duty as this is only due on the land you buy, not the final cost of the home you build

  • You can create an energy-efficient home that meets your needs

  • Interest is only charged on the funds that have been released meaning you won’t pay interest on the full loan from the outset

  • You can switch to a mainstream mortgage once the build is complete to access cheaper interest rates

Disadvantages of self-build mortgages

  • Interest rates are typically higher than for residential mortgages

  • You may need to purchase the land before you can get a self-build mortgage, depending on the lender criteria

  • If you use an arrears mortgage you’ll need to find the money to finance each stage of the build before you start

  • There is significant input from the lender with regards to your plans and building costs, so you may need to make compromises

  • You'll need to seek planning permission, which is not always straightforward and can be rejected

  • You may need to pay for somewhere to live while you’re building your home unless you are able to stay with relatives etc. If you have to pay rent for this temporary accommodation, the lender is likely to consider this in their loan calculations

  • There is less choice available in this niche, so it can be harder to find a self-build mortgage to suit your needs

  • You won’t usually get the final stage of funding until the project is complete

Differences between self-build mortgages and traditional mortgages

When you get a mortgage to build a house, there are some significant differences to a traditional residential mortgage. For example:

  • Interest rates - these are normally a bit higher, but once the build is complete, you may be able to remortgage to a cheaper deal

  • Maximum LTV - you can normally borrow a bit less with a self-build mortgage, usually up to 75% of the build cost

  • Release of funds - funds are released throughout different stages of the build, rather than all at once - which is the case with a traditional mortgage

  • Deposit - you usually require a larger deposit for a self-build mortgage (typically 25% but it can be more or less)

Kellie Steedquotation mark
Although self-build mortgages are a niche product, a surprising number of lenders offer them. There are some very specific criteria involved with this type of mortgage, so it's a good idea to seek out expert advice before you choose a deal
Kellie Steed, Mortgage Content Writer

Self-build mortgages FAQs

Can I get a self-build mortgage as a first-time buyer?

Yes, you can, and your money will also go further if you’re building your own home versus buying an existing one.

In England, the Help to Build equity loan scheme could make it more affordable as you may be able to take out an equity loan of up to 20% of the land and build costs (40% in London), which means you can take out a smaller mortgage.

What is the help to build scheme? 

Launched in 2022, the Help to Build scheme was introduced by the government to help people wanting a self build loan to build their own home, but unable to meet the 25% deposit requirement.

It’s expected to be available for four years, however, the end date may be reduced or extended depending on demand. 

The scheme provides a government equity loan of up to 20% of the estimated build cost (up to 40% in London) which is used alongside a self-build mortgage, in place of a deposit. You'll need to get a mortgage from a provider registered with the Help to Build scheme to qualify.

Are self-build mortgages more expensive than traditional mortgages?

Yes, interest rates tend to be higher as self-build mortgages are viewed as riskier for the lender than standard ones. However, you only pay interest on the money that has been released (this is done in stages), and when your home has been completed you can switch to a standard deal.

Is it hard to get a self-build mortgage?

It can be harder to get a self-build mortgage than a standard one because there are fewer products to choose from and the application process is more complicated. Speaking to a specialist broker can help to make the process easier.

Do I have to pay stamp duty on a self-build home?

Not on the property, no. You will need to pay stamp duty on the land that you purchase to build on, however, this is only if the land costs more than £125,000, and will typically be much lower than you would pay on an equivalent sized pre-built house.

Do I need planning permission to build a home?

Yes you do, you will usually need at least outline planning permission to be approved for a self-build mortgage and you won’t be able to start building without the full necessary planning permission required in place.

What happens if I spend more than budgeted for at each stage?

It’s fairly common for self-build projects to cost more than initial planning estimated, so it’s a good idea to have relevant insurance policy in place to help with additional and unexpected costs. 

Some lenders may be willing to negotiate releasing funds earlier for the next stage, however, you will have to consider the knock-on effect this will have on the remainder of the project.

Do I need insurance with a self build mortgage?

Some lenders will want you to have a 10-year structural warranty policy in place before they are willing to lend to you, however, others may be happy with a Building Regulation Completion Certificate.

Some lenders will also insist that you have a self build and renovation insurance policy, but this is a good idea even if not essential to the mortgage, as it can help you to continue with the project, should you experience any stumbling blocks during the build.

What are the costs involved with self-build mortgages?

With a self-build mortgage, many of the costs are similar to a standard mortgage:

  • Deposit - normally around 25% is required

  • Monthly repayments - your loan amount, interest rate and mortgage term length will impact how much you need to repay each month

  • Arrangement fee - this is the set-up cost for a mortgage and can vary depending on the lender