Funding a self-build project in the UK can be a complex but rewarding process. By exploring self-build funding options and planning carefully, you can effectively finance your self-build project. Here are several ways to finance your self-build:
Self-Build Mortgages
- Stage Payment Mortgages: Unlike traditional mortgages, self-build mortgages release funds in stages as the build progresses. This helps manage cash flow for buying land, initial construction, and subsequent phases.
- Two Types of Self-Build Mortgages:
- Arrears Stage Payment: Funds are released after each stage of construction is completed and inspected.
- Advance Stage Payment: Funds are released at the beginning of each stage, which can be helpful if you need money upfront for materials and labour.
Personal Savings
- Savings and Investments: Using your savings can reduce or eliminate the need for borrowing. It’s a straightforward way to fund your project without incurring debt.
- Lifetime ISA: For those under 40, a Lifetime ISA allows you to save up to £4,000 per year towards your first home, with a 25% government bonus (up to £1,000 per year).
Selling Existing Assets
- Property Sale: Selling your current home or other assets can provide the funds needed for your self-build. This can be a significant source of funding if your property has appreciated in value.
- Downsizing: Moving to a smaller, less expensive home and using the remaining funds for your self-build project.
Family Assistance
- Gifted Deposits: Family members can gift money towards your self-build. This is often acceptable to lenders, provided there is a formal declaration that it is a gift and not a loan.
- Family Offset Mortgages: Family members can offset their savings against your mortgage debt, reducing the amount of interest you pay.
Government Schemes
- Help to Build Scheme: The government provides equity loans to help people build their own homes. It’s designed to make self-build projects more affordable.
- Community Self-Build Projects: Joining a community self-build project can sometimes provide access to funding and support.
Bridging Loans
- Short-Term Financing: Self-build funding options commonly include bridging loans which can cover the gap between buying the land and obtaining a self-build mortgage. They are short-term loans with higher interest rates, intended to be paid off quickly.
Remortgaging
- Equity Release: If you have significant equity in your current home, you can remortgage to release funds for your self-build project.
- Second Mortgage: Taking out a second mortgage on your existing property can raise funds, although this depends on your financial situation and lender approval.
Developer Finance
- Developer Loans: Some developers or builders offer financing options or deferred payment plans for self-build projects. These can be useful if you’re working with a specific builder or developer.
Investment Income
- Rental Income: If you own rental properties, the income generated can help fund your self-build project.
- Dividends and Investments: Utilising dividends from investments or selling other investment assets can provide the necessary funds.
Grants and Incentives
- Local Authority Grants: Some local authorities offer grants or incentives for self-build projects, particularly if the build contributes to local housing needs or regeneration projects.
Steps to Follow
- Assess Your Financial Situation: Determine how much you can afford to invest and borrow. Consider all sources of income and savings.
- Research Funding Options: Investigate various funding options, including self-build mortgages, government schemes, and personal finances.
- Consult Professionals: Speak with financial advisors, mortgage brokers, and self-build specialists to understand your options and get tailored advice.
- Create a Detailed Budget: Include all costs associated with the land purchase, planning permissions, building materials, labour, and contingency funds.
- Plan Your Build: Work with architects, builders, and project managers to create a detailed plan and timeline for your self-build project.
- Secure Funding: Apply for the necessary funding and ensure all financial arrangements are in place before starting the build.
At 3mc, we have a team of expert advisers who can discuss all your mortgage requirements. If you would like to discuss your options, give the 3mc team a call on 0161 962 7800.
All calls are recorded for training and monitoring purposes. 3mc for intermediaries only.
*Your home may be repossessed if you do not keep up repayments on your mortgage. 3mc (UK) Ltd is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register https://register.fca.org.uk/s/ under reference 302992. Please note: The FCA do not regulate Business Buy to Let Mortgages.
