The Government has launched a new initiative to increase the number of people building their own homes. But will it make any difference, as long as mortgage companies remain reluctant to lend on self builds?
Only one fifth of all newly built houses in Britain are currently self builds, compared to 50% in Europe. The Government Housing Minister has called for a self build revolution, pledging 100,000 new homes by 2015.
This is all well and good, but financing a self build can be difficult. When the recession started many lenders pulled out of this market or placed more restrictions on the way they approached it.
But having the right finance in place at the start is critical, as the cash flow of the project is often more of a hurdle than the long term affordability of the mortgage. When the average self-build is completed, it usually has a relatively good loan to value.
Things to consider when looking at lenders are whether or not they will lend against the land value, and how they treat the existing mortgage on the existing main residence (assuming you don’t want to live in a caravan for a year).
Mortgage lenders will want to know if is there an existing property to be demolished on the land, what type of guarantee the property will have – NHBC, architects certificate or insurance backed scheme – and how long will it take to build.
Another issue is that a growing number of self builds include environmentally friendly innovation, using non-traditional building materials. Some lenders may not agree finance for certain types of construction, so an alternative will need to be found.
These are just a few of the concerns that could influence the lender’s decision to lend, on top of the normal credit score, income and other status checks.
It is trickier to finance a self build house but not impossible. If you are thinking about building your own home, choosing the right mortgage lender will be key. We are happy to advise you on the best lender for your project.