Self-build mortgages
Self Build mortgages represent a significant part of the mortgage market. Self build mortgages are not provided by some lenders, primarily because they have a mixed history on lender's books with many projects running into difficulty with cost over-runs and other issues delaying completion.
You may find the guide below helpful.
Self build mortgages are mortgage facilities arranged for individuals building their own home. This mortgage category encompasses houses build through direct labour on one hand and houses built by contractors under a building agreement..
Building one's home is not for everybody but, in almost all circumstances results in lower house purchase costs when compared to a ready-built house. The process generally takes considerably longer than anticipated and requires a great deal of planning. Hiring the right professionals is absolutely vital to the success of any project. Project management is a serious business and we believe that hiring an experienced project manager will be self financing,
The self build process involves: acquiring a site, obtaining planning permission for your house and the construction of the property.
A number of new lenders in the market do not provide self build mortgages. This inclused Avant Mortgages, ICS Mortgages and Finance Ireland.
Lenders in general are reluctant to advance traditional mortgage facilities where the site in question exceeds what can reasonably be described as a house plot.
We set out below a number of key issues that arise in relation to self build mortgages:
The first step in the process is to establish what you can afford and get approval for the cost of your development.
Lending criteria for self builds is strict.
Lenders have had poor experience in the self build area with many houses left unfinished due to inadequate budgeting or problems with employment etc.
As a guide lenders are happier when the following factors apply
- Facilities required do not exceed 3.5 times gross income
- You have savings (cash) of around 10% of the value on completion.
- Employment must be permanent and secure
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The next step is to talk to an architect or building engineer in the area in which you intend to build and establish an approximate site and building cost within the constraints of your borrowing capacity. Always budget for cost over runs in the region of 15%.
Please note Banks will not issue any funding until planning permission is in place. Banks will not fund the cost of obtaining planning permission.
Banks will not fund the cost of connecting to services- water, maims etc
Banks will advance up to 70% of the cost of buying the site and 100% of the building cost. They will not lend more than 100% of the construction cost irrespective of the value on completion.
The next important decision is to decide how you will build your home
Direct labour
In these circumstances the client, under the supervision of an appointed architect, manages all the various elements of the build from sewerage and drainage and foundations right through to plastering and fitted kitchens. This is a difficult undertaking and requires great dedication and control to ensure the smooth running of the project.
Building contract
The house is built under the supervision of an approved architect but in these circumstances the work and management of the project is subcontracted in full to a builder. Generally a builder is chosen following a tender process organised by the architect.
In both circumstances the key ingredient to choosing all concerned, from the architect, to the direct labour individuals is your satisfaction with their ability to deliver the products and services they claim in a professional and efficient manner. The easiest way to ascertain this is to ensure you employ experienced reliable people and that you thoroughly check out and record all references.
Self build mortgage issues
Lending criteria
When assessing a self build credit application lenders will apply the same lending rules to a self as they do with a straight house purchase. Basically they need to satisfy themselves that you can comfortably afford the mortgage repayments.
Paying for the site
The first stage is the funding of the site purchase .The site must have outline planning permission and as a guide the maximum funds available at the outset available is 70% of the site purchase price. Stage payments
Funds are drawn down in stages by your solicitor so that money is available to the builder or in respect of direct labour during the construction phase.
No funds will be advanced by a lender out unless the stage of development has been certified by a suitably qualified architect or engineer.
At the outset the lender will satisfy himself with regard to the qualifications of your appointed architect .This process involves the lender requiring the architect to issue a letter setting out their qualifications and professional indemnity insurances arrangements.
Construction insurance
Special buildings under the course of construction insurance is required during the construction phase and this is a matter your architect will advise you on.
Be prepared for the unexpected
The importance of project planning cannot be overemphasized in a self build project. You need to be involved from the start and take a hands on approach. If you are building jointly with your partner you should, at the outset, clearly decide which one of you is taking prime responsibility for the build..
