Self Build Mortgages

Stage Payments - The Lowdown

The defining feature of a self-build mortgage is that the finance is forwarded in stages, as the build progresses. Broadly speaking, there are two types of self-build mortgages available: those that provide you with finance at the end of the relevant build stage, and those that offer finance at the beginning of the relevant build stage. Either way, there are defined stages to the build which will have to be adhered to in order to remain on track with the self-build mortgage payments.

Typical Stages
Whether you have opted for the advance payment or arrear payment option, the stages are likely to be very similar and will depend on the type of property that you are building. Although every company works slightly differently, most will split the mortgage into six distinct phases.

With a brick and block building, the stages are usually as follows:
purchase of land;
foundations and initial architectural costs;
achieving wall plate level;
becoming water and wind tight;
plastering throughout; and
completion.

With a timber frame property the stages are the same except for the third stage which, instead of achieving wall plate level, involves the erection of the timber frame.

Valuation Issues
One of the ongoing issues that must be dealt with every time a stage payment is requested from the financial institution is the presentation of values and costs for the relevant stage. When selecting a self-build mortgage, it is vital that you consider the method used to value the various stages. With stage payments in arrear, it is slightly easier as the financial institution will value the work that has been completed and then forward the relevant percentage, which can be as little as 60 percent or as much as 95 percent.

With payments in advance, it is necessary to prove to the lender the anticipated costs of the build and the likely value that will be added to the plot by the planned works. Therefore, the payment in advance option, whilst being good for cash flow, is actually more intensive in terms of paperwork and business plans.

Summary
Every self-build mortgage lender will have a different set of definitions for stages, but normally these are split into six distinct phases;
depending on whether the payments are made in advance or arrear, the valuation will either be based on the work completed or on the plans and estimates;
the amount of building costs that can be borrowed can be anything between 60 and 95 percent.