Can You Get A Mortgage Before The House Is Built?

PUBLISHED: 24 July 2015
DISCLAIMER: The information in this blog post may be outdated and may not reflect current financial practices or market conditions

Can You Get A Mortgage Before The House Is BuiltHow do you find your dream home? Well that depends on what your dream home is.

If you’re looking for a character-filled period property then obviously you will need to buy an existing home. If, however, you’d prefer a modern home built to your exact requirements, then maybe it’s time to look at building your own home.

How Do I Build My Own Home?

Building a home is obviously a major undertaking.

First of all you will need to find suitable land. This means a place where you would be happy to live and where you can get planning permission for a house. How easy this will be depends greatly on what part of the country you want to live in. It is likely to be easier to find a plot of land in rural Yorkshire than in Central London.

You will then need to decide exactly what type of home you want. Again a 1 bedroom cottage will be cheaper to build than a 4 bedroom family home. With a self build you can always start small and leave your options open to extend later, e.g. if you start a family.

Finally you have to decide how you want to go about building your new home. If you have the necessary skills you can, of course, build it yourself. Otherwise you will need to get in people to help. If you need professional help then you will need to budget for this.

Budgeting to Build Your Own Home

The budget for your future home can be divided into 4 parts: land, fees and miscellaneous costs, materials and labour.

Land, materials and labour are all essentially self-explanatory. How much you will need to budget for these depends on what you are building, where and how.

As a note of caution, be very realistic about what you can achieve yourself. Your time and health have a value and trying to spread yourself too thinly can be a recipe for struggle if not disaster.

For an accurate budget, you will also need to be prepared for various fees and miscellaneous costs you will encounter along the way. For example, like buying a house, buying a plot of land may require the help of a solicitor. You may also require 3rd-party insurance during the build process. Then there may be connection fees for utilities and other services.

Financing The Build

The good news is that building a home from scratch can work out much cheaper than buying the equivalent property ready-built. The bad news is that self build mortgages are a specialist market.

As fewer people require them, there is less incentive for lenders to offer them at all. There is even less incentive for them to offer the wide range of options and deals available for mortgages on ready-built properties.

In practical terms, most self-build mortgages work along broadly similar lines. The buyer pays the costs up-front and then recovers the money from the lender in stages. This means that people building their own home need to have sufficient funds to hand, to cover each phase of the build process until they are refunded.

It may be possible to find a self-build mortgage which pays the money for each building phase up front. Prospective builders should, however, look carefully at the cost of these mortgages. The convenience may be outweighed by extra charges.

On the subject of extra charges, self build mortgages are likely to be more expensive than traditional mortgages. This is partly because lenders see them as more risky and partly because there is less competition in the self-build market.