Getting Your FinanceThe first and most important hurdle. Make sure you start with everything in place financially.
Getting Your Finance
Britain has experienced a recession, accompanied by a crash in the housing market. Making it notoriously hard to gain credit.
Unsurprisingly this has had an effect on self build finance. Most lenders now only offer borrowing up to 70-80% of the value of the land and build. Happily however the self build market does also seem to be a slight anomaly, with the number of possible lenders in the sector increasing as we speak.
There are a variety of routes by which you can obtain the funds necessary to complete your build. The more straight forward routes are; bank loans, equity release schemes, bridging finance products the sale of your house or the fortunate position of being able to finish the build from a pool of savings.
Now however most self builders decide to choose either an arrears stage payment mortgage (ASPM) or a guaranteed advance stage payment mortgage (GASPM).
Whichever route you decide to take they fundamentally rely on the same thing; the applicants ability to afford the repayments they will incur.
Buildstore are the leaders in this market for both ASPM’s and GASPM’s, providing the services of over 25 building societies nationwide. Considering these in more detail may allow you decide if either of these options is viable for your self build.
Arrears stage payment mortgage (ASPM):
At each of the chosen stages a surveyor, appointed by the lender, will assess the build. Stating what they believe to be the value added at completion of that particular stage. For example, if between laying the foundations and completion of the wall plate the surveyor believes the value added is £40,000 then the lender will release normally between 70-80% of this value.
The released funds then allow you to continue with the next stage of the build. Where on completion the same process is repeated.
It should be warned however that this scheme is more suited to people who already have some liquidity to compensate for cash flow issues resulting from no advance payments and time delays on receiving your cash.
Also it should be warned that the amount you receive is not dependent on what you spend on that phase of the build. It is solely a decision by the surveyor as to what they believe to be the value added. So if you spend £50,000 but the surveyor believes the value added is only £40,000 then you can experience cash flow difficulties.
Guaranteed advance stage payment mortgage (GASPM):
This type of mortgage removes the risks surrounding the subjective valuations of a surveyor. The funds are released before every stage rather than after a valuation. It requires an in-depth analysis of your costings, alongside a thorough cash flow summary.
Combining these two cost structures with estimated valuations at the 5 build stages allows the lender to develop a detailed and regimented advance pay structure. This typically lays around 70-80% of the value added at each stage, for the entire build.
This type of lending structure has the benefit of allowing you to be a cash buyer of materials, which is always a positive. As well as benefiting those who do not have the funds to support an ASPM.
However it should be warned that extra costs incurred are significantly higher for a GASPM. Due to insurance protection taken by the lender as they are leaving themselves notably more exposed by releasing the funds in advance payments.
Having read this advice you might be one step closer to gaining your finance and starting your build. Before you do so it’s of paramount importance that you make sure your insurance and warranty schemes are in place.
Read our section Getting covered, it should put you on the write track to making sure everything is in place to push on with your self build.
The mortgage offered, dependent on both your provider and your stated requirements, will consist of up to 5 stages. These being foundations, wall plate, wind and watertight, first fix and completion. It could also be the case however that the lender chooses to release the funds in larger portions, but less frequently, at any of these stated times.