Support for self-builders
Peter Izard was head of mortgages at Saffron For Intermediaries
The self-build housing market has always been a small and specialist sector in the UK with just under 11,000 homes being completed over the course of the past year. However, the government has big ambitions for self-build and would like to see the sector increase output to approximately 200,000 homes over the course of the next decade.
With TV programmes such as ‘Grand Designs’ and ‘Building the Dream’ stimulating public interest, it may well be an achievable objective, especially as increasing numbers of people appear to be attracted to the idea of owning a ‘bespoke’ rather than an ‘off the shelf’ home.
The government has developed a range of initiatives designed to free-up more land for development and reduce the amount of red tape, which will be a big help. However, self-builders have had to face another unwelcome hurdle this year, which has been the increasing difficulty of raising mortgage finance due to high profile lenders such as Virgin Money withdrawing from this sector.
There are still lenders out there, however, (yes, Saffron Building Society included!) which continue to support self-builders and are willing to make funds available for constructing new properties, with some lenders also allowing the renovation of existing structures for owner occupation, including barn conversions.
The self-build sector is a worthwhile target market for brokers because most self-builders not only require advice about mortgage finance but also about site insurance, structural warranties and building and contents insurance. A single mortgage sale can therefore give rise to a number of additional insurance sales.
Funds are typically made available up to 75% of the gross development value and money can be drawn-down as stage payments with lenders usually allowing about 18 months for the build to be completed.
What other factors do prospective self-builders need to consider? Lenders will want to see a full breakdown of the works along with budgeted costing’s and architects drawings. They’ll also want to see both planning permission and building regulations approval. And, when completed, the lender will want an NHBC or equivalent warranty certificate.
Self-build mortgages are for use by owners who will eventually occupy the property and should not be confused with development finance, which is used by builders and professional property renovators to fund build projects.
Finally, for those who choose a Saffron Self-Build mortgage there are the added benefits of being able to minimise costs during the build phase by repaying their mortgage on an interest-only basis and no early repayment charges.
Self-build may be a specialist niche but it’s an important one that is likely to increase in popularity. It’s also one in which borrowers need professional help and guidance to understand precisely how the deal will work during their build programme. And if brokers new to self-build need help, they only need pick up the phone to their lender and ask!