How Much Can I Borrow on a Self-Build Mortgage?

If you're considering building your own home, one of the first questions you'll likely have is how much you can borrow through a self-build mortgage. Unlike traditional mortgages for buying existing properties, self-build mortgages are designed to provide funds in stages as your project progresses. Here's a detailed guide to help you understand how much you can borrow and what factors influence this decision.

Understanding Self-Build Mortgages

Self-build mortgages differ from standard mortgages in that they release funds in stages rather than as a lump sum. Typically, the funds are released in phases linked to key stages of construction, such as purchasing land, completing the foundation, erecting the framework, wind and watertight and finishing the interior. This staggered approach ensures that funds are only released when the builder completes each stage.

Factors That Determine Borrowing Capacity

1. Income and Affordability: As with any mortgage, your income and financial stability play a crucial role. Your ability to repay the loan will typically be based on your income and existing financial commitments.
2. Deposit: All of our Self-build mortgages require a deposit, usually ranging from 20% to 40% of the total project cost. The larger your deposit, the less you'll need to borrow.
3. Build Costs: We will evaluate the estimated cost of your project. This includes not only the construction costs but also land purchase, legal fees, and contingency funds.
4. Value of the Completed Property: We will consider the projected value of your home once completed. This helps determine the loan-to-value (LTV) ratio.

Use our self-build affordability calculator to find out how much you could borrow

How Hanley Assess Borrowing Limits

Typically, we cap self-build mortgages at around 80% of the project's total costs. This percentage can vary based on the lender and your financial profile. Here’s a simplified calculation:

• Total Project Cost: Suppose your total self-build project cost is £300,000.
• Maximum LTV Ratio: If you were looking for an 80% LTV mortgage, we would consider lending you up to £240,000 (80% of £300,000).

Steps to Secure a Self-Build Mortgage

1. Consultation: Start by consulting with one of our mortgage advisors who specialises in self-build projects. They can provide tailored advice based on your financial situation and project plans.
2. Financial Assessment: Prepare a detailed breakdown of your project costs, including quotes from builders and architects. This helps us understand the scope of your project.
3. Application Process: Submit your mortgage application along with supporting documents, including your construction plans, cost estimates, and proof of income.
4. Approval and Funds Release: Once approved, funds are released in stages as per your construction milestones. You'll need to provide evidence of completed stages to access subsequent payments.