Client awareness around these products is generally low, packaging the application can be complex and can take longer to process, and it can feel like there’s something of a grey area when it comes to what exactly constitutes the need for a self-build mortgage.
However, we have found up to one on three people would consider a self build in the future.
The government has also recently announced its commitment to making processing and planning easier for these projects; it’s worth seeking clarity over the details to enable you to take advantage of this extra business.
Not only does a more detailed understanding instil confidence in your client, it strengthens your relationships with your lenders, leading to a smoother application from start to finish.
When is a self build mortgage necessary?
As a general rule, if your client’s property is run down but habitable, and only in need of minor improvements, a standard residential mortgage is usually the correct option.
There are some specific circumstances which would constitute a self build, so it’s worth getting your head around these before speaking with clients.
- If the property is uninhabitable and occupants live in a separate dwelling (this could be either on or off-site).
- If the property is left without a kitchen and/or bathroom facilities for an extended period of time, such as those requiring building works and not considered a ‘light refurbishment’ – such as a like-for-like refit or replacement.
Either of these scenarios will put your client in the self-build mortgage criteria. As will any works which alter the structural elements of a property that are essential to its stability, including the foundations, floors, walls, roofs, columns and beams. Or make the property non-watertight or non-secure.
Understanding stage payments
Stage payments are where the lender releases the mortgage funds in stages as the build progresses.
This means your client only pays interest on the amount released and, as the build progresses and they require more money, they will be able to request further funds up to the amount agreed.
Large build projects rarely go to plan, so it’s worth seeking out a lender that is flexible in their approach to releasing stage payments. In general, lenders will release funds at certain benchmarks of the build such as the acquisition of the land, completion of foundations through to fixtures and fittings.
As a final note, it’s also worth checking that once your client’s project is complete, that they can switch away from their self build mortgage to a more competitively priced residential mortgage.
With custom and self-build property numbers 50 per cent higher than they were two years ago, now is the time to really get to grips with some of those details that separate self-build mortgages from standard residential products.
