The Self-Build Mortgage Challenge
My first significant mistake in the world of self-build was to grossly underestimate obtaining appropriate finance for the project. As you may know from my previous blog entries I was initially chasing a different plot to the site I ended up buying. After having the offer on the first site accepted I began to search for a mortgage.
Quite a lot of the companies were unable to help me for a variety of reasons. I did find a bank however with a local branch that seemed interested. I met with them and discussed details of the proposed project and my financial position. They went into a lot of detail and I spent a great deal of time providing them with all manner of information. It all seemed very positive and they advised me I was exactly the kind of customer they were looking for and were keen to help. However I never received anything in writing or a formal proposed mortgage offer.
When the second plot became available and the vendors accepted my offer the bank even contacted the estate agent for me to advise we were in positive talks concerning a mortgage offer. Though to my horror just three weeks later the bank advised they could still lend to me but far less than they had originally indicated. Frustratingly the new plot was a better option financially but the banks lending criteria had changed since out initial talks. The altered offer was not compatible with my finances. I now had an accepted offer on a good plot but the finance rug had been pulled from beneath my feet. My failure to get anything in writing had been a big mistake and lulled me into a false sense of security.
The next few weeks I spent every spare moment contacting building societies, banks and brokers to find finance. It took me many hours of research and calls to track down those that might be able to help. The difficulty was there were so many variables to consider:
Did I meet the lenders financial criteria?
Did they lend in my locality?
Was the loan to value going to work with my project?
What proportion would they lend for land and for the build- were these different?
Did they support Oak Framed buildings?
Did they allow a non-brick external skin?
How much would the finance cost?
Would I be locked in for a set time period or did I have other options?
Was it interest only or repayment?
Could I afford the product?
Would the cash flow work?
How quickly could funds be obtained once approved?
What information was required for the application process?
I have read that many self-builders requiring finance will only receive one mortgage offer. So I consider myself very lucky that I had two options. For my personal circumstance Newbury Building Society was the best option by some margin. They were also extremely helpful and guided me efficiently through their application process so I could gather the information they required in a timely manner. Essentially the main components required (most lenders need something similar) were financial information, formal estimated project costs from architect and builder, details of planning, and a favourable valuation report.
The vendors of the plot were very patient and I was fortunate that there were no other offers on the plot during the delay. Newbury Building Society put my solicitor in funds very quickly and the plot purchase was a success.
With hindsight I should not of relied on a verbal offer and should of researched the market in more detail previously. The difficulty is due to the individual nature of each self-build project lenders normally can only give you an indication if they can help you as much depends on the plot you choose and the associated build costs. I would recommend spending a lot of time on finance while you search for a plot. Try to estimate your land and build costs early on (the build cost estimator in Home Building Renovating Magazine is a good place to start). Consider your financial position and discuss with all potential lenders and brokers. Hopefully then you can compile a short list of those to contact when you find a plot.
Also don’t forget in the next few years it is likely we will see more lenders to the market and possibly government lending support for self-build. Remember preparation is the key – try not to make it hard for yourself like I did!!!