Santander self-build mortgage (A guide)

In this brief blog, we are going to discuss the Santander self-build mortgages.

It is important to note that the Santander self-build mortgages does not actually exist but the features of such a mortgage should it exist are noted below.

What are Santander self-build mortgages?

A Santander self-build mortgage is a mortgage for people who want to carry out their own development and build themselves. This could be because they want to build a custom house or because they like the idea of having created their dream home. Regardless of what their motivations are, a Santander self-build mortgages are the type of mortgage they will need to use if they intend to build their own home themselves.

Another big difference between Santander self-build mortgages and repayment mortgages is that the mortgage funds are released in stages of development. This helps the mortgage lender manage their risk and ensure that money isn’t given to you without any accountability towards your development milestones.

The timing of when you receive funds from your Santander self-build mortgages will differ based on the mortgage lender but it typically goes like this:

You get the initial payment once you have bought the land

You get the second payment one you have laid the foundations for the property

You get the next few payments based on agreed milestones in the property build

You will get the final payments on the property once your roof is watertight and when the walls have been plastered.

Your final payment will then be paid once you have completed the house in full.

The loan to value rates on Santander self-build mortgages may be:

75-90% of the purchase price or valuation (whichever of the two is the lower)

up to 80-90% of build costs

up to 75% of the growth in value of your project at key milestones of the development build.

Types of Santander self-build mortgages

The Santander self-build mortgages products which may be available in the future include

discount from a standard variable rate of interest mortgage

fixed rate of interest mortgages

bank base rate tracker mortgages

Offset mortgages

The more broad types of Santander self-build mortgages which could be available in the future are:

Arrears based mortgage

an arrears-based mortgage releases money in staged payments as each stage is completed

Advance payment release

An advance payment scheme releases money before each stage of construction and removes the need for bridging loans – the stages can be fixed or flexible but there are usually five and these depend on the type of building work

Some stages a self-build mortgages lender such as Santander  may insist on include: 

* Foundations complete

* Wall-plate complete

* Roof complete

* Plastering complete

* Final completion

Disadvantages of advance payment release self-build mortgages

Some of the issues with advance payment release self-build mortgages include:

The cost of self-build mortgages which offer advance payment release is much higher than other mortgages due to the mortgage lenders risk.

There are also very few mortgage lenders offering this type of mortgage and hence the rates aren’t competitive

Most mortgage lenders which offer an advance payment release will insist it is secured on a single premium policy which will add to your costs.

Most mortgage lenders will not release the full mortgage funds and will retain 10% until the building has been issued a building control completion certificate

It is vital you speak to any third parties you may have to ensure they will be able to manage with your payment terms so you can ensure your cash flow position isn’t weakened.

How much deposit do I need for a Santander self-build mortgages?

You will usually need a mortgage deposit of 20% for a self-build mortgage but some mortgage lenders may insist on a minimum mortgage deposit of 30%. This is a much bigger requirement than a standard repayment mortgage.

Can you get a Santander self-build mortgages with bad credit?

Getting a Santander self-build mortgage  with bad credit may be difficult as mortgage lenders may usually want to lend to borrowers who have a good credit score and have shown a good repayment history on all their previous debts.

There are however mortgage lenders who will offer a Santander self-build mortgages to a borrower depending on what type of bad credit was and what the circumstances were.

If it was a CCJ which was satisfied and is a certain age then some Santander self-build mortgages lenders may be willing to lend. Other mortgage lenders may lend if the CCJ was a maximum amount.

When looking to get a mortgage with bad credit the requirements from different mortgage lenders will differ and a bad credit mortgage broker may be able to assist you in getting a Santander self-build mortgages.

Bad credit could include:

A CCJ

An IVA

A debt management plan

A default

A bankruptcy

A home repossession

Can you get a Santander self-build mortgages if you are self-employed?

Getting a Santander self-build mortgage if you are self-employed is certainly possible but most mortgage lenders may want to see your accounts for 3 years at the very minimum although there may be mortgage lenders willing to offer a Santander self-build mortgages with less than 3 years worth of accounts but at least 12 months.

The documents you may need for a Santander self-build mortgages include:

Construction plans

Planning permission

Cost projections

Proof of your mortgage deposit

Copy of Building Regulations approval

Copy of site insurance and structural warranty

Architect’s professional indemnity cover (if required)

SAP calculation (this will be in the Building Regulations package)

Your P60 tax return

Your SA302 tax calculation form

Your company accounts if you work through a limited company

You may find using the services of a mortgage broker who has experience dealing with self-employed borrowers.

Other considerations a mortgage lender may take into account when offering a Santander self-build mortgage to a self-employed person are:

The Trading style: are you drawing a salary from a company or do you have a claim over a share of retained profits. These could make a significant difference in how much you may be able to borrow.

Your experience: how long have you been self-employed and what is your working history.

Government schemes for a Santander self-build mortgages

Unfortunately, you won’t be able to access any government scheme for yourSantander self-build mortgages as most government schemes insist to be used alongside a normal repayment mortgage.

The government schemes you may miss out on include:

Some of the Government schemes you may be able to use with a single person mortgage include:

• Lifetime ISA– gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
• Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
• Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
• Shared ownership- You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
• Armed forces help to buy- similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
• Rent to buy- This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
• Right to buy- allows you to buy your home at a discount price.
• Preserved right to buy– same as above.
• Right to acquire- same as above.

Depending on where you live, you may also have been able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.

Interest rates on self-build mortgages

Interest rates on self-build mortgages are usually higher than the interest rates on repayment mortgages. The interest rates on a self-build mortgage will start from around 5% and will climb for up to 6% and in some cases more based on the borrowers mortgage affordability.

You may also notice that the mortgage arrangement fees attached to self-build mortgages are much higher than those on repayment mortgages. Most self-build mortgages lenders will also only offer a fixed 3 year deal which means redeeming the mortgage within those 3 years may come with a hefty early repayment fee.

At this point, you may be wondering if a bridging loan is much cheaper and unfortunately the answer to that is no. Bridging loans are a hit more expensive than self-build mortgages and cost from between 0,59% to 1.5% per month. 

The mortgage arrangement fees on bridging loans are just as high and can be as much as 2% of the total mortgage. The early repayment fees on bridging loans are just as high and you will usually be tied in for at least a year.

Once the property is classed as habitable and this has been confirmed by a RICS’ qualified surveyor and issue of the Building Control completion certificate, some lenders permit the borrower to ‘switch’ to a lower rate of interest during the ‘tie-in period’ without incurring penalty interest.

How much can you borrow for a Santander self-build mortgages?

When working out how much you may be able to borrow if you are borrowing alone the first thing you may want to do is check the mortgage lenders mortgage multiple. For self-build mortgages, it is usually 4.5 times your income and for joint borrowers it is up to 4.5  times the highest salary, plus second applicant’s salary, or 3.5 times joint income

The mortgage lenders mortgage multiple will be the first indication of if the mortgage lender may be willing to lend you the amount of mortgage you want based on your income.

Mortgage multiples are essentially a number by which the mortgage lender multiplies your annual income by to let you know the maximum they will be able to lend to you. When you apply for a mortgage in principle a mortgage multiple is likely what is used as a first indication of if a mortgage lender will lend to you.

Different mortgage lenders have different mortgage multiples so comparing for every mortgage lender may be hard and this is why a mortgage broker who may have experience of the mortgage multiples being used by a mortgage lender.

Mortgage multiples can be a bit misleading as when you get a mortgage in principle you may think that this is some guarantee that you are going to get a mortgage but it isn’t.

After you have found a property which you want to buy, you will usually then go back and make a full mortgage application so the mortgage lender can give you a formal mortgage offer.

At this point, the mortgage lender will request your financial documents such as:

Your p60 tax return

Your SA302 tax calculation form if you are self-employed

Bank statements for at least 3 months

And 3 months worth of payslips

With all this information the mortgage lender will analyse your finances to see how much you have in disposable income per month and if this can cover the cost of your monthly mortgage repayments.

If you can’t cover the cost of your monthly mortgage as you are a single borrower then you may want to consider finding a co-borrower who can split the mortgage deposit with you or who will split the monthly mortgage repayments with you and apply for a joint mortgage.

You should seek independent legal advice when doing this as you may need to go into a tenants in common agreement, a cohabitation agreement and have a declaration of trust agreement if necessary.

Self-build mortgages rates.

The self-build mortgages rates below are not dynamic. This means they are not live rates and hence he mortgage lenders below may have updated their mortgage rates since this guide was published.

Lender	Max LTV on Land	Stage required for first payment	Max LTV during construction	Final LTV land and building
Beverley BS	Not on land	Wall plate level	Max 75%	Negotiable
Buckinghamshire BS*	Max 85%	Land	Max 85%	Max 80%
Chorley BS*	Max 85%	Land	Max 85%	Max 80%
Cumberland BS	Max 75%	Negotiable	Max 75%	Max 85%
Darlington BS*	Max 70%	Land	Max 70%	Max 70%
Earl Shilton BS	Max 50%	Land	Max 75%	Max 75%
Ecology BS	Max 80%	Land	Max 80%	Max 80%
Halifax	Not on land	1st floor level	Max 80%	Max 80%
Hanley Economic BS▲	Max 75%	Land	Max 75%	Max 80%
Hanley Economic BS*	Max 85%	Land	Max 85%	Max 80%
Hanley Economic BS	Max 80%	Land	Max 80%	Max 80%
Ipswich BS	Max 75%	Negotiable	Max 75%	Max 80%
Loughborough BS	Max 80%	Land	Max 80%	Max 80%
Mansfield BS*▲	Max 85%	Land	Max 85%	Max 85%
Melton Mowbray BS	Max 85%	Land	Max 85%	Max 75%
Newbury BS	Max 66%	Land	Max 75%	Max 75%
Newcastle BS*	Max 85%	Land	Max 85%	Max 85%
Nottingham BS*	Max 75%	Land	Max 75%	Max 80%
Penrith BS	Max 50%	Land	Max 75%	Max 75%
Progressive BS	Not on land	Footings	Max 70%	Max 75%
Saffron BS	Max 65%	Negotiable	Max 75%	Max 75%
Scottish BS	Max 60%	Land	Max 80%	Max 80%
Stafford Railway BS*	Max 85%	Land	Max 85%	Max 75%
Ulster Bank	Not on land	1st floor level	Max 80%	Max 80%
Vernon BS	Max 75%	Land	Max 75%	Max 80%
West Brom BS▲	Max 85%	Land	Max 80%	Max 75%

You should check with your mortgage broker or the self-build mortgages lender for up to date self-build mortgages rates.

Self-build mortgage Calculator

A self-build mortgage calculator may be able to help you get an initial idea of how much you may be able to borrow but a true idea of how much you can borror will be provided by your mortgage broker or the mortgage lender. You should use theself-build mortgages calculator as only a guidance.

Advantages of self-build mortgages

One of the most important advantages of self-build mortgages is that you don’t have to pay stamp duty on the self-build property as it is classed as building work and there is no stamp duty on the cost of building work. Not paying stamp duty could potentially offer you thousands of pounds in savings which you can use to invest further in your self-build home.

You won’t have to pay stamp duty in the value of the property once it’s fully built either. The only time you may have to pay stamp duty is on the cost of the land, if it costs more than £125,000.

Site Insurance and Structural Warranties

“A bank or building society may not release initial funds until you can demonstrate that you have a 10-year structural warranty policy in place. When taking out your warranty, it’s also a good time to ensure that you have the right site insurance policy in place to give you peace of mind should anything go wrong.

Such policies are offered by providers such as:

self-build Zone

Q Assure Build

Protek

NHBC Solo

Premier Guarantee

LABC

Anyone undertaking a build project, whether borrowing or not, should have both in place prior to starting work on site.

Subject to affordability, banks and building societies are keen to lend on residential construction projects, providing you have carried out due diligence and engaged the appropriate team(s) to achieve the successful construction of your new home.”

Santander self-build mortgages FAQs

Getting a Santander self-build mortgage

Some high street banks may be able to offer you a self-build mortgage but usually, the specialist self-build mortgages lenders will be a better option.

Using a mortgage broker may also be very helpful as self-build mortgages brokers may have a lot of experience with the market and be able to recommend you the best mortgage product based on your affordability.

This is a much better outcome than going to a mortgage lender who can only advise you on the products they offer.

In this brief guide, we discussed what a Santander self-build mortgage would look like. If you have any questions or comments please let us know.

If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.

You can also contact the debt charity “Step Change” if you are in debt and need help.