Self-build mortgage on land you already own

In this blog, we will discuss how to get a self build mortgage on land you already own.

Can you get a self build mortgage for land you already own?

Yes, you can get a self-build mortgage for land you already own.

Self-build mortgages are a type of development mortgage which allows you to manage the build of a property.

A self-build mortgage will usually provide you with the total cost of a build but will release these funds to you as you hit your development milestones.

You may find that you will have more mortgage options due to the fact that you already own the land and all you need is money for the actual structure. This will of course limit the amount that the self build mortgage lender will have originally have had to give you if you didn’t already own the land and in some ways limits their risk.

Self build mortgages for land you already own still face the same problem as other mortgages in the fact that they are still risky and dependent on you completing the building project on the time allocated without you over exceeding your budget.

If you exceed your budget on the self-build mortgage then you may find that the mortgage lender is unwilling to lend more to you.

The loan to value rates for self build mortgages on land you already own will be around 60% to 70%. You may even get loan to value rates on self build mortgages for land you already own at 80%.

Self build mortgages aren’t the only option if you already own the land. You could simply remortgage the land and use the equity released to develop the property before remortgaging to a standard remortgage and clearing your original mortgage balance. Remortgaging the land may also be an option if you find out that you have exceeded the self-build mortgage that you were given as building costs were underestimated or spiralled out of your control.

If you already own the land but your capital reserves are low, you can remortgage the land in order to raise initial finance to cover the building costs and bridge the gap between your self build loan and the total cost estimated in your budget plan.

How much mortgage deposit do you need for a self-build mortgage?

You will usually need around a 30% mortgage deposit for a self-build mortgage but this may be much higher depending on if you have bad credit or are self-employed.

If you already own the land then you may be able to use the land as collateral in order to secure a self-build mortgage.

Types of self build mortgages

Whether you own the land or not there are two types of self-build mortgages.

The differentiating factor between the two types of self-build mortgages is when the funds are released during the development.

  • funds are released when you complete a particular milestone or stage of the building.

Arrears self-build mortgage

An arrears self build mortgage may be more suitable to you if you already have the capital to fund the initial purchase of equipment and payment of building staff. With this option you will likely take more care as the funds will be debited from yourself first before credited back to you by the lender. If you go over your budget then, of course, you will have a shortfall between what the self-build lender pays you at the end of the milestone and what you spent.

An arrears self build mortgage option is also good if you already own the land and want to remortgage it as a source of funds before recouping these funds from the self-build mortgage.

In advance self-build mortgage

With an in advance self-build mortgage, funds are released before each stage of the build.

If you are unsure of which self build mortgage option is best for you regardless of if you own the land already or not then speak to a mortgage broker who may be able to analyse your situation in more depth and provide you with a recommendation.

Do you need planning permission for a self-build mortgage?

Yes, you may need planning permission for a self-build mortgage as most self-build mortgage lenders will want to see that you already have planning permission arranged before they lend to you. Getting a self build mortgage can take a very long time and this will all be a waste if you don’t have planning permission already sorted out.

In the UK, planning permission usually comes in two stages –

Outline consent planning permission –

-agreement with the local authority to build on the plot of land but no agreement for the specifics of the property

Detailed consent planning permission

  • agreement on the specifics of the property

Some self build mortgage lenders will give you an initial advance if you have outline consent planning permissions but if you end up not getting the full detailed consent you will likely have to pay the money back and deal with any costs associated with returning the land back to its original state.

Alternatives to self build mortgages

There are a few alternatives to a self-build mortgage you may want to consider regardless of if you already own the land or not.

Some of those include:

Bridging mortgages

Construction mortgages

Commercial mortgages

Personal loans

Remortgaging an existing property

Equity release products

Unsecured business loans

How to get a self build mortgage if you already own the land

If you already own the land the self-build mortgage process is relatively the same. You should consider if speaking to a self build mortgage broker may be a good option for you as self build mortgages ay be considered a specialist area of the mortgage market.

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.