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Securing a mortgage for a new build house can sometimes be difficult, especially if the developer is still constructing the property. If you’re only a buyer and not a builder, the person or company in charge of the construction project should already have a 10 Year Structural Warranty in place.
As the buyer, this policy will protect you against the builder going out of business during the build, then pass onto you when the new build is complete. This will then provide financial security against latent structural defects for the next 10 years. If the developer doesn’t have one of these policies, or you buy after completion, the alternative option is a 6 Year Professional Consultants Certificate.
Since getting a mortgage involves a financial institution taking the risk of investing in your property purchase, most banks and building societies will expect there to be some kind of official guarantee that the new build is structurally sound and in compliance with building and safety regulations.
This is why it’s often worth ‘shopping around’ for a suitable home structural warranty, especially for small builders and self-builders. While NHBC is one of the best-known providers, it’s not always the most affordable or the best deal. So, if you’re looking for an alternative UK Finance-approved policy, to help you get a mortgage for the home you’re building, why not consider our ABC+ Warranty?
Yes, you can. Unless you’re able to finance the build yourself from your savings, selling assets, or another type of loan from your family or the government, then it’s likely you’ll need to apply for a self-build mortgage. Standard residential mortgages usually apply to completed new builds, with the money released in a lump sum at the end, whereas the process for a self-build is very different.
Whether you’re in the planning stages after buying a plot of land to build a house on, or you’re converting or renovating an existing structure like a barn, there’s sure to be a structural warranty that suits your situation – which will then help you to secure funding in the form of a mortgage.
If you’re a first-time builder or buyer, banks and other lenders may be cautious and reduce the amount you can borrow. Since self-build mortgages tend to be released in stage payments to help you finance each step of the project, you need to be in the best possible position financially to get the most from the lender – including having the protection of a structural warranty and good credit.
There are different types of self-builds, depending on the level of involvement you have in the actual construction. For example, you could design the home and participate in building it, or design it all then hire a contractor to do the construction work – or even buy a partially-finished property from a developer and complete the build yourself. The way you do it will affect your mortgage eligibility.
The best approach is to work with a qualified builder or general contractor who has the provable experience and qualifications, plus the correct insurance. It’s difficult to completely DIY a self-build house if you aren’t an experienced builder yourself, as you’ll need the proper licenses and insurance.
Yes, it’s possible to apply for a self-build mortgage in order to first purchase the plot you want to build on. If you don’t have the money to purchase land upfront, it may be better to get a separate loan known as a land mortgage or land loan. This is because the amount you can borrow to pay for the land can be higher than the amount you can borrow to pay for the construction of the house.
For example, you may be able to borrow up to 75% of the land value, but only around 60% of the building value (in the case of a self-build, this value is estimated from the plans). Of course, you’ll need to have your designs drawn up and secure planning permissions from the local authority before submitting your self-build mortgage file – the application won’t succeed without them.
Having two separate mortgage loans for the land and the house itself can make things complicated, and may increase your costs, but it’s still manageable if you take good control of your finances and manage your resources in a realistic way. The down payment for a land mortgage may be around 15%-25%, while the deposit for the actual self-build mortgage may be higher (between 25%-40%).
A construction loan is simply another name for a self-build mortgage – because you’re borrowing the money to build the house rather than purchase a completed structure. Just as there should have been a new build structural warranty in place from the start when you purchase the home from a developer, so should there be a self-build structural warranty in place before you start construction.
If a bank agrees to lend you money for a self-build, you can receive a lump sum mortgage payment in arrears after funding everything yourself or in gradual advance payments. Obviously, most self-builders prefer to receive stage payments throughout the build to fund each stage of construction work, rather than paying out of pocket then using the mortgage payment like a reimbursement.
You can find out more about self-build mortgage stage payments in our dedicated guide. One of the risks of this type of loan is that your project can easily go over budget if you don’t plan carefully, and the mortgage offer may have a time limit (for example, giving you one year to complete the build). The interest payments are also likely to be higher than they would for a typical residential mortgage.
On the plus side, self-build stage payments are an extremely useful way to keep the project on track, and having a self-build structural warranty ensures that the bank should sign off on each stage payment. Your structural warranty provider, such as ourselves, should send a chartered surveyor to carry out regular professional inspections and check on progress and legal compliance.
These loans are sometimes also known as construction-to-permanent loans, because the stage payment loan can be converted into a normal residential mortgage once the building is complete, at which point you’ll begin making your self-build mortgage repayments according to the contract. You’ll typically only be paying interest on the mortgage loan throughout the duration of the build.
As we’ve discussed so far, a specialised self-build mortgage usually requires an equally specialised self-build warranty. Here at Architects Certificate, we provide a range of UK Finance-approved 10 Year Structural Warranties, which are accepted by more than fifty approved lenders in the UK.
No one can answer the question of whether it’s better to buy or build a house for you – that’s something you need to decide for yourself. Your chances of mortgage approval and the processes involved in building and buying can vary according to your individual circumstances, so it really is up to you. Whichever route you choose, we can provide a suitable structural warranty for your home.
For more information on the UK Finance certificates and warranties we supply (previously known as CML architects’ certificates), please give our team a call on 0161 928 8804 or send an email to email@example.com. We’ll be happy to provide assistance and offer a tailored quote.
This article was updated on 04/03/2022.