The main difference between a self build mortgage and a house purchase mortgage is that with mortgages for self build, money is released in stages as the build progresses.

Some self build mortgage lenders will lend you money to purchase land, typically 75% of the purchase price or value, whichever is lowest.

Similarly you can usually borrow up to 75% of the cost of building your house as the project progresses, released in phases designed to mirror the building process and duration. Money is usually released in five stages:

  • Purchase of the land

  • Foundations completed

  • House shell completed

  • Plastering and 1st and 2nd fix (plumbing and electricity).

  • Following completion and independent valuation

These stages can be either fixed or flexible depending on your mortgage and individual providers, with the money released at the end of each stage or at the start of each stage.

Arrears stage payment

In arrears stage payment, the money for that stage is released after each building phase has been completed and a value has been established.

This can cause some self builders to have cash flow difficulties so is usually only a viable option if you have sufficient savings, other money coming in or other financial arrangements in place.

Whether arrears stage payment is the best self build mortgage option for you will depend on your circumstances, and also the size of the project undertaken (the cost of each building phase).

However it allows mortgage lenders to assess their investment on an ongoing basis, so can lead to cheaper self build mortgage rates if the build goes well.

Advance stage payment

The advance stage payment method releases the money required for each stage before work starts.

Advance payment mortgages have become very popular as they give positive cash flow during the build and make it easier to stay in your current house while the build progresses.

The stages of a build depend on whether or not you are building a traditional (brick and block house), a timber frame construction or if you are renovating or converting an existing property.

Therefore every mortgage for self build takes into account the type of project, which can affect lenders' willingness to offer advance stage payments, and their interest rates and monthly repayments.