Non Standard Mortgages - Self Build
Arrears Stage Payment Mortgages
An arrears stage payment mortgage sees funds for building
works are released in arrears, on completion of key stages
in the construction programme.
Lending will typically be between 75 - 95 percent of the
cost of the build and some but not all lenders will make
a separate loan provision to allow the self-builder to purchase
the land on which the house will be built. In addition to
the purchase of the land, the self-builder needs to be able
to meet the costs of each stage of the building work before
any money is received, which can often lead to serious cash
flow difficulties with this sort of work. The cash flow
situation is often worsened by the propensity for building
and project management costs to escalate, which is why a
slush fund of around 10 percent of the total cost is usually
recommended.
Many self-builders sell their house to pay for the project,
either moving into rented accommodation or a living in a
caravan on site for the duration of the work. This is one
of the most common routes to funding the project.
However, an increasing number of lenders allow you to stay
in your own home while the building work is carried out,
often by allowing a capital raising charge to be taken out
on your existing property in parallel with a self-build
mortgage.
If neither of these options is possible and the self-builder
has insufficient capital from other sources, then short-term
loan finance may be the only other option, but this is more
expensive and should be a last resort. It is also worth
considering whether the whole project is really that viable
if you are having to opt for a last resort right to provide
a solution to such a fundamental issue as funding.
The construction programme is normally divided into four
equal stages, each representing 25 percent of the build
costs. Funds are generally released on completion of the:
Foundations
Roof plate
Plastering
Remainder of the property
Each fund release is triggered by a re-inspection of the
site and an interim valuation, for which there is normally
a charge somewhere in the region of £50. This revaluation
is really for the protection of the lender - they are not
committing themselves to release the money until they are
told by a professional that there is sufficient value in
the property on the building site to support the additional
borrowing. This pretty much guarantees that they could get
their money back in the even of repossession.
