Self-build mortgages
How to turn your dream home into reality with a mortgage designed for self-build projects.
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What is a self-build mortgage?
Thinking of grabbing a drill and building your own home? A self-build mortgage might be just what you need. Unlike a traditional mortgage, where you get a lump sum to buy a finished home, here funds are released in stages as your build progresses. This helps you manage the budget and ensures the project stays on track.
More and more people in the UK are going down the self-build route to create a home tailored to their lifestyle and preferences. Whether it's an energy efficient pod in the countryside or extending an existing property in the city, self-build mortgages can offer the financial freedom to build exactly what you want - if you understand how they work.
How self-build mortgages work
It's not a lump sum - you get funds as you build
With a self-build mortgage, the loan is paid out in stages rather than all at once. This protects both you and the lender, because the money is only released as things progress. Typically, you'll receive money after key milestones like buying the land, laying the foundations, building the walls, and finishing the interior.
There are two main types of self-build mortgage: arrears stage payments and advance stage payments.
- Arrears stage payments: Funds released after each stage of construction. This is the more common type - great if you have savings or extra cash to get started.
- Advance stage payments: Funds released before each stage begins. This is helpful if you don't have upfront capital, but it's harder to qualify for and fewer lenders offer it.
Let's say your custom-build home will cost £300,000 (including land). Your building society might approve a self-build mortgage of £240,000 (80% loan-to-value). Your land purchase costs £100,000 – the lender may release 80% of that (£80,000) after you've bought it. You'll then get funds for each new stage, like putting up walls or fitting the kitchen, once you show proof of completion, like an inspection report.
Pros and cons of self-build mortgages
There's flexibility – but also more paperwork and planning
Advantages:
- Bespoke home: You get a say in every detail, from layout to insulation.
- Cost savings: Building can be cheaper than buying an equivalent home, especially with careful budgeting.
- Value boost: A well-designed self-build often ends up worth more than it cost to build.
- Tax savings: You only pay stamp duty on the land over a certain cost, not the completed home.
Disadvantages:
- Higher upfront costs: You'll often need cash in hand to buy land or start work.
- More complexity: You'll need detailed outlines, planning permission, a builder's quote, and a project timeline to even make a self-build mortgage application.
- Risk of overspend: Weather, labour shortages, or unexpected costs can throw off your timeline and budget.
- Limited lenders: Not every bank offers self-build mortgages, so choices are more limited than traditional home loans.
Say you want to build an eco-home on a plot in a Cornish village. You might use savings to buy the land and fund the early stages. Your self-build mortgage could then help pay for the structural work, windows, even an air source heat pump. By managing the project carefully, you can stay within budget - and your finished home could be valued at tens of thousands more than the cost of building it.
Summing up
While a self-build mortgage comes with more paperwork and the uncertainty of the staged release of funds, the benefits can be huge - from potential savings to knowing you designed something that fits your lifestyle exactly. If you're organised, realistic about project costs, and prepared for a bit of stress along the way, it can be one of the most fulfilling things you'll ever do.
Frequently Asked Questions
Can I get a self-build mortgage with bad credit?
Yes, it's possible, but it can be more challenging. Lenders will look closely at your credit history, so recent or severe issues may limit your options. You may need a larger deposit and stronger paperwork to offset the risk. Working with a mortgage broker can help you find lenders open to less-than-perfect credit.
Do I need planning permission before applying?
Yes. Most lenders require full planning permission and detailed construction plans before they'll consider your application. This shows the project is viable and reduces risk on their end. It's a good idea to also have quotes, build costs, and timelines prepared, as they'll help lenders assess the structure of your loan and payment stages.
How many mortgage payment stages are there?
This can vary from project to project, but usually it's 5 or 6. Some lenders offer more flexible stage payments, but you'll still need to provide detailed plans to justify releasing funds at every step. The initial release will usually coincide with the purchase of the land or the start of construction, such as laying the foundations.
What if my self-build project goes over budget?
Going over budget is a common risk, so it's smart to plan for 10–20% overspend. If you run out of funds, some self-build mortgage lenders may consider extending your loan, but it's by no means guaranteed. You could also need to dip into savings or take out a separate loan, so managing costs carefully is essential from the start.
Can I live in a caravan on site during the build?
Yes, many self-builders live on-site in a caravan or temporary home to cut costs and keep an eye on the build. But you'll need to check with your local planning authority, as some areas have restrictions on this. Make sure you have the proper facilities and site insurance, too.
Is self-build cheaper than buying a finished home?
Often, yes. Building your own home can cost less per square foot, especially if you manage the project yourself and choose a cost-effective, modern methods. Plus, you only pay stamp duty on the land, not the completed house. That said, savings depend on how well the build is managed - overruns and unexpected issues can add up.
What happens when the build is finished?
Once the home is fully built and signed off by a surveyor, most people switch to a standard residential mortgage. This typically offers lower interest rates than a self-build mortgage. You'll need a completion certificate and possibly a new valuation. From there, you'll repay the loan amount just as you would with a regular mortgage.
About the author
Lawrence Howlett
Lawrence Howlett brings a results-driven mindset to his writing, shaped by over a decade of experience across finance, legal, and energy sectors. As the founder of Moneysavingadvisors, he’s built a reputation for turning complex financial concepts into clear, actionable insights for consumers. His writing stands out for its clarity, structure, and focus on delivering value.
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