Your Home Build: Certificates for Mortgage
When self-building a home the build is normally funded by a self-build mortgage. This differs from a normal mortgage in many ways.
Two Types
There are two types of self-build mortgage; each pays out in stage payments the difference is that one pays in arrears and the other in advance. The arrears payment can be a problem as the builder has to find the funds to pay for the initial part of the build before the building society or bank pays him. Overdrafts or bridging loans can add greatly to the cost of the build.
Collateral
Quite often the self-build mortgage lender holds the deeds of the builder's home as collateral. The builder is allowed to live in the home until the new build is complete at which time the house is sold and the loan is paid off. Sometimes there is a balance of money to be paid and a normal mortgage is negotiated.
Stages
The number of stages can differ from lender to lender but usually there are around six stages, plot, foundation level, brickwork (to the roof level), roof, plastering and completion.
Valuer
A qualified person is then sent to inspect the work and calculate a value. If this differs to what has been spent it can cause further hardship and stress to the builder. Some mortgages have a system where this is overruled. The valuer can be the architect that is paid by the self-builder. He will issue the certificate and the stage payment is made.
Cost
It is imperative that you cost each stage carefully as this can affect what payments are made at the end of the stage.
Contingency
When costing the build add a contingency plan of ten to fifteen percent for extra costs and price increases during the year it should take to build your house.
Home
If you have a self-build mortgage whereby you can stay in your home until the build is complete this can be an asset as you will not incur the cost of storing furniture for the duration of the build. Furthermore you will not have to rent another property or live on site in a caravan.
Timetable
When applying for a mortgage with stage payments you will have to submit a timetable of when you expect to claim the stage payments. If you are unable to keep to this timetable you should notify the building society or bank that is lending you the money so that they know there will be a delay. Failure to stick to the timetable could incur penalties.
Total
You will not be able to borrow one hundred percent of the cost of the build. Normally self-build mortgages are for 65 – 95% of the build but this does include the price of the building plot as well. Shop around for the mortgage that gives the best return.
VAT
Once the final payment has been made you will be able to claim back your VAT on the build.
Research the self-build mortgage market carefully before you make your choice. Many banks and building societies now have a self-build mortgage and there is sure to be one to suit your circumstances somewhere.
