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Self-build mortgages can be used to build a property from scratch or to finance the refurbishment of an existing property. Some self-build mortgages will provide financing for the initial purchase of the land/property. This is, however, not guaranteed and where it is available will typically only be for a part of the cost. With this complete self-build mortgages will release money in stages as the build progresses. Depending on the product, this may be in arrears or in advance.
Having an arrears-stage-payments mortgage has the obvious disadvantage that you need to find the money yourself and reclaim it from your lender. If you can do this, however, then you may well find yourself rewarded with a lower interest rate. By contrast, having an advance-stage-payments mortgage can make it easier to manage your cash flow, but you can expect to pay for the convenience.
Whichever form of self-build mortgage you choose, you’re likely to find that the costs are (a lot) higher than the cost of an equivalent mortgage for a pre-existing property. This reflects the higher degree of risk. That said, when your property is ready, you will have the option to remortgage on the mainstream market.
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