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Self-build mortgage in the UK? It doesn’t have to be difficult!

kredyt na budowę self-build mortgage Extend Finance

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Do you dream of having your own home, but the properties you find on the classifieds portals don’t suit you? Think about building! Although it is a costly and risky venture, it will certainly repay you with a higher standard of property and more opportunities to personalise your home. It all sounds lovely, but let’s deal with the finances first. In this article, we’ll explain to you how a self-build mortgage works and how to get one.

self-build mortgage in the UK Extend Finance
Self-build mortgage is a mortgage designated to finance construction a house

When will building pay off for you?

Contrary to popular myths, building a house does not have to be very expensive at all. However, you must bear in mind that you will encounter a number of costs that you would not incur when buying a property on the secondary market. These include:

  • Purchase of a plot of land
  • VAT
  • Building design costs
  • Building permit costs

It should also be noted that many people opt for non-standard solutions, which can have a huge impact on the final cost of construction. For example, installing a wooden floor in a 140 square metre house could be around £7,000 more expensive compared to typical synthetic panels. Of course, it’s more pleasant to walk on parquet flooring, but be aware of the costs involved in installing it.

Building a house pays off if:

  • You own a plot of land or can buy it for a relatively small amount, for example at auction
  • You can reduce labour costs by doing some of the work yourself
  • You are able to wait to move
  • You have savings for your deposit and unforeseen expenses
  • You will get a mortgage for the construction with favourable conditions
  • You are planning to build rather a big house
  • Properties in your area do not suit you so well that expensive renovations would be required after purchase

On the other hand, it will not be profitable if:

  • You are not looking for customised solutions
  • You are looking for a way to spend as little as possible on a house
  • You are planning to build a small house, for example with two bedrooms
  • You want to live close to the city centre
  • You want to move quickly
  • You do not have a large deposit

Why does the size and location of the house matter? Statistics show that for larger homes, the cost of construction is lower than the average transaction price, while smaller properties turn out to be cheaper to buy. Also bear in mind that if you do manage to find a building plot in a city, it will be extremely expensive. Cities in the UK are very densely built up and local planning conditions are restrictive.

What conditions do you need to meet to get a self-build mortgage?

A self-build mortgage is riskier for the bank. During construction, literally anything can happen. For this reason, lenders make additional requirements to protect them from losing money. A self-build mortgage involves:

  • Preparation of an architectural and structural design
  • Obtaining a building permit before starting the construction work
  • The disbursement of funds in instalments as the next stages of construction are completed
  • The requirement to raise a much larger deposit, often at 25% of the total investment
  • Higher interest rates compared to mortgages granted for the purchase
  • The obligation to meet certain requirements of the bank. You will not be able to build a house in any way you like
  • The necessity to have a high income. You have to live somewhere during the construction process, so the bank will take into account your current rent or the instalment of the mortgage you are paying now.

Of course, there are more requirements and they vary depending on the bank you will use. As of the date of writing this article (26.04.2023), our company works with 28 lenders that can offer you a self-build mortgage and each of these companies has separate rules. The differences are significant in that Halifax will lend a maximum of 75% of the value of the development, while the Nottingham will agree to up to 85% of the total cost, but the mortgage must not exceed £600,000.

By far the best option would be to use a broker, such as Extend Finance. Our staff will not only help you choose a favourable mortgage, but will also answer many questions about the formalities. We have to honestly admit that it is very rare for someone to apply for a self-build mortgage in the UK. Statistics also indicate this: in one year (2021-2022), around 200,000 properties (including many flats in blocks of flats) are put into use, while in the same period, the total number of property transactions exceeds one million.

How much does it cost to build a house in the UK?

We wouldn’t be ourselves if there weren’t a lot of figures in this article . The estimated cost of building a 3-bedroom house in the UK is between £240,000 and £360,000, while for 4-bedroom houses, it will be around £290,000 – £440,000. Let’s add a little more detail though.

The above figures do not include the cost of the plot, and it has a huge impact on the overall cost of the development. As in most countries in Europe, landed properties are divided into those with development rights and agricultural land. In the case of building plots, prices can be astronomical! An acre of land (around 4,000 square metres) costs £300,000, or even £1 million in the most convenient locations!

A much cheaper, but also more complicated, solution is to buy a plot of agricultural land that can be converted into building land. The cost of buying the land is around £12,000 to £15,000 per acre, while it will cost you a minimum of £25,000 to de-land it. Of course, this is still expensive, but remember that the value of the land will increase significantly.

The next expense is planning permission, which costs several hundred pounds. The exact amount depends on a number of variables, so when calculating this it is worth using the calculator available on PlanningPortal. Also factor in the design costs, which will easily exceed £3,000 and often reach £5,000. Of course, it all depends on your requirements and the specifics of the project, but if you want a unique look for your home, you need to expect to spend a lot on architect and builder work.

You probably also dream of a garden, which is not included in the standard cost of building a house. If you want your surroundings to be eye-catching, spend an extra £50 – £80 per square metre to realise it. Of course, you can take care of the garden later, which is reasonable anyway, as the self-build mortgage does not include garden design.

Assuming your bank will require a deposit of 20%, you should prepare around £60,000 or preferably £70,000 deposit for a self-build mortgage. After all, you need to bear in mind possible unforseen problems, such access to utility services, damage to windows during installation and inflation, which affects the cost of construction materials and the price of the construction team.

What can you do to build a house more cheaply?

For many of us, £60,000 is an amount that will take many years to raise, and you may need to moved out within several months, which means incurring additional cost for rent. For this reason, it makes sense to look for ways to cut costs. For example:

  • Consider whether you can do some of the work yourself. Of course, you will need a plumber or electrician with certain qualifications to do the installation, but you can learn many tasks, such as laying floors, at a surprisingly fast pace
  • Look for construction workers among your friends. Perhaps someone could help you out in an exchange of favours?
  • Avoid unusual and expensive finishing materials (exotic woods, marble) and consider what floor space you really need
  • Ask your relatives to help you raise a contribution. Regulations prohibit borrowing money, but perhaps your parents have savings they could give you as a donation?
  • Sell unneeded items and even your car. After construction, there will be a way to recover the funds, which we will address below.
  • Move to a smaller house or apartment for the duration of construction. A lower rent will increase your financial capacity, and the property doesn’t have to take very long to build at all
  • Cut down on unnecessary expenses. Do you really need to fly on vacation?
  • Choose a self-build mortgage with money disbursed after a given stage of construction. The first tranche will come to you after the purchase of the plot (if you finance it with a mortgage). In such a financing option, you will receive about 80% of its value for each stage, and you will be able to pay the rest from your current savings

Well, why is it worth selling the car? A self-build mortgage covers only 75-80% of the total investment, but if you read the second part of the Q&A you may remember that a standard mortgage can finance up to 95% of the purchase amount. This difference, of course, is due to different levels of risk, after all, during the erection of the house there is a much higher probability of problems. When the construction is over, it is possible to change the lender (to do a remortgage).

There is nothing to prevent you from taking a mortgage for a higher amount than the original one, so you will have a lot of spare cash left over after paying off your current obligation, which you can spend, for example, on a new car.

Does a self-build mortgage carry a higher interest rate?

As you may have guessed, a self-build mortgage will, as a rule, be more expensive than one you would take to buy a property on the secondary market. The interest rate on these products depends on your credit score and LTV (loan to value), among other factors, but the example offer from ESBS bank is 7.1% (after fees and commissions).

As with other financial products, a self-build mortgage can come with both fixed and variable interest rates. This is, of course, our opinion and should not be taken as financial advice, but at this point, a mortgage with a fixed interest rate, locked in for 2 or 3 years, after which you can remortgage, will be quite reasonable. During this time, you will probably be able to complete the entire investment, and with this, you will easily change the self-build mortgage to a standard facility, the interest rate of which should be lower.

How long does it take to build a house in the UK?

When taking a self-build mortgage, you need to complete the stages within a certain period of time. After all, in addition to the bank’s requirements, it’s the money you spend on rent that counts, and which you lose with each installment of a commitment with a higher interest rate. According to most sources, construction takes an average of 5 to 9 months, but we can tell you from experience that it’s worth the time in excess of one year. In extreme cases it will be as long as 2 years, although this applies to more complicated projects.


Perhaps our article has dissuaded you a little from building your own home and applying for self-build mortgage. It is certainly a very expensive venture, but if you decide with the right amount of cash, it is definitely worth considering. The ability to tailor the property to your and your family’s needs repays itself in much greater comfort, and a home built to a high standard will certainly retain its value for many years to come.

Looking to build or buy a property in the UK? Make an appointment for a free, no-obligation consultation with our experts! We will guide you step by step through all the procedures, find you the best possible self-build mortgage for your construction or for purchase and answer all your questions!

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Think carefully about securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Conveyancing services and some forms of Buy to Let mortgages are not regulated by the Financial Conduct Authority.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts
secured on it.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Conveyancing services are not regulated by the Financial Conduct Authority.

Extend Finance nor The Right Mortgage Limited can’t provide advice regarding Personal Pensions, Pension planning or investment planning advice. You must seek independent financial advice from a suitably qualified professional financial adviser who may charge you for advice.

Wills, Will writing, Trusts and Trust planning are not regulated by the Financial Conduct Authority.

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