Financing a Self Build Property
Investors are becoming increasingly aware of the money that can be made out
of building property. This is all well and good; however, the financing of
these ventures can be very complicated, putting many investors off an otherwise
sound investment. Don’t be one of them!
Buying Land
Buying land in order to develop one or more properties is generally considered
a sound financial investment, particularly for those with building experience
who can cut the build costs to a minimum. Having said this, the process can
be a lot harder, with plenty of hurdles that can easily trip up the inexperienced
investor.
Financing is a huge issue for investors looking to self build; not only does
the cash have to be raised to purchase the land, but there are also the regular
payments that will be due to builders, architects and other professionals,
along the way. A traditional mortgage is normally out of the question as companies
will be reluctant to offer finance secured on a house that is not yet built.
In addition, the cost of building a property often over-runs dramatically and
developers could find themselves in a position of running out of funds, before
the project is complete.
Many mortgage companies have realised that the issue of finance can prevent
otherwise lucrative investments from going ahead. Based on this, there is now
a wide range of ‘self build mortgages’ or ‘stage payment
mortgages’ as they are often referred to by banks and brokers. Currently,
there are approximately 50 self build mortgages available and although traditionally
these were provided by specialist lenders, the trend has moved towards more
mainstream establishments offering the same facilities, namely HSBC and Halifax.
Every lender has a different set of criteria although, as a general rule,
a mortgage provider will not normally provide more than 75 percent of the cost
of the building plot itself and not more than around 60 percent of the build
cost of the property. Having said this, if cash is particularly tight, there
are some specialist lenders such as Buildstore which will lend up to 95 percent
of the value of the building plot. If you are looking for a large amount of
financing, a specialist lender may be a better bet; alternatively, it may be
possible to take out a personal loan, although these rates can be substantially
higher and, therefore, have a negative impact on your potential profit. Another
often favoured option is to take a larger mortgage on the current family home
to make up the shortfall. This, however, has a degree of risk attached, because
if you fail to make both payments, you could potentially find yourself homeless
and investment-less!
Self build mortgages are normally paid out in five stages. This is a great
way of going about the process of self build, as investors are not then paying
interest on finance that they do not yet require. This is also very useful
for controlling adequate budgeting and for helping new developers ensure that
no one stage of the build runs terribly over budget.
The first stage will be the acquisition of the land although, as previously
mentioned, it is unusual to receive more than 75 percent of the actual purchase
cost. The second stage will be paid out at the completion of the foundations,
third at the completion of the roof plate, fourth at the completion of the
plastering and the final stage at the completion of the property.
Bear in mind that mortgage lenders are likely to require regular visits by
their personnel for valuation purposes and to ensure that the final build is
worth the amount of money that is being loaned by the bank.
Do not be put off by the complications of a self build mortgage; for those
who battle through the paperwork, there is plenty of profit to be made!
For more information on self build mortgages, take a look at these
sites:
www.selfbuild-mortgages.co.uk
www.selfbuildit.co.uk
www.projectmortgages.co.uk
Popularity: 7% [?]
