The Self Build Mortgage

If the words 'stamp duty' send a shiver down your spine, read on...

Over the last few years, the idea of building ones own home has become increasingly popular; entire swathes of the television schedules are dedicated to the subject. What was once a fringe activity, the province of the wealthy and eccentric, has become decidedly mainstream – so much so, in fact, that many banks and building societies now offer a 'self-build mortgage' to cater specifically for the growing number of people with 'grand designs'.

Unlike a traditional mortgage, a self-build mortgage is released in phases, with the first instalment being made available to buy the plot of land and subsequent instalments being made available at the beginning or end of key milestones within the construction schedule.

Self-build mortgages can be quite restrictive. Most mortgage lenders will only offer 75% of the cost of the land and around 60% of the cost of design and construction. Also, few mortgage lenders will approve a self-build mortgage for someone who intends to build the property themselves, without the assistance of architectural and construction professionals. And because self-build is seen as something of a risk, the interest rates charged are often a little higher than those offered for a traditional mortgage.

But it's not all bad news. Far from it. First of all, there's stamp duty. When you're building your own property, you only pay stamp duty on the value of the land, and then only if said land is valued at £175,000 or above. Even if the completed property is valued at half-a-million, you'll still only pay stamp duty on that initial plot of land. For more extravagant properties, this could represent a very considerable saving. Plus, according to many self-build specialists, on average a self-built property will be worth 25-30% more than the original cost of construction.

This is a complex area, and as always, it pays to take advice from a qualified mortgage broker.