Building your own home can be a great way to create your ideal property in your preferred area. However, financing the project works a little differently to a standard mortgage.
One of the biggest questions self builders face is how much deposit they’ll need. The answer can vary depending on the lender, type of build, and your overall financial circumstances.
We’ll look at how self build mortgage deposits work, how much you’ll need, and how to improve your chances of securing the funding required.
Do you need a deposit for a self build mortgage?
It depends! If you’re looking for a remortgage on a self build you won’t require a deposit.
However, if this is new self build project you’ll likely need a larger deposit than with a traditional mortgage. This is because of the higher risk involved for lenders (and why the money is released in stages rather than in one lump sum). Your deposit will go to your solicitor or conveyancer who will release the money when it is needed.
The good news is that if you already own the land you intend to build on, you may be able to use its value as your deposit.
How much can I borrow for a self build mortgage?
Many lenders release the funds on an arrears basis. This means the funds are released after each stage of work is completed. Therefore, you will need to have your own funds to start the project, as well as for the deposit.
At Suffolk Building Society we lend up to 80% LTV for self build mortgages on an arrears basis, however, 75% LTV is more typical across the market. Some banks or building societies may only lend between 50-60% LTV for a self build.
Some lenders release the funds in advance stages. This means, prior to the work being completed, you receive the funds to cover the next phase. On this basis, you might be able to borrow between 85% to 95%. However, this type of borrowing often charges a higher rate of interest due to the risk associated.
Exactly how much you can borrow for a self build mortgage will depend on the lender and your financial circumstances. As with any mortgage, you’ll be assessed in terms of affordability.
Luckily, there are several ways you can demonstrate your reliability to potential lenders. These include clearing any outstanding debt, cancelling unused subscriptions, and making sure you’re registered on the electoral roll. Find more ways to improve your credit score here.
The higher upfront costs required are why self builds are often associated with more experienced homeowners, but they have plenty to offer first time buyers too.
Do I need other savings for a self build project?
Self build projects often go over budget, so lenders may ask for proof of additional savings. This is to ensure that, if there is an overspend, the project is likely to still be completed. A recommended contingency fund is typically at least 10-20% of the total build cost.
While self build mortgages often demand larger deposits and more financial preparation than standard mortgages, they can still be an accessible route to creating your dream home. Understanding how lenders assess risk, how much you could borrow, and the importance of contingency funds can help you plan with confidence.
If you’re thinking of starting a self build project, take a look at our mortgage finder to see our full range of self build products. You can complete our Decision in Principle online. It takes around 10 minutes, and we’ll get back to you within 2 working days with an idea of whether we can help you. Start a Decision in Principle to find out if we can help
