"Which type of project is being undertaken is less of an issue as long as the applicant is directed to apply for the correct type of mortgage"
Helping a client build their own home is an incredible experience. For brokers who are interested in property and the build process, perhaps a much more rewarding one than dealing with a standard residential mortgage application.
However, self build projects scan a much broader spectrum than a broker might initially realise - especially if they are new to this area of lending. It is crucial to understand the various circumstances in which a self build mortgage is required, which will ensure clients get sound advice early in the process.
Greenfield vs. brownfield sites
Perhaps the most aspirational type of self build project is one on a greenfield site. The ‘green’ refers to greenfield land i.e. land that has never previously been built on, and in many cases, it is indeed, a green field. Greenfield can also refer to agricultural land or forestry areas. While these types of sites usually fulfil the self-build dream, it’s important to remember that very isolated sites may require a connection to water, gas and electricity which can add time, cost and an inconvenience to the project.
Although rarer, a brownfield site is the opposite of this and refers to previously developed land, often used for industrial, commercial, or even agricultural purposes, but that now lays derelict. However, it’s more than likely that this type of land or property is already connected to utility supplies.
Urban infill is a type of site that is not as frequently talked about but is the development of new homes on vacant or underused land in existing urban areas, often in between two existing dwellings.
With these three types of site in mind, it becomes easier to understand that self build does not just refer to expansive new build projects in the countryside. In fact, there are many other iterations and if they were better understood, it could perhaps lead to an increase in the number of people considering self build as a route to home ownership.
New build self builds
Starting from scratch on a self build project does have its merits. In fact, our research showed said that this is the type of project that self builders are most interested in. The benefits are clear - the sky is the limit in terms of designing a home that meets the homeowner's exacting requirements. And even if budgets constrain plans in the immediate future, a property can be designed to be extended at some point in the future (albeit with additional planning approval).
Knockdown and rebuild
Sometimes, finding an empty plot of land that is the right size and in a favoured location can be easier said than done. Perhaps a location or a specific view takes a client’s breath away but they are less than enamoured by the property itself. Demolishing a property may also make sense if it is in a very poor state and requires so much renovation that it is more cost-effective to knock it down and start fresh.
In these circumstances, a knockdown & rebuild project is probably the client’s route to a new home and due to the amount of work needed on the property, a self build mortgage would be required.
Over and above all the usual costs of a self build project, the project plan and budget will also need to factor in the cost to remove the existing building too. However, one advantage of a rebuild over a renovation is that if a building is knocked down to ground level, the client can claim back VAT on future building materials.
Major renovation
The third type of self build is a major renovation. A major renovation is not as dramatic as a knockdown & rebuild project, as it’s likely that the bare bones of the property are sound.
Of course, from time to time many homeowners complete renovations, and not all renovations are classed as self build.
For low-key renovations that have little to no impact on the short-term habitability of the property, most lenders will allow additional borrowing on top of a residential mortgage to cover the necessary work. Self build renovations are much larger and often more disruptive, so borrowing the funds through a residential mortgage is likely to be a breach of contract.
Whether or not your client will need a self build mortgage depends on several factors. Although these vary from lender to lender, It is likely they will need a self build mortgage if the following applies:
● The property is uninhabitable and occupants need to live in a separate dwelling.
● The property is left without a kitchen and/or bathroom facilities for an extended period of time.
● Work is being undertaken that alters the structural elements of a property that are essential to its stability.
On paper, it’s easy to pigeonhole these three types of projects but in reality, the boundaries between a knockdown & rebuild and major renovation can be blurred. Which type of project is being undertaken is less of an issue as long as the applicant is directed to apply for the correct type of mortgage - which in all three scenarios above would be a self build product.
Dipping your toes in the self build waters is like swimming in the sea - it’s great once you’re in! But if you need some reassurance to take those first steps, always seek the advice of a lender as they will have been there and bought the t-shirt and will be happy to give guidance about product suitability, criteria, and how best to put a case together.
As a Society, we are much happier to here from brokers about their potential self build cases, weeks or even months before they actually submit the application as this gives the best chance of being accepted.
We all know that granting a mortgage is much more than just about allowing someone to borrow money. It’s about making dreams happen, allowing people to feel settled, and starting a new chapter in their lives, and this is all amplified when we think about self build.
Being a champion of this sort of lending is equally rewarding for those who help make it happen!
