Self-build and renovation mortgages

A self-build or renovation mortgage is a home loan designed for a property that does not exist yet, or does not yet look the way you want it to. The main difference from an ordinary mortgage is how the money arrives: instead of one lump sum on completion, the lender releases funds in stages as the building work progresses¹.

That staged structure is what makes these loans work, and also what makes them harder to get. Bath Building Society says you can expect to need a deposit of at least 25% of the total project cost unless you own the land already². Ecology Building Society asks for a 20% minimum deposit to buy the land plus a further 15% to 20% of total build costs to start the build³. By contrast, a standard mortgage usually needs at least 5% of the property's value⁴.

The trade-off is control. You are not buying a finished home with a known value; you are funding a project whose final cost and final value are both estimates until the work is done. Lenders price and structure for that uncertainty, which is why the deposit is larger, the paperwork is heavier and the choice of providers is narrower.

What a self-build or renovation mortgage is

A renovation mortgage is a type of additional borrowing used specifically for home improvements, secured against the projected property value⁵. A self-build mortgage does the same job for a plot and a build. Both are secured loans against the home you will end up with, not against the home you have now.

The mechanics differ from a standard purchase in one important way. With a normal mortgage the lender values a finished property and hands over the money. With a self-build, the lender is advancing money against something that is being created, so it needs a way to check progress and limit its exposure at each point. That is what the staged release schedule is for.

The Financial Conduct Authority's rules recognise this. Its mortgage conduct rules cover the release of tranches of money to the customer in relation to a self-build mortgage or other instalment mortgage⁶. In other words, staged lending is a recognised, regulated product type rather than an informal arrangement.

Most self-build mortgages are offered on a repayment basis, where each monthly payment covers some of the loan and some interest⁷. Some lenders also offer interest-only during the build, switching to repayment on completion⁸. Interest-only means you pay only the interest each month and still owe the full amount at the end, so it needs a separate plan to clear the debt⁹.

Projects these mortgages can cover: new builds, conversions, renovations and knock-downs

The range of projects is wider than the name suggests. Suffolk Building Society lists new projects from scratch, conversions, renovations, knock down and rebuilds, and mid or partially built projects among the build types its self-build mortgages cover¹⁰. That last category matters: if you have already started and run out of money, some lenders will still consider taking it on.

Conversions are a recognised niche. Bath Building Society describes barn conversions as a niche area of lending but something it can consider². Beverley Building Society says its self-build and custom-build mortgages could suit you if you are planning to build your own home, join a custom build project, or convert an existing property such as a barn⁸. Ecology Building Society lends for conversions on the same planning terms as self-builds³.

Renovation lending covers a similar spread. NatWest says a renovation or remodel mortgage may cover extensions, structural changes and other refurbishments⁵. Skipton describes a new build mortgage as helping you buy a home that has been newly constructed, significantly modernised, or refurbished in the past two years¹¹. Hampden Bank offers loans to significantly refurbish an existing residential property¹².

One thing these mortgages do not cover is a mobile home. Banks and building societies do not offer mortgages for buying mobile homes¹⁴.

Staged payments: how the money is released as the build progresses

The staged release is the defining feature. Northern Ireland's official guidance puts it plainly: the lender releases money to the borrower in stages, not as a single amount, as the build progresses¹⁵.

There are two timing models, and the difference matters for your cash flow. An advance self-build mortgage releases payments at the beginning of each stage, so the money is available to pay trades as the work starts². An arrears self-build mortgage releases payments after each stage is complete, which suits people who have cash to pay for the work up front and want to be reimbursed². Northern Ireland's guidance describes the same split, with an arrears-based mortgage releasing money in staged payments as each stage is completed¹⁵.

The stages themselves follow the build. Bath Building Society sets out a typical schedule: the first payment when you buy the land; the second when the foundations are laid and again once the property is built up to eaves level; further payments when the roof is watertight and when the interior walls are plastered; and the final instalment on completion². Beverley Building Society releases funds in six stages: land, foundations, wall plate, wind and watertight, first fix, and second fix or completion⁸.

Not every lender uses fixed milestones. Ecology Building Society releases funds as and when the build progresses, up to a percentage of the increased value of the property³. Its Self-build 65% mortgage releases staged payments of up to 65% of your increased property value as the build progresses, with no set construction milestone stages¹⁶.

Suffolk Building Society releases funds in arrears for new purchases; for self-build remortgages it can depend on your circumstances whether funds are received in advance or in arrears¹⁷. If you are remortgaging to fund a build rather than buying a plot, ask which model applies before you commit.

Who can get one and what lenders look for

The first filter is the project itself. Suffolk Building Society states that its self-build mortgages are only for personal use, so borrowers must live in the property themselves once it has been completed¹⁷. These are not investment products.

The second is planning. Ecology Building Society needs at least outline planning permission to start the application process and detailed planning permission before the mortgage is released³. Its Renovation Large Loan requires planning permission or listed building consent to be in place before funds are lent¹³. Its off-site build mortgage works the same way¹⁸. Where a project needs formal planning permission from the local authority, that permission has to be obtained³.

The third is costings. Suffolk Building Society requires full costings to be provided, and offers a self-build budget planner to help¹⁰. A lender needs to see what the build will cost, stage by stage, before it can agree a schedule of releases.

The fourth is income and affordability. Lenders must check if you can afford mortgage repayments and may refuse a new mortgage¹⁹. That check is harder on a self-build because you may be paying rent or an existing mortgage at the same time.

Self-employment is not a bar. Family Building Society offers a range of mortgages for landlords and the self employed²⁰, and lenders will usually require a deposit of at least 10% of the purchase price if you are self-employed²¹. Some lenders work only through intermediaries: Bath Building Society's self-build and custom-build options are available exclusively through BuildStore²².

Applying for a self-build or renovation mortgage

Applying for a mortgage usually involves four main stages²³. You can apply direct to a building society or other lender, or use a regulated mortgage broker²⁴. The Building Societies Association suggests contacting the building society directly, or speaking to an independent mortgage adviser, to see what is most suitable for your needs⁷.

Leeds Building Society sets out the situations it handles: an existing mortgage customer, buying a new home, remortgaging, or a buy to let mortgage²⁵. A self-build application will sit alongside those, with the extra documentation the project needs.

1. Get planning permission in principle. At least outline permission is needed to start an application with some lenders, and detailed permission before funds are released³.
2. Prepare full costings. Lenders require a stage-by-stage budget, and some provide a planner to build it¹⁰.
3. Arrange the mortgage. Apply direct or through a regulated broker²⁴.
4. Have the land valued and the plans assessed. A surveyor may also provide a minimum reinstatement value, the amount you would need to rebuild the property from the ground up, which is useful when arranging buildings insurance²⁶.
5. Agree the release schedule. Confirm whether payments come in advance of each stage or in arrears after it².
6. Draw down stage by stage as the work is certified.

If you are buying a newly built home in Scotland, official guidance says to arrange a loan and take legal advice before accepting the builder's offer²⁷. If your home has a Help to Buy equity loan and you plan structural alterations, permission is required from the scheme administrator for anything that needs planning permission, changes to the layout, loft or basement conversions, specially adapted kitchen units, extensions or conservatories, and changes to access²⁸. Internal redecoration, painting, carpeting, built-in furniture, refitting an existing kitchen or bathroom, and garden landscaping do not need permission²⁸.

Can I live in my current home while the new one is being built?

Often yes, but it has to be arranged. Northern Ireland's official guidance says that if you want to stay in your current home while you build your new home, you need to discuss any unpaid mortgage with the lender, and you need to make sure you have enough income to cover both mortgages¹⁵.

Let to buy is one structure for this. It involves having two mortgages at the same time: a buy-to-let mortgage on the existing home and a standard residential mortgage on the new home²⁹. Lenders will usually want proof that you are buying a new home at the same time as switching your mortgage, typically a copy of your mortgage offer for the new home²⁹.

A lifetime mortgage can be transferred to a new property, subject to the lender agreeing that the new house is suitable³⁰, and you can remain in your home as long as the property is in good repair and you do not go bankrupt³¹. That is a later-life option rather than a build route, but it matters if you are funding a build in retirement.

What can go wrong during a build and where to get help

The most common problem is a gap between what the lender will release and what the work costs. Because each stage is released only when the previous one is done, an overrun has to be covered from your own funds. Lenders must check affordability and may refuse a new mortgage¹⁹.

Insurance is a separate risk. Renovation insurance covers renovations, extensions, conversions, new builds, self-builds, restorations and contract works³². Standard home insurance often will not cover a property while major work is going on, so this needs arranging before work starts.

If you fall behind on payments, help exists. If you are having problems with your mortgage you could get help from your lender if they have signed up to the Mortgage Charter³³. A mortgage company may give a repayment break for short-term problems³⁴. Support for Mortgage Interest can help with the cost of interest on a mortgage or remortgage, a loan taken out to pay a service charge for essential repairs or improvements, or a loan taken out to pay for certain essential repairs or improvements directly³⁵. It is paid as a loan which must be repaid when your property is sold or transferred³⁶.

There are limits. If you used part of your mortgage for other purposes, such as debt consolidation by remortgaging, you cannot get help with that part of your loan³⁷. Loans must be for repairs needed to keep the property fit to live in, such as providing a bath, shower or toilet, repairing structural defects, or adaptations for a disabled person³⁷. Loans to meet the cost of essential repairs and improvements can qualify for help with the interest on that loan³⁹.

If a complaint about your lender cannot be resolved, the Financial Ombudsman Service handles disputes about mortgage contracts, including first and second charge mortgages and bridging loans, equity release products, home purchase plans and sale and rent back agreements⁴⁰. Free, impartial help is available from MoneyHelper and from debt advice charities such as StepChange, which can advise on mortgage problems⁴¹.

Once the build is finished, the picture usually improves. In most cases it is possible to remortgage once your self build is complete and certified by a surveyor², which is the point at which the property can be valued as a finished home and moved onto standard mortgage terms.