Lending money for a self-build is risky for any lender, because the finished house doesn’t exist yet, and there could be problems along the way that might prevent it from being finished.
In this instance, both you and your lender could end up out of pocket, with no house to show for it.
That’s why the staged release mortgage exists. With this type of mortgage, your money is released either before or after each of several stages of the project.
These stages are very general but are applicable to most self-build projects. In brief, the stages can be:
- Buying your land
- Footings and foundations
- Wall or frame construction
- Roof construction
- Internal plastering and final completion
Your lender will want to see a detailed breakdown of each stage during your application process, which will help you to plan the build yourself too.
In addition, they will want to inspect each stage of the process, to ensure that everything is going well and the plan is being followed as agreed.
The specific stages can vary from lender to lender, as well as structure to structure – for example, a wooden structure will have different build stages compared with a brick or stone built house – but they will generally follow the same sequence and main milestones.
Arrears vs. advanced staged release mortgages
Staged released mortgages can come in two different forms, depending on your financial situation and your preferences.
In the case of an arrears based mortgage, you’ll receive your payments for each stage once that stage has been completed, and then inspected by your lender to their satisfaction.
This is the most common and the cheaper of the two, and requires you to have a larger amount of money up front so you can put it down to purchase the land and / or get the build process started.
An advanced based mortgage is exactly what it sounds like – you’ll get the money for each stage in advance of that stage being started.
This is a more risky prospect for your lender, because they are giving you money up front and have to trust that you’ll complete the stages as promised
As a result, you’ll usually find that these kinds of mortgages are more expensive, to reflect the gamble your lender is taking by providing the money in advance.