Self-Build Remortgage
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Self-Build Remortgage
Diarmuid talks to us about remortgaging a self-build property.
How does remortgaging a self-build property work?
The main difference is that in most cases you’re going to be remortgaging the property as soon as the build is complete, rather than after a fixed deal has ended, for example, as with a normal mortgage.
The property will need to be revalued once it’s complete. It may not be valued at exactly the same price as predicted prior to the build. It could be valued higher or lower.
The premise is the same in that you’re switching from one mortgage provider, i.e. the self-build mortgage provider, to a new deal, either with the same lender or a different one.
How long does it take to remortgage your self-build?
It depends on the property, but in theory it shouldn’t take any longer than a standard remortgage. With it being a brand new property, it will need to be certified and re-valued and that could take a little bit of time.
Of course, with some new properties there could be structural barriers to remortgaging which could potentially take a little longer. But for the most part, you could expect around six weeks.
Some lenders have a higher backlog of cases to get through, which means things could take a little longer. But if you’re sticking with the same lender, it’ll be much quicker, obviously.
Can I switch lenders when remortgaging a self-build?
You could. Some self-build lenders will have tie-in products, so once your self-build mortgage ends, you’re going to have to stick with them, obviously at a lower rate.
Most deals will be variable self-build mortgage deals with no tie-ins, which frees you up to remortgage and get the right deal post-build.
Certain niche lenders specialise in funding self-build projects that other lenders would deem non-standard, for example properties with shared laneways. By default, these lock the customer in to stay in with them for the foreseeable future – because no other lenders will remortgage the property.
What happens to my existing mortgage when I remortgage? What happens if I don’t remortgage after my deal expires?
Your self-build mortgage is redeemed and replaced with the new mortgage once the build is complete. Usually people choose a deal for a fixed period such as two or five years.
If you don’t take any action to remortgage after your deal expires, it could end up being very costly. Self-build mortgage rates tend to be quite a bit higher. On standard mortgages too, you will end up on a variable rate, so any base rate increases could end up costing even more.
What factors should I consider when deciding whether to re-mortgage my self-built property?
Firstly, the property itself. Are there any sort of barriers to getting a standard mortgage? Are there shared laneways or adjacent commercial buildings?
It’s recommended to speak to an experienced mortgage advisor to secure the most suitable deal for your needs. Are you self-employed, a contractor, or do you have some other non-standard employment type? We will consider all the same things as with a normal mortgage.
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Can I remortgage if I have bad credit? Can I remortgage to consolidate my debts?
Like any mortgage, having poor credit history can hamper your application. Some lenders won’t lend at all, or offer lower amounts, or set lower Loan to Value ratios, which will mean you need a bigger deposit.
It could also take more time then to get the whole thing through, or to get your credit file up to standard. It’s always advisable to get your credit file in order.
Consolidating debt is possible, but will depend on the lender’s criteria and the Loan to Value ratio. If the final value of the property and your income allow you to borrow additional amounts to clear the debt, plus it fits the lender criteria, you could do that. An experienced advisor could also guide you on whether it’s the right strategy for your situation .
Will I have to pay any fees or penalties when remortgaging a self-build? How much could I potentially save by remortgaging?
There shouldn’t usually be any early repayment charges with the self-build mortgage, as usually they are variable with no tie-ins. They’re really meant to be temporary, while the build takes place.
That allows you to change to a new deal at the end of the build period. There’ll usually be a significant saving when you secure the new mortgage, as interest rates are mostly lower than self-build mortgages.
What documentation will I need to provide when remortgaging a self-build?
This is no different to a standard remortgage. It does depend on the lender. Typically you’ll need three months’ bank statements, three months’ pay slips for employed people, and two or possibly three years’ tax calculations and tax year overviews for the self-employed.
Because this is a remortgage, and it’s on a property that is already built, there may be lenders that will look at one year’s accounts plus an accounting certificate.
Will I need a new valuation or survey when remortgaging my self-build property?
Yes, definitely. There will have been an estimated completed final value given at the beginning of the build process, but this isn’t always going to be accurate by the time the property’s finished. It will have to be revalued, and it could turn out to have a higher or lower value than estimated.
Is it harder to remortgage if I’m self-employed or a contractor?
Obviously you will need sufficient evidence of income, and that’s always where it’s trickier for the self-employed. You’re having to chase accountants for things that you don’t have readily to hand.
But generally speaking, if your accounts were good enough to get the self-build mortgage in the first place, I’d be very surprised if they weren’t good enough to get the remortgage in place. We would always do these checks before you embark on the journey.
What happens if my self-build has decreased in value since I initially obtained my mortgage?
This would only be a problem if it’s decreased in value to such a degree that there’s not enough equity in the property to remortgage, which could technically render you a mortgage prisoner.
You would be stuck on the variable self-build mortgage deal, which could be costly. Those rates are usually higher, and any base rate increases could see that going up even further.
But this would be a very rare occurrence. It’s not something that you need to be concerned too much about in today’s housing market. Even today, we’ve had a base rate reduction. It wouldn’t be something to lose any sleep over at the moment [podcast recorded in August 2024].
How can a mortgage broker help here?
Using a broker like ourselves at Mint is extremely valuable for every mortgage and self-build project. It could be a complicated process if you’re not experienced.
We could assist in dealing with the lenders, explaining interest rates, eligibility criteria and getting the right mortgage deal in place that suits your project.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.
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