Self Build Mortgage in Scotland

If you’re a landowner in Scotland, you might be looking to finance the construction of your home with a mortgage.

That’s where self-build mortgages come in. This type of mortgage allows you to get finance to build a home on your land. Many products are available in this niche, but these loans differ a bit from regular loans.

This article will discuss how to get self build mortgage in Scotland and what you need to know about them.

Let’s get started.

Self Build Mortgage In Scotland

Self-build mortgages are available in Scotland, but the market is smaller than the rest of the UK, so the number of lenders you’ll get will be fewer. This might limit your choices and force you to accept a higher interest rate.  

Further, many mortgage providers in Scotland have postcode restrictions, which can further limit your choices. So, it’s best to work with an experienced mortgage broker who can help you get the best options.

Other than that, each lender will have their terms for self-build mortgages, such as how the confirmation of each stage of the building process is assessed, LTV ratios, etc. The stages at which funds will be released will also differ from lender to lender.

Self-Build Mortgages Eligibility Rules

Apart from the usual criteria, such as credit scores, age requirements, and lender’s affordability assessments, self-build mortgages in Scotland might require the following:

1. Proof Of Land Ownership

This is the first thing you must prove, as you usually cannot use self-build mortgage money to buy the land. Once you’ve established that you’re a landlord, you can apply for the rest of the processes to get a self-build mortgage.

2. Purpose Of Construction

Next comes the purpose of the construction. Usually, lenders offer self-build mortgages for residential homes where the applicant or their immediate family intends to reside.

3. Type Of Construction

Other than the purpose of construction, the type of construction also matters. Lenders might put a restriction on the type of property that you’re allowed to build and the materials that you can use. For example, some lenders might require your property not to have a timber frame.

4. Proof Of Qualification

If you intend to construct the house yourself, you must prove you’re qualified to build houses, or you’ll need to hire a qualified contractor to build the house.

Self-Build Mortgage Lenders Available In Scotland

The following are some of the lenders in Scotland who offer self-build mortgages:

• Mansfield Building Society
• Scottish Building Society
• Newcastle Building Society

Government Schemes For Self-Building In Scotland

The Scottish government provides a Help-to-Build scheme for those who want to build their own homes in Scotland. Under this scheme, borrowers can get loans of up to £175,000 to finance their self-build projects.

To apply for this scheme, you’ll need to:

• Show that you cannot get a standard bank loan to cover the construction costs
• Ensure you own land in Scotland or have a valid contract for land purchase
• Prove that you have planning permission and a building warrant to begin construction

Remember that this loan cannot be used to buy the land.

How Are Funds Released In A Self-Build Mortgage

Unlike a regular loan, in which you might get a lump sum, self-build mortgages release payments in chunks based on which stage of the building process you are in. The funds are released for each stage when you prove that step is complete.

Below is a list of stages that lenders might follow, but this will typically vary slightly from lender to lender.

• Completion of land purchase
• Laying of foundations
• Construction completed up to the eaves
• Roof tiling is completed, and wind and waterproofing done
• Interior walls plastered and completed
• Ready to move in

The lender usually appoints a supervisor or valuer who confirms the completion of each step. The supervisor might also need to issue an interim certificate to verify the construction is on time and within the specified budget.

Another requirement is that the construction be carried out by a builder registered with the National House Building Council (NHBC). 

Otherwise, the building project must be covered by the NHBC Solo, or you need to employ a RICS-qualified surveyor or an architect to oversee the build process. 

Types of Self-Build Mortgages Available in Scotland

In the context of how funds are released, self-build mortgages are of two types:

1. Arrears Type

This is the most common type of self-build mortgage, where the lender releases the funds after each stage of the construction process is completed. This ensures that you only borrow as much is needed for each stage.

2. Advance Type

In this case, the funds are provided before the start of each phase. This is less usual but offers more liquidity in the face of unforeseen expenses.

Advantages And Disadvantages of Self-Build Mortgages

Advantages

• No need to pay stamp duty on the home; just pay it on the land
• Greater control over your spending for each stage of construction 
• Higher property value potentially due to supervised construction

Disadvantages

• Unexpected costs and project delays due to lack of planning
• Larger deposits and higher interest rates
• A significant investment of time and energy is needed to self-build

Frequently Asked Questions (FAQs)

1. What are some alternatives to self-build mortgages in Scotland?

For those of you who think a self-build mortgage isn’t the right product for you, here are two alternatives you can look at:

• Scotland Self-Build Loan Fund (this may be a better solution in certain circumstances)
• Bridging Loans

2. Should you get a broker for self-build mortgages in Scotland?

It isn’t mandatory to get one, but an experienced broker can help you navigate the complexity of choosing the right product, preparing the application and ensuring that it gets approved.

3. What is the minimum deposit amount for a self-build mortgage in Scotland?

The minimum deposit amount can vary from lender to lender, but it’s usually pegged at 25% of the plot’s value and an additional 10% for unforeseen costs.

Your home may be repossessed if you do not keep up repayments on your mortgage.

All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.