What You Need to Know About Self-Build Mortgages

Self-build mortgages are a special type of home loan designed for people who want to build their own house rather than buy an existing property. Self-building remains relatively uncommon in the UK, but it is growing in popularity as more people explore creating their own dream homes. This article explores how self-build mortgages work, what their requirements are, such as construction plans, deposits and interest rates, and how you can potentially qualify for one. It also highlights key considerations to help you decide if this route is right for you.

How Self-Build Mortgages Work

A self-build mortgage differs from a standard residential mortgage in how the funds are released. Instead of getting the entire loan as a single lump sum, the lender releases money in stages as your build progresses. In practice, this means that you receive instalments at various milestones of construction rather than all of it upfront. For example, a portion of the loan might be paid out when you buy the plot of land, then further amounts when you lay the foundation, build walls up to roof level, make the structure weatherproof (roof on, windows in) and finally when the home is completed. By releasing funds gradually, lenders ensure that the project is moving forward as planned and reduce the risk of the money running out before completion.

Types of Self-Build Mortgage

There are two main types of stage-payment arrangements in self-build mortgages:

• Arrears self-build mortgages: This is the most common type, where funds are released after each stage is finished. A valuer from the bank will typically inspect the work at each stage and sign off before the next instalment is released. This means you need to pay for each phase of construction with your own money first and the mortgage then reimburses you for those costs. Arrears mortgages are suited to those who have cash savings or can finance stages upfront while waiting for each drawdown.

• Advance self-build mortgages: These are less common, with funds being released before each stage of the build. The lender agrees in advance how much to release at the start of each phase, based on the budget and estimates for that stage. This gives you the cash to pay contractors and materials as you go. However, fewer lenders offer this type of mortgage due to the higher risk, and interest rates on advance self-build deals also tend to be higher to compensate.

No matter the type, you will need a clear construction plan. Lenders will want to see your build schedule and may set fixed stages at which they release funds. Common stages include land purchase, foundation completion, wall structure up to roof level, weather-tight roof on, plastering/fittings and final completion. Always confirm with your lender what their specific stage payment schedule is, as it can vary.

Deposit Requirements for a Self-Build Mortgage

One of the biggest hurdles in self-build projects is the larger deposit required. Lenders see self-builds as higher risk, so they generally lend at a lower loan-to-value (LTV) ratio than on a standard home purchase. In other words, you must put down a bigger share of the project cost upfront. Typically, a self-build mortgage might only cover around 60%–80% of the total cost or value of the build.[1]  

According to government data, the average deposit for self and custom build projects is around 25% of the land and building costs.[2] Some borrowers may need even more, as it is not uncommon for lenders to ask for a 30–40% deposit, especially on larger or more complex builds. In fact, the government launched a Help to Build equity loan scheme in 2022 to help self-builders with smaller deposits precisely because typical upfront deposit costs were so high. This scheme allowed people to proceed with just a 5% deposit, with the government providing an equity loan of up to 20% of the costs or 40% in London.[2] The Help to Build programme was funded with £150 million and proved popular, but it closed to new applications in March 2025 once the pilot funding was fully allocated. Without such a scheme, aspiring self-builders should plan to have a substantial deposit ready.

Interest Rates and Costs

Because self-build mortgages are a specialist product and carry higher risk for the lender, you can expect the interest rates to be higher than those on normal home loans. For example, if 5-year fixed rates for standard house purchases are around, say, 4%, a self-build mortgage might be offered at 5–6%. The exact rate you get will depend on your deposit size and credit profile, and the lender’s own pricing of the risk.

Be prepared for additional costs as well. Self-build mortgages often come with higher arrangement fees. You may also need to pay for valuation fees at each stage of the build, since the lender sends a surveyor to assess progress before releasing funds. There may also be fees for project inspections. It is important to factor these costs into your overall budget. On the plus side, once your home is fully built and signed off, you can usually remortgage from the self-build loan to a regular mortgage product, which should have a lower interest rate.  

A financial perk of self-building comes at the tax level: new self-build homes are exempt from certain taxes. Notably, a self-builder can often reclaim VAT on materials for a new build home (since new housing is zero-rated for VAT) and this can save you the 20% tax on many construction materials. [2] Also, Stamp Duty Land Tax (in England and NI) is typically only payable on the land purchase price, not the value of the finished house. Many self-builders buy an empty plot (which may cost far less than a house); if the land cost is below the Stamp Duty threshold (currently £250,000 for a residential land purchase or £425,000 for first-time buyers), you could avoid stamp duty altogether. These savings can help offset some of the other costs involved in building your own home.

How to Qualify and Apply for a Self-Build Mortgage

Applying for a self-build mortgage requires more preparation and paperwork than a standard mortgage. Here are some key requirements you need to know about:

• Planning Permission: Most lenders require at least outline permission before reviewing your application and full approval before releasing funds. For example, Ecology Building Society insists on this before they will lend.[3]

• Plans and Budget: You will need detailed drawings, a full cost breakdown and ideally a fixed-price contract. A professional estimate helps lenders gauge feasibility. Include a 10–15% contingency for overruns.

• Deposit and Upfront Funds: Expect to contribute at least 25% of total costs. Because payments are staged, you may need cash to fund early phases (such as groundwork) before being reimbursed. Lenders will want proof of your deposit and savings.

• Credit and Affordability: Lenders apply standard checks on income, expenses and credit. A strong financial profile is crucial.

• Choose the Right Lender: Not many lenders offer self-build deals. Most borrowers work with specialist lenders or building societies. In 2022, there were only about 20 self-build mortgage products available.

• Insurance and Warranty: You will need site insurance and a 10-year structural warranty before funds are released. These cover build risks and defects, and are essential if you plan to sell within a decade.

When you apply, you will complete forms outlining your build and finances. The lender will assess your plans and estimate future property value. If approved, they will set out when funds will be released and any conditions (such as inspections). Land purchase funds are usually sent straight to your solicitor.

Pros and Cons of Self-Build Mortgages

Building your own home with the help of a self-build mortgage can be incredibly rewarding, but it comes with unique challenges. Here’s a quick overview of benefits and drawbacks:

Pros

• Customisation: You can design and build a home tailored to your exact needs and style.

• Potential Cost Savings: May be cheaper than buying a similar home on the open market.

• Tax Benefits: Stamp duty only on land; potential VAT reclaim on building materials.

• Equity Growth: A well-managed build can result in a home worth more than it cost.

• Staged Payments: Interest-only options during build can help with cash flow.

Cons

• High Deposit Required: Often 25–40% of total project cost needed upfront.

• Higher Rates and Fees: Interest rates and setup costs are typically above standard mortgages.

• Complex Process: Requires detailed planning, permissions and project management.

• Limited Lenders: Fewer mortgage products and stricter criteria.

• Risk of Overruns: Delays and rising costs can strain budgets and timelines.

Conclusion

A self-build mortgage can turn the vision of building your own home into reality, but it requires careful planning and sufficient financial resources. It is crucial to do your homework: draw up a realistic budget (and include a contingency buffer), consult professionals where needed, and engage with lenders or brokers early to understand what is feasible in your situation. With the right preparation, a self-build mortgage is a powerful tool, as it provides the funding lifeline to construct your house progressively. Just go in with your eyes open to the responsibilities and risks. Building your own home is a journey with many steps, but for many people, the end result, a home tailored exactly to their needs, is well worth it.

FAQs

Q. What is a self-build mortgage and how does it work?

A. A self-build mortgage is a loan designed for individuals who want to build their own home. Unlike with a standard mortgage, funds are released in stages as construction progresses, such as after the foundation is laid or the roof is completed, rather than in one upfront lump sum.

Q. How much deposit do I need for a self-build mortgage?

A. Most self-build mortgage lenders require a deposit of 25% to 40% of the total project cost. This is higher than standard mortgages due to the increased risk and staged payment structure.

Q. Can I apply for a self-build mortgage without planning permission?

A. Typically not, as you will need at least outline planning permission before you can apply. Most lenders, including specialist providers won’t release any funds without full planning approval in place.

Q. What costs can a self-build mortgage cover?

A. A self-build mortgage can usually cover the cost of the land purchase and construction expenses, including materials and labour. Some lenders may also include costs such as architect’s fees and site surveys, depending on the deal.

Q. Can I switch to a regular mortgage after the build is complete?

A. Yes. Many borrowers remortgage to a standard residential product once the property is finished. This can reduce your interest rate and give you access to more flexible repayment options.

Q. Are there any tax benefits for self-builders?

A. Yes. Self-builders may be able to reclaim VAT on building materials and typically only pay Stamp Duty Land Tax on the land purchase, not the completed home. This can lead to significant savings compared a traditional home purchase.