Self-build project finance
THE QUESTION
I have just applied for planning permission for a house that I'm going to live in. The question is where is best to get a development loan? I have several houses that I rent out already but I’ve never built a property before.
THE ANSWER
Development loans are for commercial projects that will be sold or rented out. When it is for a house that you intend to be your main residence, that all changes. What you need is a self-build mortgage.
What it is different is that it becomes an FCA regulated loan because you intend to live in it and that is a game changer for several reasons.
Only lenders that have been regulated by the FCA to lend on main residences are allowed to lend to you. Development finance lenders, by and large, will not have gone through the process of regulation because they only lend on commercially based projects, those that are built for profit. This means all such lenders are prohibited by the FCA from lending to you.
Commercial lending is lighter touch in regulation terms, with lenders only needing to check the viability of the project profit-wise and your ability to deliver on it.
With main residence lending, it becomes like any mortgage for a property you intend to live in. Borrowing is limited by the income you can prove you earn, then factored against your lifestyle expenditure and stress tested against future interest rate rises before a lender determines the maximum they can prudently lend to you. The culture here is one of responsible lending and lenders adhere strictly to that ethos.
The number of regulated mortgage lenders that will fund a self-build is very limited, no more than a handful.
As FCA regulated brokers, we would be happy to find the best self-build mortgage lender for your circumstances. Give our team a call on 01206 586586.
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