The DIY mortgage

Up to 10 years ago, barely a handful of lenders were prepared to offer mortgages to people who wanted to build their own homes. Today, almost 30 lenders have specific arrangements for self-builders, while eight more are prepared to consider loans in specific cases. Among them are Bradford & Bingley, Nationwide, Alliance & Leicester, Skipton, Bank of Scotland, Northern Rock, TSB and Bank of Ireland.

This easing of mortgage rules has undoubtedly helped tens of thousands of people who each year embark on the process of designing and building their own home. But the practice is not totally disinterested. As a spokeswoman for Norwich and Peterborough Building Society, which is very active in the market, explains: "People who build their own homes are among those with the greatest commitment to keeping their mortgages going. If you go to all that trouble, it takes a lot to halt your mortgage payments."

So how does the system work? Basically, almost all lenders are prepared to offer their entire range of loans to borrowers - whether fixed, discounted or at variable rates. In most cases, the loan available will cover up to 95 per cent of the final value of the property, including land purchase.

The process involved in obtaining a mortgage is detailed - probably far more so than for traditional borrowers. Lenders expect in-depth cost projections, timings, details of who the key builders will be and even their qualifications.

If a mortgage is agreed, payments are usually staggered into four or five stages. The first is often linked to the cost of the land, although many lenders will not lend money for this purpose.

MoneyFacts, a monthly finance guide, shows that more than half of lenders won't consider this. The rest will average between 75 and 80 per cent at this stage.

Thereafter, stage payments to builders will usually be at the footings/ground floor stage, when ground floor walls are up, when the first floor is completed and when the roof is on. The final stage is based on a surveyor's final estimate of a property's value. Thereafter the self-builder should be able to reclaim VAT on the cost of materials used on the home.

Before going to a lender, do your homework as to which one can meet your specific needs. MoneyFacts, Individual Homes and Self Build carry regular details of what is on offer.

MoneyFacts, 01692 500765; 'Individual Homes' and 'Self Build' can be ordered through newsagents.

Nic Cicutti