Non Standard Mortgages - Self Build
Advance Stage Payment Mortgages
Advance stage payment mortgages involve working out and
splitting the cost of the land and the various stages of
the building work an, with the money, up to 95 percent of
the cost of land and build, being released at the start
of each stage, with no money held back until completion
of the build.
The addition of the land purchase makes for an extra stage
in the build process when compared to an arrears stage mortgage
and an extra interim stage is also often added for the wind
& watertight protection, giving the following 6 stages:
Purchase of land
Preliminary costs and foundations
Wall plate level
Wind & watertight
First fix & plastering
Second fix to completion
The obvious advantage of this type of loan over an arrears
stage payment mortgage is that the borrower has positive
cash flow from the outset, as well as there being no quibbles
about finding funding for the purchase of the land.
The positive cash flow makes the building process easier
and quicker, as the labour and materials can easily be paid
for when needed. There is also the advantage of not having
to organise and wait for any interim valuations, as the
lending is based on cost not on value. However, the lender
still needs protection, so advance stage payment mortgages
usually include a short-term valuation guarantee policy
to protect the lender for the amount of money it has lent.
The cost of such as policy is not that high - usually no
more than the £200 or so that would otherwise have to be
paid out for interim valuations with an arrears stage payment
mortgage. This means that assuming there is no difference
in interest rates, then there is little or no cost for having
a positive cash flow.
Many people, particular those with young families, are
put off building their own home by the thought of having
to move out of their existing property and rent, stay with
family, or even have to live on site in a caravan during
the course of construction. It is not only the inconvenience
of having to move but also the cost of doing so - the cost
of moving twice, the cost of having to store furniture and
it will generally cost more per month to pay rent than current
mortgage payments. But with an arrears stage payment mortgage,
it is almost always possible to stay in your own home, provided
that you can afford to pay back this loan as well as your
existing mortgage.
One of the biggest problems for would be builders is having
the necessary cash flow to fund the building of the project,
particularly if they have had to come up with the capital
needed to acquire the land. But this problem is totally
erased with arrears stage payment mortgages. The fact that
this type of mortgage is much more suited to the way self-build
is carried out means that they are likely to gain pre-eminence
in the market place over arrears stage payment mortgages
over the course of the next few years.
