Self Build Bridging Loans

Budget is critical with bridge loans for self-build projects. If you go over budget, you won't have any additional capital to fall back on and borrowing more might be very challenging, so it's essential to make sure you can stick to what you've set aside for each part of the project. Make sure your plans are feasible and in line with your budget upfront by talking to experts and advisers who will give you insight and tips into your projects. They will also be able to spot-check your plans and make sure your budget matches what you want to achieve. 

Don't be tempted to downplay costs to get a self-build loan application over the line or go with the cheapest labour or project manager if doing so will potentially compromise quality or delay the build. Rather than costs and cost-cutting, you always need to keep your exit in mind. If something delays finishing the build and your ability to sell your property or refinance (and effectively pay back your self-build bridge lender), you can run into trouble. You'll naturally want to ensure you're getting the best value for your money and not spending unnecessarily. However, it's helpful to consider balancing costs and your project timeline and paying for quality contractors, builders and project managers to ensure you keep everything tight and running on schedule. 

Thinking about your exit upfront is also important: one, because it will ensure you can repay your bridge loan effectively, and two, it will give you peace of mind as you go through the build. 

Bridge loans are a flexible type of finance, and you can use what you've borrowed in many different ways. For example, from buying land you will build a property on, to remodelling or undertaking a specific but relatively large project in your home, like adding an extension.

The most common ways to use self-build bridging loans are:

• To completely remodel (i.e., heavy refurbishment) a property
• To buy land you will build a home on, using funds to purchase the land and fund the development
• Extend or convert a property significantly (i.e., a project requiring architectural planning/planning permission)
• Build a property or structure on land you already own
• Develop what is an otherwise unmortgageable property

Bridging finance is almost always more expensive than a mortgage. This is because you will be borrowing for a shorter period than you would with a mortgage and because there is more risk – if the build goes over schedule and impacts your exit, for example. 

That said, bridge loans are sometimes the only way to finance a building project, which makes them a great tool if you don't have or don't want to cover the cost of the build yourself. At the same time, lenders price them very competitively, considering what you can achieve with this type of loan, especially considering the future value of the home you will build or renovate.

Loans usually start at about 0.45% PCM, but what lenders will offer is impacted by how much you are borrowing, how ambitious your plans are and your exit. If you're considering a self-build bridging loan, get in touch – we will give you a personalised indication of how much you will be able to borrow and the type of finance we can help you access through our network.  

You'll use a bridging loan when you want to buy land, build a property or renovate a residence you will live in. You will usually exit your loan – which is to say you will repay it – by refinancing to a self-build bridging loan to a conventional mortgage when you have finished the build.

Your mortgage will be secured against your property, which will usually have a significantly higher value than your initial investment in the land or home due to the work you have done on it. 

You can also exit this type of finance by selling the property you have built. You will use the proceeds of the sale to pay back your self-build bridge loan lender, retaining any profit. If you opt for this route, expect lenders to pay special attention to your ability to manage costs and the project. Because you won't be able to sell the property if it isn't completed (which, in turn, affects your ability to repay the loan on time), lenders will assess your ability to deliver your plans on time and sell the property within the loan term.

For many people, self-building a property is a once-in-a-lifetime project. Luckily – and because of this – lenders are open to working with first-time self-build homeowners, and you don't need to be an experienced developer to access this type of finance. 

If you want to undertake a self-build, it is essential to have expert advice on raising finance and handling the project yourself. It's easy to try and minimise or downplay what it will cost you to complete the build or different stages, but this won't fly with lenders. You'll always want to balance your keeping costs to a minimum with what's actually possible in terms of the expenses for materials, contractors, planning permission and parties like architects. We're here to help review your plans and ensure they are achievable regarding your budget.