‘Choosing the right mortgage’ is a series of articles written by Chris Martin, Head of Product and Lender Relationships at BuildLoan, exploring the different factors brokers must consider when advising customers undertaking a self or custom build project. This second article looks at mortgages to fund a timber frame home.
If your clients plan to build their new home using a timber frame system and are not fortunate enough to have cash in the bank to pay for it, they’ll probably require a self-build mortgage. With a timber frame, your clients must pay the manufacturer before the kit is delivered to their site. Therefore, the mortgage must be structured to allow for this substantial cost early on.
This method of construction comes with high upfront costs that you’ll need to take into account in your recommendation.
One of the most important deciding factors when choosing the right mortgage is how the lender will release the funds to your clients during their project – in arrears or in advance – and whether those payments rely on a valuation at each stage or are guaranteed and matched to their project costs, for complete certainty.
Traditional self build mortgages provide funds in arrears, i.e. your client receives stage payments after they have completed each stage of work. However, manufacturers expect your clients to pay for their timber frame before delivery to their site.
Given the price of a timber frame can be a substantial proportion of the total project cost and the frame won’t be included in the site value until it is installed, for most self builders an arrears stage payment mortgage will not provide the cashflow necessary to complete their project.
A better solution may be an advance stage payment where funds to cover each stage of your client’s project are provided before they start each stage of work and are based on the cost of each upcoming part of their build.
With an advance stage payment mortgage from BuildLoan, there are no valuations during the build. Each stage payment is agreed as part of the mortgage application, so your clients know exactly how much the lender will release to them as their project progresses. When building with a timber frame, this could be up to 90% of the cost of the frame before it has been installed – making the project a far more realistic proposition.
BuildLoan has a range of more than 60 exclusive mortgages to make homebuilding more accessible to greater numbers of people. Our advance stage payment mortgages with guaranteed funds are ideal for timber frame projects – which is why so many UK timber frame companies recommend BuildLoan to clients when using a mortgage adviser.