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Q&As
Can we get a mortgage to help us buy a plot on which to build a retirement home?
My wife and I are both retired. We’d love to self-build, but can’t afford to buy a plot before we sell our current property. We would need to borrow around £100,000 on a short-term basis to be paid back once our house is sold. Our bank doesn’t lend on such projects, and we’d struggle with the repayments on a typical short-term contract. Is there a facility that might help us?
Answers
Obtaining a mortgage for a build and repaying it from the sale of your current home seems like it should be straightforward, but many lenders won’t offer mortgages into retirement or for self-build at all! You’re in an awkward position because you need a mortgage to be granted over a longer time – even further into retirement – but to be repaid early.
One option would be to release equity from your current home through an equity release scheme (or ‘lifetime mortgage’) to fund your project, then repay the loan with the proceeds when you sell the house. Some schemes allow you to repay only the interest during the term of the loan, then the actual capital borrowed when your property is sold. Or you can ‘roll up’ the interest – this means that you don’t make payments during the term of the loan, making it a more expensive option as the amount you owe can grow quickly. There may also be a penalty for repaying early. Some equity release schemes will give you the flexibility to borrow as and when you need on a self build, in that funds can be released to buy the land, and then more funds released for the build.
Alternatively, you could secure short-term finance from a specialist self-build lender. The mortgage would be granted on your plot rather than your existing property, and arrangements will be quite prescriptive. For example, the maximum term of the borrowing might be 12 months, during which time the new property must be finished and your existing home sold. To ensure completion within this timescale, you must have detailed planning permission in place before you buy. You should also employ a main contractor, and the lender may prefer you do this on a fixed-price contract to minimise the risk of your project running over budget or behind schedule. Again, interest can be rolled up and funds released in various stages during the build.
Borrowing into retirement with a relatively restricted income should be approached with caution. The fact that you’re borrowing for self build adds further risk. You’ll also need to take factors such as inheritance planning and eligibility for means-tested benefits into account. A BuildStore advisor will be able to help you navigate these issues.
