The number of individuals opting to design and construct their own homes is rising. Government statistics indicate that as of 2020, approximately 15,000 self-build and custom-built homes were being built annually, marking a 50% increase over a two-year period.
While brokers may typically think of self-build mortgages when approached by clients interested in building their own homes, regulated development finance loans can often provide a suitable solution, especially for larger projects involving substantial loan amounts. Regulated development finance is utilised to fund the construction of properties that will serve as the borrower's primary residence, and applications for development finance become regulated when 40% or more of the property is designated for residential use.
Opting for a regulated development finance loan over a self-build mortgage offers greater flexibility for borrowers, particularly for larger-scale constructions. Specialised property lenders offering regulated development finance often possess the experience necessary to provide solutions throughout the building process, assisting clients in overcoming challenges they are likely to encounter.
For instance, at Alternative Bridging Corporation, we recently finalised a £2.15m regulated development finance loan to support the demolition and construction of an 8,000-square-foot luxury home in Northamptonshire. At the time of application, the property was valued at £850k, but its Gross Development Value upon completion of construction was projected to reach £3.5m.
The clients had purchased the land with existing planning consent; however, they opted to redesign the entire property to construct their ideal home. This decision extended the process, and it became evident that the construction timeline would exceed 12 months, which is the maximum term for a regulated development loan. In light of this, the clients financed the initial stages of the build using their personal savings and commenced construction prior to our disbursal of funds to commence the 12-month loan term.
However, the borrowers had spent more than anticipated to reach the stage at which we could release the funds. Consequently, our Asset Manager liaised with them and their advisors and successfully increased the amount released upon completion. This reimbursement covered the overspent amount, improving their cash flow and ensuring the project continued at its intended pace.
Through close collaboration with the clients and their advisors to identify creative solutions to overcome obstacles in the build, Alternative Bridging successfully completed the construction of a large luxury home within a 12-month, with the loan being repaid accordingly.
With the growing number of individuals interested in designing and constructing their dream homes, it is likely that you will encounter more clients with such requirements. In these situations, considering regulated development finance alongside self-build mortgages can help determine the most suitable option for your clients, providing a valuable alternative to explore.
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