Borrowing With Arrears Staged Payments

The traditional type of self build mortgage is on an ‘arrears’ basis. With this type, the lender will release money to buy the plot, usually between 50% to 85% of the purchase price or value of the land and then will release the money for the build in stages. The money for each stage is paid out at the end of the stage, once the work has been completed and a surveyor has visited the site i.e. in arrears of the work being done.

Because the payments are released in stages, this can cause cash flow problems and you may need to retain a cash buffer or set up some form of bridging loan to make payments when you need to. There will also be additional fees to pay for the stage inspections.

An arrears self build mortgage may be best suited to self builders who have sufficient savings to fund the early stages of their build, as well as sufficient savings for the deposit on the land. For example, if you already own the plot of land and can remortgage it to provide the funds to start the build, or if you have already sold your existing house and have cash available to buy the land and start the build then an arrears mortgage may be the best option for you.