An arrears stage payment mortgage sees funds for building works are released in arrears, on completion of key stages in the construction programme.

Lending will typically be between 75 - 95 percent of the cost of the build and some but not all lenders will make a separate loan provision to allow the self-builder to purchase the land on which the house will be built. In addition to the purchase of the land, the self-builder needs to be able to meet the costs of each stage of the building work before any money is received, which can often lead to serious cash flow difficulties with this sort of work. The cash flow situation is often worsened by the propensity for building and project management costs to escalate, which is why a slush fund of around 10 percent of the total cost is usually recommended.

Many self-builders sell their house to pay for the project, either moving into rented accommodation or a living in a caravan on site for the duration of the work. This is one of the most common routes to funding the project.

However, an increasing number of lenders allow you to stay in your own home while the building work is carried out, often by allowing a capital raising charge to be taken out on your existing property in parallel with a self-build mortgage.

If neither of these options is possible and the self-builder has insufficient capital from other sources, then short-term loan finance may be the only other option, but this is more expensive and should be a last resort. It is also worth considering whether the whole project is really that viable if you are having to opt for a last resort right to provide a solution to such a fundamental issue as funding.

The construction programme is normally divided into four equal stages, each representing 25 percent of the build costs. Funds are generally released on completion of the:

Foundations
Roof plate
Plastering
Remainder of the property

Each fund release is triggered by a re-inspection of the site and an interim valuation, for which there is normally a charge somewhere in the region of £50. This revaluation is really for the protection of the lender - they are not committing themselves to release the money until they are told by a professional that there is sufficient value in the property on the building site to support the additional borrowing. This pretty much guarantees that they could get their money back in the even of repossession.