What Are the Best Ways to Finance a New House Build?

When building a new home from scratch or doing a full home renovation, it is common for the build costs to wrack up – and using additional finance is very common.

But before diving into any financial product, it is useful to consider your options, especially given that there are 0% options and ways to get air miles and cash back, which can provide longer term savings and even some free flights.

For smaller build costs, using a credit card or personal loan may be a practical option and these are products that are typically available online and can be approved in a day. For larger build costs, you might be looking to raise money through bridging finance or second charge mortgages, to access £100,000 plus.

We’ve been around the block (literally) and today VZ Builders, our team of house builders in Radlett, share some of the main ways you could finance a new house build.

Finance options for building a new home

• A self-build mortgage
• Credit cards, including 0% introductory offers
• Personal loans
• Borrowing from family or friends
• A second charge mortgage
• Bridging finance or development finance
• Supplier payment plans and 0% finance
• Business loans for legitimate business-related costs
• Remortgaging after the property has been completed and revalued

Comparing the options

Finance option	Indicative rate	Example	Pros	Cons
Self-build mortgage	Around mortgage-market rates	Depends on lender and build	Designed for construction projects	Strict criteria and staged payments
0% credit card	0% during introductory period	Purchases interest-free during offer	Can spread smaller costs without interest	High rate after offer ends and credit limits may be low
Personal loan	Around 5.9%–7.1% representative APR	£50,000 over 3 years at 6.9% = about £1,542 a month	Simple, fixed repayments	£50,000 may not be available to everyone
Family or friends	Negotiated	Depends on agreement	Potentially low or no interest	Can cause personal problems if repayments go wrong
Second charge mortgage	Around 7.5%–14% APR	£100,000 over 10 years at 7% = about £1,161 a month	Can raise money without replacing existing mortgage	Secured against your home
Bridging/development finance	Around 1-2% a month (12-24% per year)	£100,000 at 0.75% = £750 monthly interest before fees	Fast and flexible	Much more expensive and short term
Supplier finance	Often 0% on selected offers	Kitchen or bathroom purchases	Can spread costs	Usually limited to specific purchases
Business loan	Usually around 20-30% APR	Depends on business and borrowing	Useful for genuine business costs	Must be for legitimate business purposes
Remortgage after completion	Around 5.5% average fixed remortgage rates	Depends on final property value	May replace expensive short-term finance	Valuation, affordability and fees apply

Using credit cards to pay for building costs

Credit cards can be useful for smaller building costs, particularly where a supplier accepts cards.

Some 0% purchase cards offer introductory periods of around 12 or 24 months, which are very useful – allowing you to purchase materials, lighting, carpets, bathroom or kitchen parts and goods for the house on the card while being able to pay no interest for a long period.

Additionally, you can opt for credit cards that offer air miles for Avios and BA flights – giving you a nice discount, free flights or companion vouchers in the future. Hey, its all savings!

Hence, you can spread eligible purchases without paying interest during the promotional period, provided you meet the card’s terms.

However, you need a plan to clear the balance before the 0% period ends. Once the introductory offer finishes, the standard interest rate can be considerably higher. Credit cards are therefore generally more suitable for manageable costs rather than large parts of a house build.

Personal loans to pay for house builds

A personal loan can work for a defined amount of borrowing. For example, a £50,000 loan over three years at a representative 6.9% APR would cost approximately £1,542 per month, with around £55,497 repaid in total.

Rates depend on the lender and your circumstances such as your income, affordability and credit score, and a representative APR is not guaranteed for every applicant. You should also check whether the lender allows the loan to be used for your intended building work.

Borrowing from family or friends to build a house

Borrowing from family or friends can be another way of funding a house build. The main attraction is that the arrangement could have little or no interest, depending on what you agree.

Even when borrowing from someone you know, it is sensible to put the agreement in writing. Set out how much is being borrowed, whether interest will be charged, when repayments will be made and what happens if the building project costs more than expected.

Second charge mortgages to help pay for a house build and renovations

A second charge mortgage allows you to borrow against the equity you have in a property while keeping your existing mortgage in place. It is called a second charge because the new lender has a second legal charge over your property, behind your existing mortgage lender.

For example, if your home is worth £400,000 and you have £200,000 left on your main mortgage, you have £200,000 of equity before allowing for fees and any changes in the property’s value. Depending on affordability and the lender’s maximum loan-to-value criteria, you may be able to raise additional money through a second charge mortgage.

A representative example would be borrowing £100,000 over 10 years at 7%. The monthly repayment would be approximately £1,161, with around £139,300 repaid over the full term before fees. The actual rate and repayment could be different depending on your circumstances, the property value and the lender.

A second charge can be useful because you do not necessarily have to replace your existing mortgage, which could be particularly relevant if your current mortgage has a favourable interest rate. However, it is secured borrowing, so your home could be at risk if you fail to keep up with the repayments. You also need to consider arrangement, valuation and legal fees.

Bridging loans and development finance

Bridging loans and development finance are designed for short-term property projects. They can be useful when you need funds quickly or when a conventional mortgage is not suitable during the construction period.

For example, borrowing a bridging loan of £100,000 at a rate of 0.75% per month would create £750 of monthly interest before arrangement, legal and valuation fees. If the loan is held for 12 months, the interest alone would be £9,000 if charged simply each month.

These products can be flexible, but they are generally more expensive than conventional mortgages. You also need a clear exit strategy, such as selling another property, refinancing onto a mortgage or remortgaging the completed house.

Using supplier finance and payment plans for things like kitchens and bathrooms

It is also worth asking suppliers whether they offer payment plans or 0% finance. Kitchen companies, bathroom suppliers and other building specialists sometimes have finance options that allow you to spread the cost of a purchase. See also kitchen and bathroom installation.

This can reduce the amount you need to borrow elsewhere. However, check the terms carefully, including the length of the interest-free period, fees and what interest rate applies after any introductory offer ends.

Business loans to pay for home renovations, if legitimate

A business loan could be relevant where part of the building project has a genuine business purpose.

For example, someone who works from home could have legitimate costs associated with creating a dedicated home office. Similarly, a medical or dental professional, or a therapist running a practice from home, may have genuine business-related building costs.

The borrowing should relate to legitimate business expenses and meet the lender’s criteria. A business loan should not simply be used to fund personal building costs because it may have different terms and eligibility requirements.

Be sure to remortgage after the house is completed

One strategy is to use short-term finance during construction and then have the completed property professionally valued.

If the finished house is worth more than the total borrowing, you may be able to remortgage onto a longer-term mortgage with better terms. This could allow you to repay more expensive finance, such as a bridging loan or other short-term borrowing.

The amount you can borrow and the rate available will depend on the property’s new value, your loan-to-value, income and affordability. It is therefore worth considering the remortgage strategy before starting the build, rather than waiting until construction is complete.

For some self-builders, combining several forms of finance can be the most practical approach. The important thing is to understand the total cost of borrowing, how long each form of finance will last and how you will repay it once the house is finished.