While both self-build mortgages and development finance offer funding for construction projects, they are designed for very different types of borrowers. Confusing the two can lead to wasted time or failed applications. The right choice depends on the scale, purpose, and complexity of your build.
In this blog, we explain the main differences between a self-build mortgage and development finance so you can decide which one is appropriate for your project.
What is a self-build mortgage?
A self-build mortgage is aimed at individuals building or commissioning a home they intend to live in. It functions similarly to a traditional mortgage but releases funds in stages, typically aligned with key phases of the build, such as:
- Land purchase
- Foundation work
- Structural completion
- Roof and watertight stage
- Completion and final certification
Self-build mortgages are usually offered by high street lenders or building societies and require detailed budgets, planning consent, and building regulation approval. Borrowers must demonstrate personal affordability, as the lender will assess income and outgoings in much the same way as with a residential mortgage.
What is development finance?
Development finance, by contrast, is designed for professional or semi-professional developers. It is used to fund new-build housing schemes, conversions, heavy refurbishments, or commercial developments.
Development finance:
- Is short-term in nature (usually 6 to 24 months)
- Interest is retained and typically repaid through sale or re-finance
- Covers both land and build costs
- Is based on project viability and end value (GDV), not personal income
Specialist brokers like ourselves help structure development finance deals tailored to the project, often incorporating senior debt, or even joint venture capital.
Key Differences at a Glance
| Feature | Self-Build Mortgage | Development Finance |
| Borrower Type | Private individuals | Property developers or limited companies |
| Project Type | Own home builds | Residential or commercial developments |
| Loan Term | Up to 25 years including 2-3 years for build | Short term (6–24 months) |
| Repayment | Monthly repayments | Repaid at end via sale or refinance |
| Assessment Basis | Personal income and affordability | Project feasibility and exit strategy |
| Lender Type | High street banks or building societies | Specialist lenders and finance brokers |
Which one is right for you?
Choose a self-build mortgage if:
- You are building your own home to live in.
- You are not a developer by trade.
- You can service a mortgage from your income.
- You want long-term finance.
Choose development finance if:
- You are developing to sell or let
- You need a large, short-term facility.
- Your project is commercial or for profit.
- You need funding structured to the build timeline.
Conclusion
Self-build mortgages and development finance serve two very different purposes. One is suited to private homebuilders, the other to property developers looking to fund profitable projects. Understanding the difference ensures you approach the right lenders with the right expectations.
If you’re developing for resale or investment, speak to one of our specialist to explore your funding options.