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Construction Loans in the UK

Author: Harry Jones And Facted Checked by : Shanie Capper
Last updated on : 21 May 2024

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What are Construction Loans?

Construction loans, often referred to as self-build loans, are a form of short-term financing tailored specifically to cater to the needs of individuals or businesses looking to fund the building of a new home or a commercial property. Unlike traditional mortgages that provide a lump sum for purchasing an existing property, construction loans release funds in stages, corresponding to various phases of the building process.


  • Flexibility: Construction loans offer borrowers the flexibility to decide on the design, layout, and overall specifics of their new property.
  • Staged Payments: Instead of a large upfront sum, funds are released in tranches, aligning with the progress of the construction. This reduces the risk for lenders and often means you only pay interest on the amount drawn down.
  • Potential for Increased Equity: If the finished property value surpasses the initial loan amount due to wise investment or market appreciation, borrowers can benefit from increased equity upon completion.


  • Higher Interest Rates: Typically, construction loans have higher interest rates than traditional mortgages because of the increased risks associated with property construction.
  • Complex Application Process: Lenders may require detailed construction plans, budgets, and timelines before approving the loan.
  • Risk of Non-completion: If the construction project runs into issues and doesn’t get completed, borrowers might struggle with refinancing or converting their loan into a traditional mortgage.

For potential homeowners and investors, construction loans present an opportunity to create a customised space tailored to specific needs. However, it’s vital to be aware of the intricacies and potential challenges that come with financing a building project from the ground up.

Companies Offering Construction Loans in the UK

1. Barclays Bank: Barclays is one of the most recognised banks in the UK. They offer a ‘Self-build Mortgage’ for individuals looking to create their dream homes. Borrowers can access funds in stages, which ensures that they only pay for the work that’s been completed.


  • Flexible Release: Barclays offers flexibility in releasing funds depending on the construction stage.
  • Repayment Holiday: They provide an option for a repayment holiday at the beginning of the loan, allowing borrowers to manage their finances more effectively during the initial stages of construction.

2. BuildStore: BuildStore is the UK’s leading expert in self-build, renovation, and conversion mortgages. Their ‘Accelerator Mortgage’ is designed to provide funds upfront, enabling smoother construction processes.


  • Advanced Funding: Unlike other lenders, BuildStore provides funds at the beginning of each construction stage.
  • Tailored Advice: BuildStore offers specialist advice and insights into the construction industry, aiding borrowers in making informed decisions.

3. The Loughborough Building Society: This building society, while smaller than some of its counterparts, offers a ‘Self Build Mortgage’ with competitive rates. They’ve established a reputation for being understanding and flexible with borrowers, particularly when unforeseen challenges arise during the building process.


  • Competitive Rates: Their interest rates are often more favourable compared to bigger financial institutions.
  • Personalised Service: Known for their excellent customer service, they offer a more personalised experience, assisting borrowers through every step.


While there are various lenders in the market, it’s essential to consult with a financial advisor or mortgage broker before deciding. They can provide insights into the best loan products for your unique circumstances and help ensure that your construction journey is as smooth as possible.

Remember, while My Quick Loan specialises in swift, online same-day loans, we’re passionate about financial education and ensuring our customers make the right choice for their needs. Construction loans are intricate, and the right lender can make all the difference in successfully completing your dream project.

Construction Loans UK

FAQs on Construction Loans

1. What exactly is a construction loan?

A construction loan is a short-term, interim loan used specifically for the construction of a new home or building. It covers the costs of the building project while it’s in progress. Once construction is complete, borrowers often refinance these loans into a permanent mortgage.

2. How does a construction loan differ from a traditional mortgage?

While a traditional mortgage provides a lump sum for purchasing a pre-existing property, a construction loan releases funds in stages as construction milestones are reached. Furthermore, construction loans tend to have higher interest rates and shorter terms than traditional mortgages.

3. Can I qualify for a construction loan with bad credit?

Qualifying for a construction loan is typically more challenging than for a standard mortgage. Given the higher risks associated with construction projects, lenders usually prefer applicants with strong credit scores. However, if you have substantial equity in your land or a sizeable down payment, it could offset a less-than-perfect credit score.

4. Do I need to own land before getting a construction loan?

While it’s not always a requirement, owning land can significantly increase your chances of securing a construction loan. Some lenders might offer a combined package that finances both the land purchase and the construction.

5. How are the funds disbursed during the construction phase?

Funds from a construction loan are typically disbursed in stages, aligning with various phases of the construction process. After each phase is complete and inspected, the lender releases the corresponding funds.

6. What happens if the construction costs exceed the loan amount?

If construction costs run over the estimated amount, the borrower is typically responsible for covering the additional costs out-of-pocket. This is why it’s crucial to have a well-planned budget and contingency funds in place before starting a construction project.

7. Are the interest rates on construction loans higher?

Yes, construction loans often come with higher interest rates than traditional mortgages. This is because they’re seen as riskier by lenders. The rates can vary depending on the lender, your creditworthiness, and prevailing market conditions.

8. Can I use a construction loan for home renovations?

Yes, some construction loans, often referred to as renovation or rehabilitation loans, are designed specifically for major home renovations. They consider the projected value of the home after renovations when determining how much you can borrow.

My Quick Loan: Fast Loans vs. Construction Loans

At My Quick Loan, our forte is providing efficient and rapid solutions for those immediate financial needs. While our specialty revolves around offering online fast loans, we also appreciate the diverse financial landscape, which includes niche offerings like construction loans.

Understanding the Difference:

  • Fast Loans from My Quick Loan: Our platform is tailored for individuals seeking immediate financial assistance. These are generally short-term, unsecured fast loans meant to address sudden financial hiccups or urgent requirements. The application process is streamlined, enabling access to funds often on the same day.
  • Construction Loans: Construction loans, on the other hand, are specifically designed to fund the construction or renovation of properties. The funds are typically disbursed in phases, based on the completion of various construction stages.

While My Quick Loan does not offer construction loans, we do emphasize the significance of understanding your financial options. If your immediate needs are below £5,000, our online short term loans might be a consideration. However, due to the inherent high APR of such loans, we always recommend weighing all potential alternatives before making a decision.


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