Arrears stage payments
With arrears stage payments, the lender releases funds after each construction stage is completed and inspected. This means you need to finance each stage of the build yourself and then claim the money back once the lender’s surveyor confirms the work has been done to a satisfactory standard.
The advantage of this approach is that it is available from more lenders and often comes with lower interest rates. The downside is that you need significant cash reserves or bridging finance to cover costs between stage releases. This can be challenging, especially during the early, more expensive stages of the build.
Arrears payments suit self-builders who have substantial savings, access to other funding, or who are managing a slower-paced project where costs can be spread over a longer period.
Advance stage payments
Advance stage payments release the funds at the beginning of each construction stage, before the work is carried out. This gives you the money to pay for materials and labour as costs arise, rather than financing them yourself and claiming back later.
Fewer lenders offer advance payments, and the rates may be slightly higher to reflect the increased risk the lender takes by releasing funds before the work is verified. However, for many self-builders, the cash flow benefit outweighs the cost difference.
Advance payments are particularly useful if you are working with contractors who require payment on delivery of materials or at the start of each phase. They also reduce the risk of project delays caused by running out of funds between stages.
Typical stage release milestones
While the exact stages vary between lenders, a common structure includes six releases: land purchase, foundations complete, wall plate level, roof on and watertight, first fix complete (internal plumbing, electrics, and plastering), and final completion. Each release is typically a percentage of the total build cost.
The lender’s surveyor visits before each release to confirm the work meets the required standard. If issues are identified, the release may be delayed until they are resolved. Building a good relationship with your surveyor and maintaining high standards throughout the build helps keep releases on schedule.
Managing cash flow between stages
Even with advance payments, there will be times when expenses outpace releases. Planning your cash flow carefully is one of the most important aspects of a successful self-build. Create a detailed timeline that maps expected costs against stage release dates.
Consider keeping a cash buffer separate from your contingency fund specifically for bridging gaps between stage payments. If cash flow becomes tight, talk to your broker early, as there may be options to bring forward a stage release or restructure the payment schedule.