Hi Karen,
i think it depends on how soon you hope to buy a site and start building really, but if the plan is anytime in the next year or two, then i'd suggest you hang on to your savings and not offset them against your current mortgage. We bought a site and built, and now it's a couple of years since we negotiated the mortgage, but i think the max amount any bank would lend for site + build was 90%, each bank have different criteria, some would lend 90% of the total, others would only lend 70% of the site, but then 100% of the build costs etc. You could check various bank websites for up to date lending criteria. So i imagine you might need some if not all your savings to pay for the site upfront. Also, depending on whether you go the direct labour route or hire a builder, you will need to pay for work and materials during the build, and certain phases of the build are more costly than others, so you will most likely need to use your own savings while waiting to drawdown the next installment of your mortgage.
Best of luck.