How to finance your dream self-build home
Although around 12,000 people manage to build their own home every year, there are tens of thousands more who dream of doing it.
Programmes like Grand Designs and Building the Dream help to fuel that ambition and inspire viewers, but just how do you go about building your own home?
If you’ve ever taken on a small renovation or extension project, then perhaps you’ll have some insight, but funding and building an entire property is a different proposition.
Funding the dream
It’s very tempting to get caught up in the details of your new home from the start, but your number one priority should be working out how much you can afford. That way, you can start to divide up your budget for your land, your building materials and your labour costs, and make decisions about how much time and work you need, or are prepared to put into the project.
Director of financial services at BuildStore, Rachel Pyne, advises:
“It’s never too early to get your budget and finance organised, determine how much money you need for your project, and how much you are able to borrow. Self-build mortgages are specialist products, so you may want to speak to a specialist adviser who can help you work out your costs and budget, as well as advising what mortgage products are right for your project and circumstances.”
As with any mortgage application, the main factors which will affect your ability to borrow for a self-build, renovation or conversion project include income and disposable earnings, credit history, employment history, and loan-to-value required. However, with a self-build mortgage application, elements of the project will also be taken into consideration, for example your construction method, and the experience of your build team.
Pyne continues: “After working out your budget and borrowing amount, you will need to consider what type of mortgage you need – this is determined by your cashflow – a very important part of any homebuilding project; a positive cashflow helps a project run more efficiently.”
Stage by stage
With a self-build mortgage, funds are released in stages throughout the build – usually five or six – rather than in one lump sum, so it’s important to understand what money you need and when you will need it.
The first tranche of funds is released to purchase the land, and the remainder of your borrowing is released in stages to fund each phase of the build, for example – foundations, construction of the shell, making the property wind and watertight, initial internal work, and final fittings, such as the installation of kitchens and bathrooms.
There are two types of self-build mortgages available, defined by when you get money during the build; they are traditional or ‘arrears’, and advance.Once you assess your cashflow, you will be able to select which type is right for your needs.
In summary, with a traditional or arrears style mortgage, funds are released at the end of each stage, after the work has been completed and signed off. This type of mortgage typically offers 75% to 85% borrowing of the project cost, is best suited to those who already own the land or property to be developed, or those who have sold their home and have lots of capital to put into the build.
An advance stage-payment mortgage releases funds at the beginning of each stage, starting with the land purchase. With these deals, up to 85% of the plot purchase price is released, and up to 85% of the build costs are released, in advance of each phase. This type of mortgage can be run alongside your existing mortgage, and is ideal if you don’t want to sell your existing house, or you only have small deposit.
Getting the funds at the start of each phase provides you with a positive cashflow from day one. Getting started Understanding costs, establishing a budget, and calculating your cashflow are among the most important steps before commencing a self-build or renovation project. To establish your cashflow, you need to know your project schedule and the costs incurred for each stage.
Sort out your budget
Before you start the building work, you will incur costs such as legal fees, site surveys, planning and building regulation fees, site insurance and structural warranty premiums, and potentially a Stamp Duty fee, so ensure you factor these costs in to your overall budget – allow about 10% for these. Your plot will probably be around 30% to 40% of your total project budget – although, much like houses, plot prices vary significantly around the country – leaving around 50% to 60% for the construction phase itself, to be spent on labour and materials.
When it comes to arranging your mortgage, the lender will agree an overall amount that they are prepared to lend towards the land and the construction costs. In order to establish the amount for each stage payment, the lender will need to approve your costings and cashflow, and will then agree the stage payments based on the key stages of your project. Once your finance is in place, you can start planning your project, beginning with your plot and house design.
Finding a plot can take a bit of time, but there are resources to help, including websites such as PlotSearch, plotsearch.co.uk, offering access to thousands of plots for sale for a small subscription fee. You can also check with local architects, farmers, and builders merchants, if they know of any available land.
It’s also worth contacting the local council, as under new planning legislation introduced last year, Local Authorities now have a legal obligation to meet demand for self-build housing.
The alternative option is to buy a plot as part of a custom build project, in which multiple self-build plots are offered on one site, sometimes along with other types of housing. This helps keep prices down, and many schemes will offer a complete build package too, so all you need to do is choose your design features and specification.
After you’ve identified a plot, you can start to design and plan your house. There are endless options and possibilities here, depending on the local planning department, so the important thing is to get your designs approved. Local architects and kit-system companies can help you, but you should also contact the planning department yourself before you submit your plans, and speak to them informally about what they may or may not accept. Once approved, you can get started on specifications, and putting together your build team.
Seek out tradesmen and firms who are recommended to you, and who can direct you to recent projects they have done, to ensure you avoid being ripped off. There are plenty of resources to help with all aspects of the project, from the DIY basics and planning guidance to green technology, and project planning.
The National Self Build & Renovation Centre, nsbrc.co.uk, in Swindon is a great place to visit, and there are lots of magazines, events and online resources to help you make the right decisions, including the recently-launched Self Build Portal, selfbuildportal.org.uk, which has been endorsed by the government.
This article was provided by self-build specialists Buildstore. For more information visit buildstore.co.uk