Could Self-Build Work For You?
July 15, 2007
The ever increasing prices on the housing market have made getting on the first step of the property ladder increasingly difficult. People are looking for alternatives, and one is to build your own home.
Building your own home will still entail getting a mortgage, and that will be a self-build mortgage, a home loan to finance the building of your own home. In this type of mortgage the money is released in instalments, which includes an initial loan so that you can buy the land. Further money is then made available to you in stages. It is important to understand whether payments are made at the beginning of each stage or at the end, as this will make a crucial difference to the state of your finances as you progress. The amount you are able to borrow will depend on your mortgage provider, but a general rule is that a lender will not lend you more than 75% of the cost of the land, or about 60% of the cost of building. One notable exception is Buildstore, the self-build specialists, and they will lend up to 95% of the value of the land.
It is in some ways inevitable that because these are not regular mortgages, lenders make their rates higher for these type of mortgages. An increasing number of mainstream providers now deal in these mortgages, including Halifasx, HSBC, Britannia Building Society, Skipton Building Society, Norwich & Peterborough, Ecology Building Society. They will run the normal credit checks, and some providers may refuse to lend you the money if you are planning to be the builder yourself, rather than employ professional architects and builders.
The costs of self-build don’t just include materials and labour. You will need to consider building regulations and planning permission costs, as well as legal fees and, as well as builders and an architect, you may also need a project manager. It all adds up. Almost certainly, your initial estimate will turn out to be too low. Therefore, try to have a contingency fund to cater for unexpected costs – because there will be some – and you don’t want to have to stop part way through, leaving the project half finished. Experts in the field recommend a contingency fund of up to 10%. It is also worth considering taking out insurance to protect yourself against overspending or long delays, both of which happen regularly in self-build projects. It is also worth getting a policy that covers against theft, vandalism or bad weather damage.
The single biggest advantage of self-build homes is that they tend to be worth 25% to 30% more when complete than they cost to build, according to figures from Buildstore. You might also make a big saving in stamp duty fees. The reason is that you pay the tax on the cost of the land only if the plot costs more than £125,000, and there is no stamp duty payable on the cost of building work, or on the value of the property once finished. Given that stamp duty rises from 1% to 3% at property value of £250,000, and then to 4% over £500,000, this is likely to represent a good saving compared with buying a house at the equivalent price.
The biggest problem you may face is actually finding somewhere to build a house. The number of available sites and the rising cost of land mean that finding a plot is no easy task.
Alan Wright
15th July
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