Moving into a house that you’ve built yourself (or at the least built to your specifications) is very rewarding. However, there’s a lot that can go wrong. Read my guide so you know what to expect.
The first thing to do is to set yourself a budget of how much you can spend for the total project, allowing around a third of the total cost for buying the land and the rest for materials and labour.
SAVVY TIP: Under the rules, you pay stamp duty land tax (usually just called ‘stamp duty’) on the price of the plot of land but not on the finished home. In Scotland you don’t pay stamp duty but are charged a land and buildings transaction tax instead.
With the average plot costing £125,000, the chances are that you won’t pay stamp duty on it.
This is what you need to think about:
- Don’t miss out on tax breaks for self builders. If you pay VAT on materials and supplies you can reclaim VAT at the end of the project. There’s information on Building a new home and VAT on the Gov.uk website.
SAVVY TIP: Self build information sites, such as Buildstore have online calculators to help you work out how much you can spend and how your costs may break down.
- Get a lending decision in principle. Once you’ve worked out a rough budget, it’s a good idea to apply to a lender and see how much they would lend you ‘in principle’.
SAVVY TIP: A decision in principle isn’t a guarantee that you’ll get the loan, but it should mean you’re able to move more quickly if you find a plot you like. Here, a mortgage lender agrees to lend you a certain amount, subject to it being satisfied with the plot itself and carrying out a final credit check. Because competition for plots can be intense, it’s a move that could pay dividends.
Finding a plot of land
Once you’ve worked out a budget, you can start looking for your plot of land. There are a number of different plot finding websites that you can try. Buildstore has its own site, called Plotsearch, while alternatives include Plotfinder.
- You’ll need detailed planning permission. Mortgage lenders won’t lend unless the plot of land has detailed planning permission.
SAVVY TIP: Detailed planning permission has a ‘shelf life’ of three years. Some lenders insist that plots have two years planning permission remaining, others will accept 12 months. Make sure you check before you start applying.
- Compare mortgages online: It will help your cash flow if you can opt for a mortgage that will release the money as you need it (called ‘advanced stage payments’). The alternative is to get a mortgage that releases money in arrears — but that means you have to find a way of paying for the build as you go along.
SAVVY TIP: If you plan on living in your existing property during the build and you don’t have enough savings to pay for the build upfront (which probably accounts for most people!), an advanced stage payment mortgage is a better option. If you’ve sold your existing home and have the money sitting in the bank, you’ll get a bigger choice of lender if you can include those companies that release the money in arrears as well.
- Be aware of the rules on mortgage affordability: If you already have a mortgage a self-build lender will count your monthly payments as a regular financial commitment (much in the same way as a personal loan or credit card payment).
- Don’t ignore mortgage fees. Mortgage fees vary widely, but you will generally have to pay more for an advanced stage payment mortgage (it can be around 0.5% of the amount you borrow) than you’d pay for an arrears payment mortgage.
Keeping track of your budget
Going over your budget seems to be an inevitable part of any building project, but it’s important to try and keep control of your costs.
- Allow a contingency fund of 10-15%. You may not need it, and if you don’t you can either use the money towards new furniture, keep it in your savings account or pay down some of your borrowing.
SAVVY TIP: Draw up a spreadsheet so you can easily keep track of what you’re spending.
- Don’t change your mind. If you can see that something really isn’t working, you’ll have to alter your plans. But don’t get into the habit of changing your mind as it will significantly add to your costs.
- Don’t underestimate the work of project management. Many people choose to project manage self build themselves. It’s easy to understand why as it will save a lot of money. But it’s almost a full-time job.
SAVVY TIP: Buildstore runs regular courses for novice self builders. You can take the full five-day course or pick and choose units (such as budgeting and planning, project management etc).
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