28 Jul 2015

Making the money go round

28

Rachel Pyne, Group Sales Director at self-build finance expert BuildStore, offers advice on how to ensure your finances last the duration of your project.

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While there may be no such thing as a ‘typical’ self-build project – each coming with its own unique set of challenges and opportunities – every project has identifiable stages of development, from the initial digging of the foundations to the final fix. At each stage, as the value of the build increases, your finance lender will release a percentage of your overall funds, so it’s critical that you understand exactly what your project is going to cost you at each stage, so that you have enough money to meet your expenses.

Make sure that you’ve worked out precisely how much money you’ll need to pay out for materials, tradesmen and specialist services at each stage so that your available funds match your project. For example, a timber construction is more expensive in the early stages than a brick and block build because you have to pay for the whole system up front.

It’s also essential to have agreed payment terms with builders and other tradespeople in advance of work starting. If you don’t have a good handle on your cashflow – that is, if you haven’t matched your finances to your projected expenses at each stage – then you might find that you’re unable to meet your builders’ invoices or pay for the materials you need. Either situation can hinder progress and, in the worst case scenario, your builders may leave your project and move onto another job if they haven’t been paid, or don’t have materials to work with.

Make sure you work alongside your lender to ensure adequate funding is available at each stage. What’s more, if you have a large amount of cash sitting in the bank at the start of your project, make sure it’s placed somewhere with higher lending percentages to help ease your cash flow. Likewise, if you are contemplating funding your project by borrowing against your existing property, expert advisers will be able to impart their knowledge and expertise in cashflow management.

Budgeting

For many people, the whole point of self-building is to make the expense of a home go further – so it follows that accurately planning and managing a budget should be a primary concern. This process should start well before you even buy your plot of land, and shouldn’t finish until you’ve paid the final contractor and ensured that VAT is reclaimed on your building materials.

When you first begin to work out your budget it makes sense to plan out and weigh up the costs of all the different aspects of your project – even if that means working in round numbers. Whether you are borrowing money or self-funding your project, you should have a total figure in mind that you want to work to, in addition to a dedicated contingency fund of 8-10% of your initial estimate. There are a plethora of online build calculators, that can help to give an indication of costs involved and may serve to re-evaluate materials and methods.

For the self-builder or renovator, it’s absolutely critical that you get your budget right. Once you’ve got the basic figures in place, you’ll then need to spend significant amounts of time planning everything down to the smallest detail – because today it can be difficult to negotiate extra lending if you overspend in the early stages of the build. To find out how much you can borrow, speak to an expert adviser.

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