27 Sep 2016

How to budget for your self-build project

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Keep on top of your finances and don’t underestimate the cost of your project if you want to successfully complete your new home, says BuildStore’s Rachel Pyne.

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Organisation is key to any new build project, especially with regards to budgeting. Whatever your motive for self-building – a new family home, an investment opportunity, somewhere to retire – it is essential that a detailed budget is prepared and maintained from the beginning to the end of your project.

Underestimating what your new home will cost is a serious matter – you’d be ill advised to start off with big plans and a small budget. If a development is going to fail, it’s usually because money has run out before it’s complete. Something else to bear in mind is that changing the layout or specification of your home once work commences can dramatically increase the costs. So work out exactly what you want before you start on site, and then stick to it. It can’t be over-stressed that the most successful self-builds are those that have been planned and budgeted for in detail and in advance.

Setting a budget

There are two ways to set a budget for a self-build. The first is to assess how much money and equity you already have and how much you can afford to borrow, and then make a calculation of the size and type of house you can build with that figure. If you already know the size of property you want to achieve, you can work out in reverse how much it will cost to buy some land and build it. For an estimate of what your scheme will cost, try BuildStore’s free online cost calculator – www.buildstore.co.uk/finance/build-cost-calculator.

Once you’ve assessed your savings and equity, you need to secure the additional finance required, which usually takes the form of a mortgage. Unfortunately, many high street lenders don’t understand the process of self-building, so the idea of lending money against something that doesn’t yet exist is something many won’t conceive. However, as a specialist in the sector since 1997, BuildStore has a deep understanding of exactly what’s required to successfully fund a self-build development. This is why the Accelerator Stage Payment mortgage was created – it allows you to advance money against land purchase, and then again against build costs. Funds can be drawn down to correlate with the major stages of a project, which means that a positive cash flow can be maintained. The additional risk posed by not having a fixed asset to loan against at the early stages is offset by a separate insurance premium, which BuildStore also handles for its customers.

Cash flow

Once you have your funding in order, you must keep a strict eye on your cash flow, which is the balance between outgoing and incoming funds. The bills will come in thick and fast once building starts, so it’s important to have money available to make payments as they arise.

To establish your cash flow pattern, you’ll need to know your project schedule and the costs incurred for each stage. Before you even start the building work you will have fees to deal with, such as legal costs, site surveys and planning charges. So always factor these into your overall cost plans. Remember too that although you can claim back the VAT on materials used in a self-build project, if you are buying the materials yourself, you will have to pay for them first and then claim the tax back at the end of the build.

As a general guide, your build costs breakdown should look like this if you’re building a conventional masonry home:

    • Works up to DPC – 16%
    • Works to wall plate level – 19%
    • Wind and watertight – 21.5%
    • First fix – 18%
    • Second fix and completion – 25.5%

However, remember that the biggest single impact on your costings will be the price of the plot. It’s likely to be 30%, if not more, of your overall budget. Also, whatever your project, you need to factor in a contingency fund. This will vary from home to home, but allowing for an additional 10% is advisable. Remember that this is for unexpected costs only; do not be tempted to use it to up the specification of something non-essential.

As you’re responsible for paying the bills, you have to make sure that every penny is spent wisely and is accounted for. Most self-builders will create an accounting spreadsheet to record expenditure in key areas such as professional fees, materials and labour. Also, keep a filing system for invoices, delivery notes and receipts. There will be hundreds of these throughout your build, ranging from till receipts for small items to the invoice for your bricks, but all are necessary in order to reclaim your VAT.

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