The notion of building one’s own home is one that has increasingly captured our imagination over the past few years and experts say the next 12 months are likely to see record numbers of people choosing this route to live out their domestic dreams.
However, assuming some level of borrowing is required, ensuring there are sufficient funds at hand to finance your build at its beginning, middle and end stages is something that can be surprisingly challenging when constructing a home from the ground up. Get it wrong, and a self builder can all-but dig their own foundations as they anxiously pace the length of their plot on the phone to last minute lenders. Get it right, and ‘building the dream’ can be as good as it sounds.
Here are three key areas worth considering:
Be Budget Smart
To obtain financing for a new build project, any bank will want to see a detailed breakdown of projected costs. This will need to include everything from design, to groundworks, to construction and material specifications, landscaping, and each element in between and therefore having watertight quotes from suppliers is key. The devil is in the detail, and the sum of the details will collectively impact whether they will lend funds to the project, and how much.
As a result, this is a lengthy process and can often take five to six months. Therefore, it is important to factor in all living costs in the meantime, as this will be included in the overall budget. According to Buildstore - an advisor specialising in self-build mortgages - the amount you can borrow to purchase your plot will likely be 75 per cent of its current value. Similarly, for the build costs you can borrow around 75 per cent of the end value. If you already own the land or the property however, you can borrow against the value of this, meaning you can borrow more of the build costs.
Be a Mortgage Master
Mortgages work very differently for self-build projects. Instead of receiving a lump sum at the start, funds are released in stages throughout the build. Each mortgage is as individual as the build and is designed to help stagger funds, which not only reduces the risk and secures the lender’s money, but can also help with the strategic budgeting and planning of your build.
There are two main mortgage types; Arrears Stage Mortgage Payment and Advance Stage-Payment Mortgage. The two are primarily differentiated by whether or not you have savings. For those who can afford the land and the initial labour costs until the building is water-tight, an Arrears Stage Mortgage is preferable. Those that need finances released at the beginning of each stage, rather than at the end, to ensure you can pay for land and materials, opt for an Advance Stage-Payment Mortgage. Of course, each mortgage supplier will have different programs on offer, so it is best to do your research to see who will be your best supplier. You may also be able to switch to a better rate once your build is complete.
Take Back the Tax
This requires diligent and detailed record-keeping, but it is definitely worth the effort and can save significant amounts of money on a self-build project.
When your build is finished, almost all the VAT paid along the way can be reclaimed. For example, VAT on services such as plumbing, roofing and most building kit or supplies can be reclaimed, with typical refunds reaching around £10,000. It is important to note, only one claim of the total amount can be made within three months of finishing the project - almost a third of all self-builders fail to do this in the allotted time, resulting in them missing out on a big tax refund. It is therefore essential to keep your books up-to-date and ready for submission.
Oliver Grimshaw, Head of UK Sales, Hanse Haus GmbH
Oliver Grimshaw is the Head of UK Sales for premium German supplier of pre-manufactured, high-efficiency homes. Founded back in 1929, Hanse Haus now erects some 400 homes annually Europe-wide and has been active in the UK since 2006.
With over 85 years’ experience in the construction industry and boasting more than 30,000 completed homes, the company is also a certified builder of the remarkable Passivhaus; a home that loses almost no heat through its walls, roof and windows, thanks to extremely high levels of thermal insulation.
