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Q: I haven’t got a huge budget, is it possible to self-build something on a small scale?
A: It’s easy to presume that self-build is something that only those with huge amounts of money get to do – mainly down to the shows we see on TV that highlight huge properties and owners with stacks of cash. But don’t believe everything you see on TV! In reality, the vast number of self-build projects create much smaller, more affordable homes. Most people self-build because it is a cost-effective route to getting a good quality home that’s tailored to their needs. Unlike the big house-builders, you’re not operating to a profit margin, so you can easily get more for your money in comparison to purchasing an equivalent developer-built home.
Self-building gives you control over who designs your project, who builds it and, if budgetary decisions have to be made, you’ll be in control of them. This means that whatever the scale of your scheme you can maximise your assets to create something that makes best use of your plot, suits your lifestyle, achieves high levels of energy-efficiency and much more besides.
Q: How do I set up a budget for my self-build? When should I do this?
A: From the outset, it’s important to have a comprehensive budget; setting this should be one of your first tasks on a house-building project. Start by researching construction costs and land prices to get a clear understanding of exactly what you can afford to achieve. A good starting point would be to look at BuildStore’s online calculator, which asks you a series of basic questions to provide you with a general budget.
You also need to work out exactly how much money should be attributed to the various stages of your project, as well as factor in a sensible contingency fund – usually around 10% of your construction (rather than overall) budget. The biggest individual cost will be your plot, which will usually account for up to 40% of your sum (depending on where you are building). Labour and materials will be a further 25% and 20% respectively.
Site insurance and a structural warranty are extremely important elements too, both for peace of mind and for financial security during the build and after completion. Budget 1% to cover these charges or get a free quote online at www.buildstore.co.uk/finance/online-quote.asp.
Q: What’s the difference between a traditional mortgage and a self-build mortgage?
A: Self-build developments pose a completely different proposition from buying a property on the open market and traditional mortgage products simply aren’t ideal for this type of project. Standard mortgages only offer funds for completed properties, but when you’re running a construction site – with needs for material purchasing and paying tradespeople – this money would arrive too late in the day.
Specialist self-build mortgages run in a completely different way as they have been specifically tailored to suit the needs of a house-building project. The key difference between specialist products and traditional mortgages is that they enable you to draw down funds at key stages throughout your build, rather than receiving a lump sum at the end. There are typically six stages of release, as the following table shows:
| Stage | Masonry builds | Timber frame projects |
| 1 | Purchase of land | Purchase of land |
| 2 | Preliminaries and foundations | Preliminaries and foundations |
| 3 | Wall plate level | Timber frame kit erected |
| 4 | Wind & watertight | Wind & watertight |
| 5 | First fix & plastering | First fix & plastering |
| 6 | Second fix to completion | Second fix to completion |
Q: Is there only one type of self-build mortgage and how do I decide what’s best for me?
A: There are two types of self-build mortgages that operate within the stage model: arrears stage payment products and advance stage payment products. For the former, funds are released to buy the plot, typically up to 75% of the purchase price, and then the money for the construction phase is released in stages (that correlate with the table) after a valuation has taken place.
This means that you will be responsible for funding the early parts of the project, including the deposit on your plot – so you have to already have cash available to get the project off the ground. Therefore, this type of mortgage is best suited to self-builders who have capital to invest in the initial stages, already own a plot or have sold their previous home to release funds. If you don’t fall into these categories, this kind of mortgage may lead to cash shortfalls during the build while you’re waiting for valuation reports to be approved before the next cash payment is released.
The alternative is an advanced stage payment mortgage – pioneered by BuildStore, and known as the Accelerator. Here money is released at the beginning rather than the end of the stage, giving you access to cash exactly when it’s required. The Accelerator also lends a generous percentage of the costs – up to 85% on land and up to 85% of the cost of the build. This low deposit sum is a huge bonus and could mean, for example, that there’s no need to sell your existing house to raise money before your new property is complete.
Another plus point is that with guaranteed advance stage payment mortgages, the risks associated with subjective valuations are removed. This is because there is a greater degree of research carried out in the costing stages prior to works starting – although some lenders may want interim valuations to check on progress. The initial in-depth analysis of your costings will provide a detailed cash flow summary, identifying who/what needs to be paid and when.
