Self Build Mortgages
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“Building Your Own Dream Home, why don't more people do it”
Firstly we apologise for the length of this self build document however we feel once you have read the contents you will be grateful for the detail Here we will arrange a no obligation mortgage quotation for you click here.
The Mortgage Shop is firmly committed to the self build mortgage market with arrangements with a host of lenders to help borrowers find the funding to build their own homes, and we are constantly looking at other products to serve this growing market.
There has been an enormous growth in self build in recent years, Today, it's estimated that as many as 1 in 3 of the individuals who will live in them have never lifted so much as a brick in the process.
If you are thinking of having your own home built, you will need to know exactly what is involved. Many people feel daunted by the prospect, but if you follow a logical sequence of events and plan carefully, you will succeed in self build.
UNDERSTANDING SELF BUILD MORTGAGES AND BUILD PLANNING
Maybe your very own dream self build home has been bubbling away in the back of your mind for ages. But if you are serious about wanting to translate that dream into reality, you must do some serious homework.
Here are 2 important points
Firstly, do you understand what self building means, it is not the same thing as do-it-yourself, in fact, most lenders will only consider you for a Self Build Mortgage if you are not planning to build your own home yourself. Of course you can be involved in the project and there may be quite a few practical tasks you will want to tackle. But what is as important for you as for your lender, is that your new home is professionally designed, built and certified.
The next thing to bear in mind is that all lenders who operate in this specialist area require you to utilise some of your own money for your project, however don’t be put off majority funding is always available, subject to status.
Funding for the initial purchase of the land is available with of course the
cost of the building work until completion, with self build you will not after all be paying a developer's profit margin because by self building, you are effectively your own developer.
Mapping out your self build finances
Once you have established the overall budget that you will have to spend on your self build project, you can do some further sums.
Financially, a self build project has 3 important elements to it:
- FUNDING - how much will your project cost, and how will it be financed?
- VALUE ADDED TAX - no VAT is currently payable on new housing in this country, if you do pay VAT on construction materials, you will be able to reclaim this later.
- STAMP DUTY - this is not payable. The only time it is a consideration is if your plot costs more that £160,000. If so, Stamp Duty will be levied at 1% on the amount over this.
First, identify a sensible contingency sum.
'BUILD IT' magazine recommends an 8-10% contingency sum. The importance of this cannot be over-estimated. If one part of the build unexpectedly goes way over budge, you must be able to cover the cost without putting the entire project in jeopardy. This contingency sum can either be provided by your own resources, or else be incorporated in your loan.
Secondly, identify the price of your plot.
If you are lucky, you may already own your plot. Or it is possible that you may already have a specific plot in mind and will know its price , if not, do some research in the localities you favour. Ask estate agents; find out what single plots have fetched at auction.
Thirdly, allow for services.
Unless you are buying a serviced plot, connections to water drainage, electricity, gas and telephone can be surprisingly expensive. Depending on area, these can come to £5,000 or more.
Fourthly, consider what professional fees could come to.
You will have to pay for planning and Building Regulations anyway, you will also have to pay for other professional services as required by your lender. These will include some kind of professional certification. Possible you will need a site survey and soil samples taken by a surveyor and/or structural engineer. On a tricky site (e.g. one on a severe slope, or where there are difficult soil conditions) you will need a structural engineer to design the foundations. Your lender may require this anyway. In addition, if you want your build project-managed by an architect or other building professional, this will add to the overall cost. On top of all this, you will have your own legal fees.
When you have done all of the above sums, take them away from your overall budget figure. There will be other considerations for your to take into account later, but in principal at this stage, you now know whether you can afford to go ahead, and what realistically to can hope to build.
BUYING THE PLOT
Find the right plot is usually the most critical part of a self build project.
- Look in local newspapers and tell estate agents that you are looking for a plot. Keep reminding them if you are still searching!
- Advertise in the local press yourself, specifying an individual plot for a private buyer.
- Approach local builders to see if they have individual plots they want to sell off.
- Contact land finding agencies. You will probably have to pay a subscription for their services.
- 'BUILD IT magazine also has a useful land section. (on sale at newsagents, or for subscription details, 020 8549 2166)
ASSESSING YOUR PLOT
The ideal building plot is a good size and shape, is level and faces due south. However, ideal plots are hard to find and you may have to compromise. Many plots which come on to the market are narrow, infill sites between existing houses. They can be developed, but their typically long, thin shape will obviously affect the design. A sloping plot or bad ground conditions will have cost implications, because of the extra work that will have to go into the foundations.
A site survey before you agree to buy is essential. Soil samples should also be taken to determine the ease or difficulty with which your site can be developed. Negotiate the price of the plot in view of the results.
Also note that planners require a plot to have at lease a 10 metre rear garden, with a turning circle at the front, they also require the plot to be at least 3 metres wider than the house you intend to build
A building plot is one that specifically has existing consent for a home. If land does not already have planning permission, it is not a building plot - it remains a paddock, or part of someone's garden, or whatever. Of course, some people find plots without planning permission, which they subsequently achieve. However, this is not straightforward and never assume you will get planning permission on a piece of land. Any offer to buy a plot should be subject both to planning permission as well as to contract. On the latter point involve your solicitor in just the same way as if you were buying any other property.
Two kinds of planning consent exist:
- Outline accepts the general principle of development on a particular site.
- Detailed permission gives an exact consent for a house of a particular design.
An outline consent can lay down stringent conditions which may be hard to change. A detailed planning condition may not be for the kind of house you want.
Do look at the small print carefully and if you are uncertain, take expert advice from a planning specialist before buying a plot.
You need both planning permission and Building Regulations approval before you can start building. The Building Inspector will regularly visit your site during construction.
Once you have identified or purchased a building plot with at least outline planning permission, you should normally have available for us:-
- Evidence of all the homework you have done so far - detailed costings, builder's quotes, prices of materials, schedules, and your overall budget.
- The plans for your proposed new home, together with the actual consent.
The planning permission must be for only one dwelling and not be more than 2 years old when you apply for a mortgage. A Self Build Mortgage is only available to genuine self builders - i.e., people intending to live in the completed home. You must begin building within 6 months of receiving your self build mortgage offer. Your build must be professionally undertaken, normally using a single contractor for the entire construction. However, you may be able to manage the build yourself using suitable sub-contractors. Mortgage funding is not for amateur do-it-yourself builders. Your new home must be covered by a structural warranty. This can be achieved either by using a contractor who registers your build with the NHBC or Zurich Municipal's Custom Build. This latter scheme is also highly suitable for people wishing to manage their own builds. Alternatively, you can choose to have your build monitored by a qualified architect. Your construction site must have insurance cover. The building itself must be insured during construction and on completion.
HOW MUCH CAN YOU BORROW AND HOW MUCH WILL IT COST
The Bank or Societies own valuer will assess the value of your plot, and will want to see your plans in order to estimate the valuation of your home when it is completed.
Currently, most lenders are offering special deals however this is subject to status, and payment of the lenders arrangement fee for these loans. You will also need to pay a valuation fee, and additional inspection fees.
WHEN ARE THE STAGE PAYMENTS MADE?
There is flexibility regarding both the number and timing of stage payments. There are usually 4 or 5, all of which can be negotiated and agreed beforehand.
Generally, the first stage of the Progress Mortgage is released on the purchase of the land, although if you already own the land, this purchase may be re-financed.
The second stage payment can be released at ground floor sill level (in the case of a brick and block constructions); or when the frame is erected (in the case of a timber frame).
The third payment is made when the outside shell is completed (i.e. bricked, glazed and tiled); a fourth payment may be made after plastering or drylining and when all the services are installed, with kitchen and bathroom's) fitted; the final payment is on satisfactory completion of the entire build.
If previously agreed with the lender, an architect or Zurich Municiple Custom Build surveyor can check and certificate each stage of the build, triggering the next release of funds. Additionally, the lender's own surveyor may check each stage of the build.
Choosing the design of your own new home is one of the most exciting parts of the project. There are many ways you can approach this. Obviously, your most important objective is to achieve a home that precisely suits your family's tastes and lifestyle. Other considerations include:
- If your plot has an existing permission, does it lay down any conditions regarding size, height, or any other detail? Are any of these conditions negotiable.
- What is the orientation, size and shape of your plot? Planning a new home should take account of your family's needs, but the design must also suit its site. In particular, that means developing the plot in the right proportion - a 2-bedroom bungalow on an acre will fail to maximise your asset, while a mansion squashed on to a small plot runs the risk of costing more to build than its end valuation.
- Is your plot in a 'sensitive' area? If it is in a conservation or other specially designated area, you will have to take into account the planners' views about appropriate design and materials.
- Design within your budget: a split-level house with a basement and a large elaborate roof will be more expensive to build than a more conventional shape and size of home.
When you are thinking of drawing up a detailed planning application, it always makes sense to talk to the local planning department first. If you work to their guidelines, you are far more likely to be granted permission at the first attempt. Your architect or designer will negotiate on your behalf; most self build package companies will also undertake this.
WHO WILL DESIGN YOUR HOME?
There are many options, but remember that whoever you choose, the most important person to have design input into your new home is YOU.
- Package companies offer a wide range of services. Most offer a standard range of house and bungalow designs, but will also design one-off homes to your brief. Even if you choose a standard design, you will have great flexibility in altering it to your own requirements.
- Architects are increasingly interested in designing individual homes for private clients. Lists of architects in local areas who design one-off homes are available from the Clients' Advisory Service of the Royal Institute of British Architects, 66 Portland Place, London W1N 4AD. Most timber frame package companies are happy to construct from an architect's design, or you can get designs built in brick and block. Architects not only design homes, but can also supervise construction.
To get design ideas, visit show houses, send for company brochures, read self build magazines and books, and visit exhibitions. Also make a point of sitting down with the whole family, and exchanging ideas.
CONSTRUCTING YOUR HOME
There are two main building systems to consider, timber frame, and brick and block. Both have their advocates, but both are equally good, equally durable methods of construction.
You cannot tell by looking at a house whether is it constructed of timber frame or brick and block, and whichever method you choose should not affect your design. Virtually all house and bungalow designs are equally suitable to be constructed in either timber frame, or brick and block.
Lenders do not discriminate between the two systems, and you will be able to get a structural warranty on both.
- Brick and block construction is often referred to as 'traditional', even though modern building blocks are a post-war development. Brick and block constructions is, however, more widespread in this country than timber frame, and many builders are more familiar with the system.
- Timber frame construction is generally the preferred method of construction elsewhere in the world, notably in the United States and Scandinavia. In the UK, some of the oldest houses still standing are timber frame.
Traditionally, timber frames were hardwood; today, some companies still specialise in hardwood frames, but mostly specially treated softwood is used. Timber frame currently accounts for only around 12% of the overall market in the UK, but many self build companies specialise in timber frame systems.
With brick and block, the structural strength is supplied by inner walls built of blockwork. In a timber frame, the structural strength is supplied by an engineered inner frame of timber. Advocates of brick and block tend to say that these houses are better insulated against noise. However, it is perfectly possible to improve the sound insulation of a timber frame house.
Similarly, advocates of timber frame tend to say that these have better thermal insulation. However, it is possible to bring the thermal insulation of a brick and block house up to the standard of a timber frame. Indeed, any self builder is strongly advised to make their new home as energy efficient as possible.
One undisputed advantage of a timber frame system is that a frame goes up to quickly that the shell is watertight within (usually) 2 weeks. Thus, construction work can continue in the dry and is less at the mercy of the weather. It is possible to build a timber frame home from start to finish in 12 to 16 weeks. However, although a brick and block house will take rather longer, some people like the apparently more solid feel of a masonry build.
A timber frame house uses much less water in its construction. There is no drying-out time, and because a timber frame is dry-lined as opposed to wet-plastered, there is virtually not cracking of paint-work and decoration. However, It's also possible for a brick and block house to be drylined.
The choice of construction is entirely up to the individual. Each method is as good as the other.
Once you have obtained detailed planning permission, and before you finalise arrangements with your lender, obtain a Schedule or Bill of Quantities. This should be drawn up by a Quantity Surveyor. It is an important document which breaks down each part of the build allowing you to get firm quotes in writing on the basis of the materials and labour that will be needed.
Also work out a time schedule, so that you know in what order your build will proceed, and what materials need to be ordered when, so that they are on site when needed.
Some building plots are serviced, which means that you will not have to worry about getting water, drainage, gas, telephone or electricity to your site. Other plots lack services, and since charges for connection and infrastructure vary, you must find out these costs beforehand.
Write to the services involved and get in writing confirmation of what they will charge. Your lender will also want to see this information.
Who will manage your build?
Very broadly speaking, there are 4 main types of self builders:
1.Those who do all the work themselves. 2.Those who manage their own builds. 3.Those who employ a project manager. 4.Those who employ a single contractor.
As we have already said, if you are a DIY amateur builder, most lenders will be very concerned. They will worry about the quality of construction that you can achieve, and they will worry about your probable loss of earnings while you are involved in your building project. Managing your own build is, however, a possible (and popular) option. If you are interested in this feature make it clear to your adviser.
Managing your own build involves:
- Being responsible for the site.
- Hiring sub-contractors.
- Buying building materials.
People who manage their own builds generally do it very successfully. It does not matter if they are not building experts; what does matter is their management ability. This hinges on an understanding of everything involved, and very thorough preparation of the whole project.
If you manage your own build, you stand to make excellent savings: your finished property should be worth 20 to 30% more than it has cost you in terms of plot price.
You will also be able to re-claim all the Value Added Tax you have paid on your building materials.
You will, however, have to convince lenders that you really are capable of running your own construction project, and making a good job of it. In particular, you will need to show serious commitment to the project. You cannot manage it from a distance. You, or your partner, will need to be on site at all key times, and to receive materials; you should also visit the site at least once daily to instruct sub-contractors; and you must always be quickly available by telephone. It is also essential that you use professional support, whether from experts at a package company, an architect, or a Custom Build surveyor. Also consider using a Quantity Surveyor to list all the building materials you will need, with prices and quantities.
Using a single contractor qualified to construct the whole of your new home, should make it easier for you to get financial support for your project. Ensure you use a builder who can register your own construction with either the NHBC or Zurich Municipal Custom Build.
Finding the right contractor is of critical importance. If you are using a package company, ask for their help in drawing up the tender document; alternatively, involve an architect.
Do not choose a single contractor on the basis of price alone. Ask for references from previous customers. Look for quality work from an established and reputable firm.
Whether using a single contractor or various sub-contractors, never pay up-front. Payment should always be for work satisfactorily done, 'satisfactory' meaning that it has been approved by the Building Inspector, your architect or surveyor.
If you are having your build professionally managed, you could use a supervising architect or a professional project manager. They will charge a percentage of your build.
You would not buy a new house without a structural warranty, so don't build one without this or an equivalent safeguard.
The NHBC's Buildmark warranty is one option, but you will have to use an NHBC registered builder for your complete build. Custom Build, from Zurich Municipal, is another 10 year guarantee (with an option extending it to 15); you can use a builder registered with the scheme, or register with it yourself. The warranty works out to around 1% of your construction costs.
An architect or surveyor can also monitor builds, but lenders vary as to whether they will accept these.
WHERE TO LIVE DURING YOUR BUILD
Most self builders sell any previous home before embarking on the build of their new one. It is usually wise, because it frees up your capital and ensures you will not find yourself stuck with two mortgages. You are, however, advised to discuss this point with your lender, since individual circumstances vary. If you need somewhere to live while you build, consider renting, living in a caravan on site, or moving in with friends or relatives. A caravan on site may require temporary planning permission.
Long before any work starts on site, it is vital that you have adequate insurance. Lenders will insist on this in any case, any may be able to advise you on suitable products.
As soon as you have bought your plot, take out a public liability insurance. This will cover you against any accidents or injuries to third parties which may occur on site.
When work starts, a comprehensive policy should be in place covering 3 main areas:
- Public liability, against any third party claim.
- Employers' liability, covering claims from anyone injured while working on your site.
- Site risk insurance, to cover claims for theft, vandalism or storm damage of the construction, plant or materials.
If you are using a single contractor, he will - or should - have his own insurance. However, as the owner of the site, it is your responsibility to check that this is the case. Furthermore, changing Health and Safety requirements are increasingly putting the onus on site owners to take responsibility for site safety. Make sure that your project is thoroughly insured against every eventuality.
You may also wish to take out a personal accident insurance to cover yourself during your regular visits to the site.
Site safety cannot be over emphasised, and the final responsibility is yours. Take all reasonable steps to ensure safe working conditions. Contact your local Health and Safety office before work starts. Ask for their helpful leaflets about safe working practices.
- Declare your site a hard hat area. During construction everyone should wear hard hats.
- Ensure workers on site wear other appropriate clothing, e.g. goggles, boots with reinforced toes.
- Ban children from the site.
- Store all materials carefully; handle them according to instructions.
- Mix cement sensibly. Don't wear shorts, no matter how hot the weather. Cement burns are painful and dangerous.
- Keep a first aid box handy on site and make sure everyone knows where it is.
A new home is currently constructed VAT-free. If you use a single contractor to do all the construction, he will not charge VAT. If you are managing your own build, these are the guidelines:
- Where sub-contractors both supply and fix, they should not charge you VAT. A timber frame, for instance, which is both supplied and erected should not have VAT; and electrician who supplies his own materials and fixes them should not charge VAT on his bills. Suppliers charging for labour only should not levy VAT.
- Where you buy the materials, you will have to pay VAT. However, you can reclaim this at the end of the build, after formal completion, under the special VAT scheme for DIY builders. Details are available from your local Customs and Excise office. To claim back VAT, keep careful financial records throughout the build.
- You can only put in one claim for a VAT refund. This must be within 3 months of formal completion.
- You cannot claim back VAT paid on professional services, e.g. architect's fees.
- If you have been wrongly charged VAT, the VAT office will not claim it back for you. Take it up directly with the sub-contractor concerned.
GENERAL TIPS FOR SELF BUILDERS
- Learn all about self build before committing yourself.
- Ensure you have sufficient equity of your own to put into the project.
- Allow 8 to 10% contingency in your overall budget.
- Spend at least as much time planning your project as executing it.
- Never buy a plot without at least outline planning permission and always study the small print. Remember, some lenders will not lend on land at all.
- Buy land through a solicitor.
- Use a structural engineer to assess ground conditions and to design foundations.
- Use a Quantity Surveyor to draw up a Bill of Quantities.
- Keep accurate financial records throughout the build.
- Remember to reclaim your VAT within 3 months of the build's completion.
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