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Does Self Build Make Financial Sense?

Have you ever dreamed of building your own home?

It’s not for everyone and has the potential to cause a lot of stress but if you have your heart set on it, it can be very rewarding.

Self build is not a quick or straightforward option. It could even take years in some circumstances.

So Why Self Build?

If managed properly, most self builds should be worth considerably more than the construction costs. This means you get your dream home for a fraction of what you could pay for it if someone else had built it.

You have you the freedom to specify features that may be impossible or at least very costly to install in other properties; like solar panels, bespoke kitchens or extra rooms. Luxury features such as under floor heating can also be added much more cheaply than ripping up existing flooring and relaying.

In brief; you get more for your money, you will learn a lot about the building process, you can meet your exact needs and if you do your homework you will end up with a better quality construction.

Is It Cheaper To Buy?

Take a look at property in your local area. Your perfect home could already be waiting for you, saving you a LOT of hard work. If one exists, work out if it costs less to purchase and renovate the existing property. If it does work out cheaper, then it is worth finding out more about planning and finance and so on.

The Government UK website says:
Building your own house is a more affordable way to provide a family home Planning Minister Nick Boles told eager self-builders.
Self-build and custom build – where people work with a specialist developer to deliver a home – can be a cheaper and more cost effective way into homeownership.
Other countries are well ahead of the UK in the number of homes which are self and custom built when compared to housing built by regular developers.
In Austria about 80% of all homes are self-built. In Germany, France and Italy the figure is about 60%, while in the US and Australia about 40% of homes are custom built. By contrast the figure for the UK is about 8 to 10%.

The government is making it easier for people to build their own home and is keen that people tap into the great opportunity custom build provides to increase house building. The sector currently builds around 10,000 homes a year and there is potential for it to provide many more.

[The] government will support custom build by:
consulting on a new ‘Right to Build’ giving custom builders a right to a plot from councils identifying a small number of councils to act as vanguards to test how the Right to Build model would work in practice creating a £150 million repayable fund to help service up to 10,000 plots for custom build looking to extend the Help to Buy equity loan scheme to cover custom build”

Self-Build Mortgages

Do they exist? How much do they cost?

A self-build mortgage is designed for anyone looking to build their own home. They are often slightly more expensive than standard mortgages. You will also need a decent sized deposit, usually 25%, although you might be required to put down as much as 50%. Also, you would be paying for alternative accommodation while your new property is being built, although people have been known to invest in a caravan to stay on their land. Moving with children is hard enough and self builds are not always possible if you have a family to consider.

With self-build mortgages, the funds are released in stages rather than as a single lump sum. This is to reduce the lender’s risk and ensure that the money is spent as planned. It prevents you from running out when you are only half way through the build.

When funds are released will depend on the lender but, as a rule, you’ll get the first sum when you buy the land, then another when the foundations are laid and a further payment when the property has eaves and so on.

Final payments will be made when the roof is on and the interior walls are plastered The last instalment is paid on completion.

Quite often, self build mortgages will vary the LTV you are able to borrow. For example you may be offered 75% of the cost of land but 85% of the projected building cost.

Benefits Of Self Build Mortgages

One of the advantages of using a self-build mortgage is that you could save a huge amount of money on stamp duty; there is no stamp duty on the cost of the building work, or the property once it has been built. You only have to pay duty on the cost of the plot of land itself if it was over £125,000.

What Else Should I Know?

There will be lots more paperwork involved when you take out a self-build mortgage. You will have to show your lender detailed plans for the property and provide a projection of the costs involved. Most lenders will also want to see proof that planning permission has been granted.

Don’t forget there are still legal processes to go through and finances to be organised. You will need to hire a conveyancer or solicitor so it’s important to budget for conveyancing fees as well as disbursements.

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