Financing your self-build

(Based on a 140m2 home)

 

Can I self-build? What does it cost? How much money do I really need?

On the back of “Grand Designs: The Street”, the idea of self-building is opening up the imagination of viewers as they look to build their own homes. Scanning the local papers, filtering Rightmove, and pacing out granny’s garden are all symptoms of a self-builder.

So, what is involved in financing a self-build? What do you do? Where do you go?

Self-building doesn’t need to be exclusive or less accessible than buying a home, it’s just a longer route which requires a lot more information to get the ball rolling and getting on the road to building your own home.

 

Who do I talk to about the finance?

There are many self-build mortgage brokers out there offering all kinds of financial services and products, the biggest being Buildstore. The lenders themselves are often building societies such as the Melton, the Bath Building Society etc. You can talk to a broker to evaluate how much you could borrow: this follows a similar structure to normal mortgages of x 4.5 your income.

 

Deposit / How much money do I need?

The first point on this is, you don’t have to own the land outright to self-build, you can borrow money for the whole project including your chosen plot. Loan to Value is as much as 85% so you only require 15% of the total project cost. On this basis, if your plot costs £150,000 and you’re looking to build for £280,000, your total project cost will be £430,000 so your 15% deposit will be £64,500. Please be mindful there are some extra costs you’ll need to have capital available for as mentioned below.

 

How is the money borrowed?

As there is nothing to borrow against, the borrowings are drip-fed over five or six stages:

Stage 1: Purchase of land
Stage 2: Preliminary costs and foundations
Stage 3: Oak frame and encapsulation erected
Stage 4: Wind and watertight
Stage 5: First fix and plastering
Stage 6: Second fix to completion

After the land is acquired, money will be released at specific milestones of your build. For example, upon acquisition of the land, you’ll be lent money for your groundworks. Once completed, a surveyor will inspect and sign this off. You’ll then receive payment for your next milestone. The stages above show the general milestones that are worked to by the lenders.

Below is an example breakdown of anticipated costs at each stage of an oak frame home self-build and the timeline which lenders will wish to see:

Stage 1: To get DPC level in readiness for the erection of timber frame kit
Total cost: £87,130
Anticipated timescale: 12 weeks

Stage 2: To erect your oak frame and encapsulation
Total cost: £53,466
Anticipated timescale: six weeks

Stage 3: To achieve wind and water tightness
Total cost: £36,097
Anticipated timescale: six weeks

Stage 4: Completion of services for the first fix and dry lining
Total cost: £52,966
Anticipated timescale: 14 weeks

Stage 5: Issue certificate of completion
Total cost: £50,341
Anticipated timescale: 10 weeks

Total build cost: £280,000
Total anticipated duration: 52 weeks

How do I work out what everything costs?

Unless you are a builder or quantity surveyor (QS), the truth is you’re putting your finger up into the wind and guessing costs.

If you’re simply querying if self-build is a viable option, you can initially work on the basis that excluding the land, build costs will be roughly £2,000/m2 of internal floor space (upstairs and down).

Workout your ideal floor space; perhaps you’ve seen a design you like at 160m2? On this basis, 160m2 x £2,000/m2 = £320,000. Depending on your budget this may be viable, if not then perhaps divide your rough budget (excluding the cost of land) by £2,000 to generate an ideal size to suit your budget.

If you have a design you wish to build, you can send this to a QS to price up for you. This will give you a far better idea of cost based on your design. You can hire a QS or some brokers offer this as a service. It’ll be invaluable for your application process to have solid numbers but also to give a budget to work to when you’re getting quotes together as you begin building.

When applying for your mortgage, lenders will put your costs through their own QS to establish:

a) If your budget looks right

b) If the build cost and land value stack up against the completed project value.

 

What do I need to make my application*? How long will it take?

  • Your last three months payslips
  • Three months of bank statements
  • A list of all your outgoing
  • Proof of funds
  • Your build cost breakdown and timeline
  • Your design

*lenders may vary required documents.

Your broker/lender will be in back and forth discussions with you, questioning various elements from your outgoings through to the actual build costs themselves. The lender’s QS will visit your site, look at the costs and put an estimated end value on the project to establish if it all stacks up.

Applying for a self-build mortgage from being initially approved through to having the mortgage accepted can take up to six months; be prepared for a journey with a lot of scrutiny as it’s a high-risk lend so the procedure must insure against this risk.

 

How does the lending differ to a normal mortgage?

Depending on the lender, self-build mortgages are usually set up as interest-only over a two-year fixed rate of 4.6% – 6% (as of May 2019).

Upon completion of your build, you’ll move onto a normal mortgage which you can use a high street lender for, or, you can change to a domestic mortgage with your current lender to avoid the break fees.

 

What other costs are there?

Below is a working example of other costs which you’ll need to factor into your budget. These are upfront before you receive your mortgage (costs depend on your provider, broker and solicitor):

Before you start:
Mortgage application fee: £500.00
Valuation fee: £495.00
Total application cost: £995.0

When you start your build:
Mortgage costs when you go live:
Completion fee: £1,100.00
Title insurance fee: £78.40
Reinspection fee: £80.00
Reinspection fee: £80.00
Reinspection fee: £80.00
Reinspection fee: £80.00
Reinspection fee: £80.00
Mortgage discharge fee: £150.00
Brokers fee: £395.00
Legal fees: £360.00

Sub total: £1,305.00
+ costs added to the mortgage: £1,178.40
Total mortgage costs: £2,300.00
(including application costs, excluding costs rolled into your mortgage)

Other costs: (based on 140m2 floor space and £280,000 build cost)
Site insurance: £750.00 (over 12 months inc. tool and plant cover of £50,000)
Self-build warranty: £2,240.00 (10 years based on the footprint of build and materials you build with)
Solicitor fees: £2,500.00 (estimate)
Building regulations: £3,000.00
Building control: £1,500.00
Other costs total: £9,990.00

Total costs upfront: £12,290.00

Variable costs (an example from a case study)
Indemnity insurance: £4,100.00
QS report: £1,600.00

Indemnity insurance/additional security fee is applicable if you’re using a mortgage to buy the land. It’s required by the lender to protect the period from receiving the capital to purchase the land and owning the land.

 

Summary:

  • £2,000/m2 floor space as a finger in air build cost
  • Capital required: 15% of your total build cost and land cost
  • +/- £12,300 additional fees before you start

 

If you’d like to discuss your upcoming self-build project, from design and planning permission advice to construction, please call 01432 353 353 or email enquiries@oakwrights.co.uk.

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