Selfbuilding mortgages
Traditional Lenders
An existing property has a value on which a loan can be based, whereas a selfbuild property has a value which increases as the project goes along. For this reason, lenders release funds to self-builders in stages, which correspond to pre-agreed stages of house construction - for example, on completion of brickwork, the roof, the plastering and then once ready for occupation. 


The number of stage payments varies from lender to lender, although typically this is between three and six. Some lenders offer the first payment early on in the selfbuild (say, on completion of foundations) while others offer the first payment later on in the selfbuild (say, on completion of the roof). If the latter is the case, you will need to finance in the short-term everything up to roof completion stage. 


At each stage of construction, your lender will instruct a 'valuer' to report on the progress that has been made. If the stage has been completed to a satisfactory standard, then payment is made. This caused me cashflow problems during my selfbuild because at the end of the 1st stage the valuer put a figure of £13000 and I had spent £30000. This is where the  Accelerator  wins with positive cashflow.



The final payment is made once the 'valuer' establishes that the house is complete and the council's building control department has issued a completion certificate. 


Lenders do not offer funding for the full value of the property, but only up to a maximum percentage of its value. This percentage, known as a loan-to-value ratio, ranges from 65 to 95 per cent depending on the lender. 


The majority of banks and building societies offering self-build mortgages now lend toward the purchase of land too. You will be able to borrow a percentage of the value or a percentage of the purchase price, which ever is the lower, and this typically ranges from 25 to 85 per cent, depending on the lender. The  Accelerator mortgage enables selfbuilders to borrow up to 95 per cent. All lenders require the plot to have at least current outline planning permission, and many insist that detailed planning permission and building regulations approval has also been given. 


If you are planning to convert a run-down property into your home, then you may find that lenders turn down your mortgage application deeming your project a high-risk investment. In such situations, the Ecology Building Society and  Accelerator can help, as they specialise in funding conversion or ecological building projects. 


No two self build mortgage packages are the same, so it is important that you shop around and find a lender whose lending terms match your circumstances. An independent financial advisor could help you here. 


During the building work the majority of lenders charge on an interest-only basis, and the rate is usually a standard variable mortgage interest rate (often abbreviated to SVR). Once the house is finished, most lenders will let you re-mortgage up to 95 per cent of the completed value of the new property and then give you a choice of mortgage types, which would be available for any other house purchase. 


As with standard house mortgages, the maximum sum a lender is prepared to advance you is based on your ability to repay. This is worked out on multiples of the income of the people who will repay the loan. You will have to find the balance of the cost from your own resources, for the majority of self-builders this will be the equity from the sale of their existing house. 

Selfbuilding Mortgage Application Criteria

Although selfbuild lending criteria can vary, all banks and building societies will need a fully completed application form, supported by information about the house you wish to build or convert. They need this information in order to estimate the value of the completed property and thereby decide upon the maximum amount that they can lend you. This, in the main, includes: 

A copy of the detailed specification of the building. 
Copies of site and dwelling plans as approved by the local authority. 
A copy of planning permission approval with at least 18-24 months to run. 
A copy of current building regulations approval. 
A detailed costings sheet for the project. 
A build timetable with a completion date no more than six to 12 months from the date of offer. 
If you are using a builder, confirmation that they have the necessary insurance. 
Details of your structural warranty scheme. If an architect or building surveyor are issuing progress certificates, a copy of their professional indemnity insurance policy will be required. 
As with all mortgages, your lender will also be looking at your ability to repay your loan. Rather than approach lenders directly, it can save you time and effort consulting an independent mortgage broker or independent financial adviser, as they are in the best position to advise you on the different products available. When committing to a mortgage, make sure you fully understand the deal, the penalties and all other terms. 



House Building Costs 

Building your own home is about individuality, and this makes it impossible to give reliable, generalised figures on how much a project will cost. To work out the amount you will need to prepare your own budget. This should include the following:

Purchase of land. Buying a plot will be your first major expense. As with houses, land values vary enormously. Contact local estate agents or a land-finding specialist, like LandBank for an idea of plot prices in the area where you are planning to build. Traditionally, the rule of thumb is to spend around one-third of your money on the land and two-thirds on the build itself. When buying land, you will also need to budget for a soil survey. If your site is sloping and drainage could be a problem, then a land survey is necessary, and if you are converting an existing property, then a structural survey is essential. You will also have to budget for solicitors fees for the standard pre-purchase searches, stamp duty and interest rates on any money borrowed to purchase the land 

Professional fees. Before starting on the build, you will need detailed planning permission and building regulations approval, and this will require a detailed set of house plans. Many selfbuilders choose to have these drawn up by an architect, architectural technician or building surveyor. When submitting your planning application you will have to pay a statuary fee to the council, along with a separate fee for making a building regulations application. If obtaining detailed planning permission is a problem, then enlisting the help of a planning consultant is certainly worthwhile.
If you want, your architect, architectural technician or building surveyor can also be employed to tender the project to contractors, supervise the build and issue completion certificates. Recommended fee rates can be obtained from the Royal Institute of British Architects (RIBA) 

Accommodation. An estimated 75 per cent of selfbuilders have to sell their existing property to finance the build of their new home, and for many this means either renting a house or flat or buying or hiring a mobile home. If you are downsizing for the duration of your selfbuild, bare in mind that you will have to account for the costs of furniture storage in your budget. 

Insurance. You will need to budget for a site insurance policy and a structural warranty to protect your pockets against unforeseen problems both during the build and after its completion. 

Construction cost. Building and labour costs will depend entirely on your individual specification, including house size and choice of materials. For example, pan tiles are cheaper than hand made clay tiles, brick is cheaper than stone and softwood is cheaper than hardwood. Construction costs are also influenced by how you choose to carry out the project. If you employ an architect to oversee the build, then this is more expensive than if you do it yourself. Many selfbuilders save money by taking on the role of main subcontractor themselves - finding and buying the building materials themselves, recruiting the workforce, devising the selfbuild timetable and monitoring the cash flow.
Based on your house plans, an architect, building surveyor, quantity surveyor or main contractor will be able to work out a budget figure for construction costs. This figure will be based on a price per square foot. If you are building in timber frame, then your kit supplier will usually offer this service. Check carefully what items are included in such figures. Do they, for example, incorporate the specialist foundations your land surveyor informed you would be required? Many builders' merchants offer an estimating service on the cost of building materials alone.
Construction costs also include connection to the essential services - electricity, gas, water, drainage, telephone and highways. Contact each utility supplier for quotes in advance of buying your plot. 

Built-in contingency. Mortgage lenders recommend that you set aside at least ten per cent of your budget to meet unexpected costs. 


To work out your how much you will need to borrow to build your own home, you will need to calculate how much money you can put into the project. For most people their main asset is the equity they have in their existing house (i.e. the value of the house less the mortgage) plus savings and family loans. Once you have an idea of how much you will need to borrow, start speaking to lenders. 


Selfbuilding and VAT 


VAT is added on to the cost of certain goods and services and is charged by the companies who supply these. In the case of selfbuild this includes building materials and labour. 


Under the 'selfbuild' VAT scheme, administered by Custom and Excise, the construction of a new building for use as a private dwelling house for your own occupation is 'zero-rated' for VAT purposes. This means that the labour does not carry a VAT charge and any VAT paid on the purchase of building materials can be reclaimed. 


You can claim back on all building materials and permanent fixtures, like bricks, roof tiles, doors, windows and built-in systems, but cannot claim back on any items which can removed and taken with you if you move, like curtains, carpets and electrical and gas appliances. You will not be able to reclaim VAT on any professional services, such as those provided by architects or solicitors. For a list of what can and cannot claim on, contact your local Custom and Excise office. 


With conversion projects, the previous use of the building must have been non-residential, for example a barn, to fall within the 'selfbuild' scheme. A qualifying listed building will also be covered by the listed building VAT scheme. If you are renovating an existing house or plan to sell your house once it is completed then you will not be covered by the 'selfbuild' scheme. 


VAT should be reclaimed no later than three months after you have finished the construction of the house and received a completion certificate from the Building Control Officer. Once you have put in a claim, you will not get a chance to reclaim anything further. If you need to reclaim but cannot wait until after the decoration, buy your materials and then claim. 


For information about the 'selfbuild' scheme, including how and when to make a claim and what evidence is needed to support a claim contact your local Custom and Excise office. For information on Capital Gains Tax and Income Tax contact the Inland Revenue. 


Selfbuilding + Insurance


Before you start on your selfbuild project, it is important to arrange a suitable site insurance policy and structural warranty to offer you financial protection against unforeseen problems. 


Site insurance is made up of three elements: Public Liability, Employers Liability and Contractors All Risk. Public Liability covers you for any claim made against you by a third party who suffers loss or injury as a result of your building activities. This will cover people visiting your site, lawfully or unlawfully, who suffer loss or injury, or anyone outside your site, such as a neighbour, who suffers loss or injury. Employers Liability covers you for any claim made against you by someone working on site. However much a sub-contractor may assure you they are self-employed, the bottom line is that if they have an accident on your site, it is to you they will turn for compensation. You may not be directly employing them, but you are still deemed to have a contract of employment. Finally, the Contractors All Risk element covers you for the more unusual problems associated with theft, vandalism and storm, flood and fire damage. 


If you plan to either manage subcontract labour or carry out some of the work yourself, a site insurance policy is absolutely essential. If you plan to place a single contract with a builder to do all the work, and he carries all the relevant and necessary insurance, there is probably no need to take out additional cover. That said, if you have to put in a claim on the builder's insurance, you may find that his insurer disclaims all liability, especially if the invoices and contracts are not in his name. 


By running your own selfbuilding site, you are responsible for the heath and safety of others, and it is essential that Health and Safety legislation is followed to avoid the risk of invalidating your site insurance policy. Many site insurance policies provide no cover for your own injury, so take out a separate policy to cover personal accident. 


Site insurance does not cover for personal possessions, so when moving furniture etc. on to site, take out a normal household insurance policy. Some companies offer a discount voucher to those who convert from site insurance to household policies with them. 


In addition to site insurance, you will also need to take out a structural warranty. Structural warranties cover you against defects in the structure of a newly built or converted house, and are designed to prevent faulty workmanship in the design and construction of your new home from happening and to cover you if it does. The National House Building Council (NHBC) has a Buildmark warranty scheme that gives a 10 year structural warranty to those who use a NHBC registered builder. If you plan to either manage subcontract labour or carry out some of the work yourself, the Solo warranty scheme has been designed specifically for you. Other structural warranty providers include: Zurich Municipal and FE Wright. 

Your bank or building society will ask to see evidence of an approved structural warranty scheme in force on any home that is under 10 years old. Even if you do not need a mortgage, it is as well to ensure you are protected by a structural warranty. 


Selfbuilding how to save money

Choosing a mortgage company that will let you stay in your old house for the duration of the build will save money on temporary accommodation. 
Hiring subcontractors on a 'labour only' basis and buying the building materials yourself will reduce the costs of those materials by 15 per cent. (This is the typical mark-up added on by contractors who buy the materials themselves.) 
Negotiate a fixed price contract with your ground-workers as the foundations are the hardest part of a build to budget for. 
Drawing up an accurate and detailed budget will give you a set of yardsticks against which to judge estimates and enable you to monitor your cash flow better. 
Even if you don't plan to decorate your new house or landscape your new garden straight away, it is still worth buying what you need for these jobs (paint, paving etc.) in advance so that you can reclaim VAT on these materials. 
Buying rather than hiring equipment can save you money in the long run, and gives you the opportunity to sell it on once you have finished with it - occasionally at a profit. 
Open an account with three or four builders' merchants to ensure you get the best deals and most competitive prices. 
Going on-line means that you can compare prices over the internet and take advantage of the best prices.
Take advantage of the January sales, shopping then could save you a small fortune later on. 
Savings can be made by taking advantage of special show discounts at a national or regional Self Build Homes Show